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Not Speculation, Tax Fraud

February 4, 2010

‘Hot Air’ comments that my post defending emissions trading from accusations that it is ripe for evil carbon market “speculation” was not convincing because: 

Organized crime has fleeced $7.4 billion ober the last 18 months using the European ETS. This expenditure did not result in GHG savings, and indicates how open the whole scheme is to fraud, mismanagement and waste.”

But I think he’s missing the full story of how that fraud occured.

There’s no doubt that the “carousel fraud” in the EU ETS was bad news for the public image of carbon markets.

But I would caution against jumping to conclusions.

The EU ETS fraud  was actually a case of tax fraud, not gaming the market for carbon permits. Traders would sell permits with value added tax in countries that had VAT on carbon, not account for the VAT tax at the point of sale, and effectively rebuy the permits, account for VAT tax and demand a tax credit from the Treasury. Each time they kept the VAT refund.

As this article makes clear,

“This particular fraud costs billions of Euros to the EU finances every year in various markets. It is often organised on a large scale, sometimes by criminal organisations.”


“In order to allow Member States to take rapid action against this kind of fraud, the Commission has adopted a proposal for a Directive allowing the application of a reverse charge mechanism on supply of five categories of particularly fraud sensitive goods and services, namely: computer chips, mobile phones, precious metals, perfumes and greenhouse gas emission allowances.”

So surely this is not really an issue about carbon markets as a means to combat climate change – its about a broader exposure of EU markets to VAT tax fraud. Not surprisingly really, give that you’re trying to co-ordinate 27 member countries different tax systems!

Besides, the point is that the perpetrators were stopped, prosecuted, and the EU has taken quick action to fix the problem.


  1. rogerthesurf permalink

    With reference to global warming, which unfortunately so long as governments are considering Cap and Trade and CO2 taxes, is still with us.

    Incidently it is a serious error and tantamount to being a porky to say that warmer climates cause desertification.

    As the air warms there is more evaporation and therefore more precipitation including in the polar regions as snow. One should be aware that during the Holocene Optimum with temperatures significantly higher than the present, the Sahara Desert was lush and fertile.

    There might be global warming or cooling but the important issue is whether we, as a human race, can do anything about it.

    There are a host of porkies and not very much truth barraging us everyday so its difficult to know what to believe.

    I think I have simplified the issue in an entertaining way on my blog which includes some issues connected with climategate and “embarrassing” evidence.

    In the pipeline is an analysis of the economic effects of the proposed emission reductions. Watch this space or should I say Blog

    Please feel welcome to visit and leave a comment.



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