Carbon trading, up in “Smoke”

But, more than 3 weeks after the suspension, only 6 of the 30 national registries that comprise the system have reopened for business. Traders say the market is now ripe with distrust, as the thefts have battered the credibility of the EU’s chief instrument in the fight against Global warming.
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Stavros Dimas, then environment commissioner, predicted the system would become a model for the US, China and others. But even as EU leaders heralded the system’s success, criminals were infiltrating it. Some of the ruses were simple. In Hungary, for instance, allowances that had already been used mysteriously found their way back into circulation.

Other methods were more sophisticated. There have been dozens of arrests for elaborate tax fraud schemes involving the carbon market. The most common involved buying allowances in a country that does not impose value added tax (VAT) and selling them in another with the cost of the VAT included. Rather than handing the tax money to authorities, fraudsters pocketed it and filed for bankruptcy, or went missing. Interpol has concluded that the carbon market scam cost governments as much as €5B in lost tax revenue alone.

Such activities were made possible, in part, by lax security. In some countries, such as Denmark, opening an account at the registry was easier than opening a bank account, according to traders, “You could open one tomorrow if you applied tonight.”