Copenhagen climate summit: Carbon trading fraudsters in Europe pocket €5bn

By Rowena Mason
The Telegraph
Dec. 17, 2009

Carbon trading fraudsters may have accounted for up to 90pc of all market activity in some European countries, with criminals pocketing an estimated €5bn (Ł4.5bn) mainly in Britain, France, Spain, Denmark and Holland, according to Europol, the European law enforcement agency.

The revelation caused embarrassment for European Union negotiators at the Copenhagen climate change summit yesterday, where they have been pushing for an expansion of their system across the globe to penalise heavy emitters of carbon dioxide.

Rob Wainwright, the director of serious crime squad, said large-scale organised criminal activity had “endangered the credibility” of the current carbon trading system.

“We have been talking to Europol over the last weeks,” said one EU senior delegate, after she was asked whether the European Union-run scheme was still viable. “We are making some fixes.”

Yesterday, the UK delegation released a paper calling for the “expansion of carbon markets”, in order to use the profits for a fund to help developing nations tackle climate change.

Suspicions about an unprecedented level of carbon crime over the last 18 months have led investigators to believe criminals are using “missing trader” techniques to buy up carbon credits elsewhere in Europe where there is a cheaper rate of VAT.

Then they sell on the credits in the UK, charging the domestic rate, and pocket the difference. This has been commonplace among trading of very mobile commodities across European borders, such as phones, computer chips and cigarettes.

British investigators made seven arrests earlier this year over a suspected Ł38m VAT scam.

The London platform, the ICE European Climate Exchange, where the big banks and energy companies tend to trade, is not affected by the fraud because it does not offer spot contracts – the only form of emissions trading on which VAT is payable.

But British traders can still defraud HM Revenue and Customs by buying and selling permits on other European exchanges.

Europol said it had reason to believe the sophisticated techniques developed in the carbon market could soon “migrate” to the gas and electricity sectors.

“It is estimated that in some countries, up to 90pc of the whole market volume was caused by fraudulent activities,” a Europol spokesman said, after Britain, France, Spain and the Netherlands

brought in emergency VAT suspensions on carbon allowances to limit the fraud this year.

Figures from New Energy Finance show the value of the global market falling from $38bn (Ł23bn) in the second quarter to $30bn in the three months to the end of September after several countries cracked down, with volumes falling from 2.1bn tonnes to 1.7bn tonnes.

Europol has now set up a special unit to “identify and disrupt the organised criminal structures behind these fraud schemes”.