VAT Scam Dogs Europe's Hot Air Trade
Carbon credit frauds have been the bane of the European Union Emission Trading Schemes (EU ETS) since its inception in 2005. Various forms of frauds that haunt the energy industry include lobbying for excess EU Allowances (EUAs) and the buying of false carbon offsets from third world nations. But tax evasion has really made regulators and governments in Europe hot under the collar and made them change their domestic laws in a hurry.
Four people were arrested in Belgium for evasion of VAT. The current scam was detected when a sharp rise in volume sales of the erstwhile dormant EUAs in May 2008 aroused suspicion of the authorities. Several hundred million EUAs changed hands within a few trading sessions in France and Denmark at a price of 12.5 Euro per allowance.
Europe's police, Europol, in a recent press release claimed that over €5 billion ($7.18 billion) had been lost in Europe from VAT evasion of in the sale of carbon credits during the past 18 months. It estimated that 90 percent of carbon trade volume is due to fraudulent transactions in some of the EU states.
All is not well with EU ETS 2, which has been updated after learning lessons from EU ETS 1 failures. Scam operators keep outwitting the slow-paced EU Government regulations, and spin money out of the "hot air" as the emissions trade is commonly called in the street smart trading circles.
After the failed Copenhagen summit of last month, we began an ongoing ten-part analysis, "Why COP 15 failed." We found that the lack of transparency haunts climate change not only in China and the G77, but in the US and EU too.
Despite tall-talking COP conferences, only 43% of the emissions were measured under the EU ETS 2 scheme in the UK. Nearly 57% of emissions were not within the Kyoto purview due to technology and legislation constraints. The measured emissions mitigated in the EU ETS scheme were a meager 3% as the UK issued 93% of free carbon permits to emitters in 2008. Even such low mitigation is dogged by carbon credit scams! The loser here: planet Earth.