Legal Commentary

Europol Reports Massive Fraud in the Carbon Credits Market

By Jim Lindgren

Europol, the European police consortium, has issued the following press release:

The Hague, 09 December 2009

Carbon Credit fraud causes more than 5 billion euros damage for European Taxpayer

The European Union (EU) Emission Trading System (ETS) has been the victim of fraudulent traders in the past 18 months. This resulted in losses of approximately 5 billion euros for several national tax revenues. It is estimated that in some countries, up to 90% of the whole market volume was caused by fraudulent activities.

Indications of suspicious trading activities were noted in late 2008, when several market platforms saw an unprecedented increase in the trade volume of European Unit Allowances (EUAs). Market volume peaked in May 2009, with several hundred million EUAs traded in e.g. in France and Denmark. At that time the market price of 1 EUA, which equals 1 ton of carbon dioxide, was around EUR 12,5.

As an immediate measure to prevent further losses France, the Netherlands, the UK and most recently Spain, have all changed their taxation rules on these transactions. After these measures were taken, the market volume in the aforementioned countries dropped by up to 90 percent.

With the support of Belgium, Denmark, France, the Netherlands, Spain and the United Kingdom Europol has set up a specific project to collect and analyse information in order to identify and disrupt the organised criminal structures behind these fraud schemes. There are reasons to believe that fraudsters might soon migrate towards the gas and electricity branches of the energy sector.

Mr. Wainwright, Director of Europol, says ?These criminal activities endanger the credibility of the European Union Emission Trading System and lead to the loss of significant tax revenue for governments. Europol is using its expertise and information capabilities to help target the organised crime groups involved?. Europol has therefore offered its support to the European Commission ? DG Environment to safeguard the integrity of the Community Independent Transaction Log.?

This is not terribly surprising, though I suspect that the problem is much more widespread than even this report alleges.

Full post as published by The Volokh Conspiracy on December 09, 2009 (boomark / email).