ETS Scheme Suffering Endemic Fraud & Never Enforced
By Paul Homewood
The Telegraph’s Andrew Gilligan reports:
The EU’s main scheme for reducing CO2 emissions is almost never enforced, according to an official report by Brussels’ own spending watchdog.
Only one EU country inspected – Britain – makes on-the-spot visits to factories to check whether they are staying within their carbon limits under the scheme, the EU Court of Auditors found. Even the UK only checks 1 per cent of sites, down from 5 per cent before.
The auditors also said that attempts to stamp out endemic fraud in the EU’s flagship Emissions Trading Scheme (ETS), from which billions of pounds of “carbon credits” have been stolen by criminals, are “not adequate” and continue to leave “significant security weaknesses.”
The verdicts will be deeply embarrassing on the eve of the United Nations climate summit in Paris, where European leaders will claim the ETS as their flagship achievement to tackle climate change.
“The truth about the ETS is that it has completely failed,” said Raoul Ruparel, deputy director of the Open Europe thinktank.
“It has cost business money and done nothing to reduce CO2. It is based on a fundamentally flawed premise and as the latest report shows, all attempts to fix it are doomed. It is a hopeless case to take to Paris next week.”
The ETS is supposed to discourage large industrial plants from causing C02 by making them buy carbon credits. Each credit gives them the right to emit one tonne of C02. The more a factory or plant emits, the more it is supposed to pay.
However, the price of credits has crashed from a peak of Euro 30 (£20) to less than Euro 5 (£3.90) – all but ending the incentive for anyone to reduce their emissions – after the ETS was flooded with phony credits sold into the scheme from Russia and Ukraine, based on supposedly “carbon-reducing” activities that do not reduce carbon.
In some cases, chemicals known to warm the climate were created, and then destroyed to create the “credit.”
In other cases, credits were created from doing things that would have happened anyway, such as curbing coal waste fires, and represented no additional loss of carbon. Investigators found that 73% of such schemes “lacked integrity.”
According to a study by the Stockholm Environment Institute, the purchase of phony credits has “significantly undermined” efforts to tackle climate change and may have increased emissions by as much as 600 million tonnes.
The system has also been swamped with free credits given out to large polluters by the EU itself. Companies lobbied the EU for the giveaways to compensate them for the costs of the scheme. However, many have been given far more credits than they actually need to cover their existing CO2 emissions.
The auditors warned that even for businesses which do not benefit from free or phoney credits, there was little point in buying them because the system was barely enforced, with no checks carried out to see that factories were complying with the carbon limits they had purchased.
“With the exception of the United Kingdom, the Court found in the Member States visited that authorities did not perform on-the-spot visits in the context of the EU ETS,” the auditors said.
“No centralised statistics of EU ETS inspections could be obtained in any of the selected Member States, except in the UK. In the UK, the percentage inspection rate of installations reduced from approximately 5 per cent in 2008, to approximately 1 per cent in 2012.”
At least £14 billion has been lost to fraud since the scheme’s launch in 2005, according to one analyst, Marius-Cristian Frunza, author of the book Fraud and Carbon Markets.
Much was cross-border VAT fraud, where credits were moved from country to country and VAT refunds fradulently claimed on the transaction.
However, the Court of Auditors found that moves to stamp out this fraud by scrapping VAT on credits, or forcing the buyer to pay it, had not been adopted by a third of member states.
The auditors found that there was “no EU-level monitoring for potentially suspicious transactions” and even at the national level, regulators “cannot obtain a full picture in relation to any cross-border transaction they view as suspicious.”
In some EU countries, anyone could open a carbon trading account with as little as a name and an email address. In Denmark, 1,300 people opened accounts, as many as four-fifths of them fraudulently. When background checks were begun in 2011, the number of registered carbon traders dropped to just 30.
Reforms enacted in 2011 were supposed to make it harder to open new accounts. However, the report by the Court of Auditors found that new requests for account openings “were not being refused, even when this would have been justified.” Only three requests for new accounts were refused across all the EU countries examined, the auditors found.
A separate report by the international police agency, Interpol, found substantial fraud involving carbon credits, some of it involving leading financial institutions. British and German traders from the giant Deutsche Bank are currently facing trial in Germany for their part in a massive alleged carbon credit fraud.
An Interpol spokesman said: “Unlike traditional commodities, which at some time during the course of their market exchange must be physically delivered to someone, carbon credits do not represent a physical commodity but instead have been described as a legal fiction that is poorly understood by many sellers, buyers and traders. This lack of understanding makes carbon trading particularly vulnerable to fraud and other illegal activity.”
What is so depressing about this whole episode is that it was all so utterly predictable, as is the fact that the UK is the only country bothering to make any checks.
And the outcome? Honest companies are losing out, criminals and bankers make a fortune, bureaucrats have a field day, and emissions of CO2 go up!