There is no global regulator for carbon credits, which is what powers carbon credit trading scams.
What is carbon credit trading? Carbon credit trading began with the Kyoto Protocol.
Kyoto was an effort to reduce global greenhouse gas emissions. To accomplish that, Kyoto set a maximum amount of emissions for each industrialised country that signed the Protocol. The Kyoto euphemism for these caps, or quotas, is Assigned Amount Units (AAUs). Each AAU equals one metric ton of greenhouse gas or its equivalent. Every installation capable of producing carbon pollution in every industrialised country has a specific AAU. If the facility does not use up its AAUs in any given year it can sell the remainder to other polluters as carbon credits. An industrial plant that fears it may exceed its AAUs can buy extra ones in this manner. It can do that either privately or on the open market.
So carbon credit trading is, in simple terms, the buying and selling of AAUs. The operator of each installation now has to decide what is the most cost-effective way to reduce its total emissions. An operator can either use all its AAUs or sell them. If it sells them, it can earmark the money it earns to purchase industrial equipment that emits fewer pollutants.
How Do Carbon Credit Trading Scams Work?
Carbon credit trading scams usually ‘cold call’ potential investors. In other words, they phone you out of the blue. How do they find you? Your contact details might appear on a list they purchased from a retail source. Another option is to send out bulk emails or junk mail. They can even contract that out to third parties. At least one outfit was identified as having made cold calls, albeit while claiming to represent legitimate companies. Of course, they also pick up potential investors by word of mouth or at seminars or exhibitions.
Inevitably, the scammer will claim that, as a result of Kyoto, carbon credits are now the latest hot trend in commodity trading. That being the case, you shouldn’t miss out on the opportunity they offer. The scammer will then probably claim that he is working on behalf of a certain industry umbrella organisation committed to fighting pollution. He’ll say he’s selling the AAUs of a number of the organization’s members. Or he’s working on behalf of a manufacturer that needs quick cash to go ‘green’ by modernising its facilities. For that reason, the manufacturer decided to sell off its excess carbon credits. Either way, you’re in luck because you can pay bargain basement prices and then quickly flip the AAUs to another company that needs them. And you pocket the difference.
Keep in mind that scammers frequently use other terms instead of AAUs. The most common are carbon credit certificates, voluntary emission reductions and certified emission reductions. Some scammers may invite you to invest directly in a project that generates carbon credits. No matter how they disguise it, they’re all carbon credit trading scams.
How Do Carbon Credit Trading Scams Spread?
The main problem with trading in carbon credits is that there is no universal regulator. This, of course, is what powers carbon credit trading scams.
However, five legitimate independent exchanges do exist that trade carbon allowances:
- The European Climate Exchange (owned by Intercontinental Exchange, headquartered in Atlanta and traded on the New York Stock Exchange)
- NASDAQ OMX Commodities Europe (headquartered in Oslo and owned by Nasdaq, Inc., based in New York)
- PowerNext (headquartered in Paris and owned by The European Energy Exchange AG)
- Commodity Exchange Bratislava (a joint stock company registered in Slovakia)
- The European Energy Exchange (headquartered in Leipzig and owned by Eurex, the largest futures and options market in Europe, which in turn is owned by Deutsche Börse, a joint stock company that also owns the Frankfurt Stock Exchange)
Needless to say, none of these five engages in cold calling. Or scams.
Of course, individual investors who bought into carbon credit trading scams cannot sell or trade their carbon credits since their credits unfortunately never existed. They will eventually discover that they lost the money they thought they invested.
Do Carbon Credit Trading Scammers Get Caught?
In 2018, 36 defendants were tried in a Paris court for having run what was considered to be the largest ever carbon market trading scam that was ever uncovered. The defendants were accused of having bought carbon credits abroad, where they were exempt from VAT, and then reselling them in France, where carbon credits are not. But rather than pay the VAT they received from their buyers to French tax authorities they pocketed the money themselves, laundering it along the way from Paris and Marseille to Singapore, the Cayman Islands, Latvia, Cyprus, and New Zealand. The defendants were charged with making off with 1.6 billion euros between 2008 and 2009. Two were convicted and sentenced to prison terms of eight years each and we more for terms of up to nine years and fined one million euro.
A similar scam was uncovered in the United Kingdom in 2009. Scammers set up a series of bogus front companies to launder the carbon credits before selling them to a number of prominent financial institutions, including Deutsche Bank, the Royal Bank of Scotland (RBS) and Citibank. But the VAT the scammers collected was not transferred to British tax officials. The amount of money lost to the British treasury may be as high as £300 million. Due to the coronavirus lockdowns and general economic slowdown of 2020, the carbon credit trading market took a serious hit, so carbon credit scammers probably moved on to other illicit ventures while they are waiting for the global economy to kick back into gear.
In 2021, a British citizen was extradited from Spain to the United States and charged with wire fraud and money laundering. He was the second person arrested in connection with a telemarketing scheme that sold fraudulent carbon credits to victims in the United Kingdom.
If you think you’ve been the victim of a carbon credit trading scam, contact the fund recovery experts at MyChargeBack.