Is financial trading of carbon dioxide offsets a smart way to reduce major greenhouse gas emissions or an opportunity for fraud and abuse?
For years, many interests have seen carbon trading, also known as “carbon offsets” – conceptually similar to the U.S. emissions cap and trade projects that accompanied the reduction in sulfur dioxide power plant emissions – as an environmental protection and business opportunity. An MIT analysis of the U.S. SO2 program commented that “it is often cited as an example for the control of other pollutants and of greenhouse gases.”
Bloomberg recently reported that at COP29 in Azerbaijan this month, countries will be “under pressure to advance the creation of a United Nations-backed market for trading carbon offsets between countries as well as companies wanting to meet climate goals.”
Bloomberg has also labeled carbon offsets as “junk,” examining the claim by Swiss banking giant Credit Suisse Group AG that all the CO2 emissions generated by its activities such as its real estate holdings and its vast jet travel agenda are counterbalanced by its investments in renewable energy projects. The investigation found, “A closer look at the Swiss bank’s sustainability reports tells a different story: its sweeping claim is based on purchases of low-quality carbon offsets that experts rate as useless.”
A series of U.S. government agency actions early last month – highlighted by a Nov. 1 report from the Breakthrough Institute – gave graphic evidence of just how fraudulent some carbon offsets have become. On Oct.2, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Justice Department filed coordinated fraud charges against carbon offsets trader C-Quest Capital and former executives Ken Newcombe and Tridip Goswami.
In a press release from the Southern District of New York, U.S. Attorney Damien Williams said that Newcombe and Goswami “engaged in a multi-year scheme to fraudulently obtain carbon credits by using manipulated and misleading data. They then sold those credits to unsuspecting buyers in the multi-billion-dollar global market for carbon credits. The alleged actions of the defendants and their co-conspirators risked undermining the integrity of that market, which is an important part of the fight against climate change.”
C-Quest founder Newcombe spent 30 years at the World Bank, where he developed the bank’s carbon trading program. He left to found C-Quest, a carbon brokerage headquartered in Washington, D.C. As Breakthrough Institute analyst Jessica Weinkle wrote, Newcombe also created “one of the market’s NGO regulators, Verra, the world’s largest organization that vouches for the quality of carbon credits for offsetting emissions.”
The basis of the firm’s claimed offsetting emissions was a project in sub-Saharan Africa, India, and Central America to replace primitive cookstoves with more efficient stoves. C-Quest claims it deployed 7.8 million “clean cookstoves” in those regions. The Justice Department indictment says the company was “fraudulently altering data to CQC’s cookstoves” to record increased fuel savings and “manipulating the data collection process to make it appear that more of CQC’s stoves were operational than was actually the case.”
These activities created “voluntary credit units” or VCUs that could be sold to entities seeking to offset their greenhouse gas emissions. The indictment said Newcombe and CQC deceived an unknown investor (“Investor-1”) “into agreeing to invest up to $250 million in CQC. The agreement included Investor-1 purchasing shares in CQC for more than $16 million.
An analysis by the Holland&Knight law firm warned, “This is the first enforcement action arising from carbon market fraud and represents a degree of coordination between the CFTC, SEC and DOJ. This is also the first case directly tied to the CFTC’s new Environmental Fraud Task Force. We expect this to remain an area of focus in a potential Kamala Harris administration.”
Bloomberg’s reporting indicates offsets retreats by major companies that had been in the market, including Delta Airlines, one of the biggest buyers of offsets. The news service said, “Delta is now among a growing list of major companies that have ended purchases of these cheap credits. Alphabet Inc.’s Google and EasyJet Plc have recently joined in the rejection of what had been an enormously popular approach to sustainability. Many of these companies are now focused on the more expensive task of reducing their own emissions.”
The Breakthrough Institute report concludes, “Frankly, carbon accounting fraud is a sideshow that reflects the interests of wealthy, market savvy people. Truly fraudulent is the idea that forest dependent, rural families living in mud huts is a good place to initiate an unregulated financial market with aspirations of decarbonizing a global economy that marginalizes the interests of these very same families.”
–Kennedy Maize
The Quad Report
To comment:
kenmaize@gmail.com
