Carbon Market Poised for Growth, More Cases of Carbon Credit Fraud

The fast-track growth of the global carbon trading market, which grew at a compound annual growth rate of 89 percent from 2005 to 2009, has also resulted in several carbon trading scams over the past year in the UK, Norway, Belgium, the Netherlands, and now Germany as European countries put more policing efforts in place.

Regulatory efforts to mitigate climate change have driven tremendous growth in the carbon market, rising from $10.9 billion in 2005 to $138.3 billion in 2009, according to a report from GBI Research, reports Commodity Online.

In 2007 and 2008, the market doubled each year thanks to the expansion of allowance markets, particularly for the European Union’s Emission Trading Scheme.

This changed in 2009 for several reasons: a global recession, declining carbon prices and lower oil and energy pricing. It also caused lower demand for carbon allowances as economic output dropped, resulting in much lower emissions than was predicted.

The global carbon trading market is expected to resume its growth path after 2012 and reach $1.2 trillion by 2020, driven by the EU’s initiatives to build a globally linked carbon market, the proposed U.S. federal cap-and-trade program and U.S. regional market trading mechanisms, according to GRI.

Europe dominates the carbon trading market with the EU Emissions Trading Scheme accounting for a 68 percent share, followed by the Clean Development Mechanism market, and the Regional Greenhouse Gas Initiative (RGGI), according to Point Carbon.

The total allowance market in the U.S., including allowance volumes from RGGI and the Chicago Climate Exchange, was 805 MtCO2e, valued at $2.5 billion in 2009, according to GRI. Trading of carbon permits under the RGGI rose 42 percent in the most recent trading session.

In Europe, law enforcement is faced with another case of carbon fraud. German prosecutors searched Deutsche Bank AG in Frankfurt as part of a raid of 230 offices and homes in Germany to investigate possible tax evasion linked to emissions trading, reports San Francisco Chronicle.

The prosecutor says it is investigating 50 companies and over 150 suspects, who may have purchased carbon credits from abroad then resold them without declaring or paying the appropriate sales tax. The loss is estimated at 180 million euros ($238 million).

The U.K., Australia, Belgium, Norway, France, and the Netherlands, are among the countries that investigated companies over the past year for “carousel fraud,” where traders buy and sell carbon permits, collect tax, but don’t forward it to authorities.

The UK has proposed a reverse payment scheme for value added taxes (VAT) on carbon trading to cut down on fraud.

Europe lost a total of 5 billion euros ($6.6 billion) in revenue for the 18 months ending in December 2009 because of VAT fraud, according to Europol, reports San Francisco Chronicle.