Call it cap-and-fraud

Cap-and-trade, one method Canada will use to try and reduce its greenhouse gas emissions, is especially vulnerable to organized crime



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As Prime Minister Justin Trudeau and the premiers jostle on what carbon pricing in Canada will look like and how much it will cost us, a modest proposal.

We should rename the carbon pricing scheme known as cap-and-trade — which Quebec already has and Ontario will have next year — by what inevitably happens under it.

That is, cap-and-fraud.

Nothing disastrous has occurred in North America’s fledgling carbon market — yet — other than a recent crash in the price of carbon credits, which, while alarming, wasn’t due to fraud.

But Europe’s older and larger cap-and-trade market, the Emissions Trading Scheme, is overrun by fraud.

France, Poland, Italy, Denmark, Germany and the U.K. are among many European Union countries where billions of euros have been stolen by individuals and organized crime.

Inevitably, Canada will be drawn into this madness, if only to buy international carbon credits when our domestic schemes for reducing industrial greenhouse gas emissions linked to climate change fail, as they inevitably will.

Had Canada not withdrawn from the Kyoto protocol in 2011 after failing to meet our emissions targets under Liberal and Conservative governments, we would have had to buy up to $14 billion worth of international carbon credits to comply with the treaty.

Interpol identified 10 types of criminal activity in carbon trading in its June, 2013 “Guide to Carbon Trading Crime.”

It said while all stock markets are vulnerable to manipulation, cap-and-trade is particularly prone because:

“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.”

The stock used in carbon trading is a carbon credit or permit — created by governments which either give them away or sell them to major industrial emitters.

A carbon credit entitles the bearer to emit one tonne of industrial carbon dioxide or equivalent, on the theory another emitter didn’t.

Since CO2 is a colourless, odourless gas, it’s relatively easy to commit fraud. Interpol noted this can include:

“Fraudulent manipulation of measurements to claim more carbon credits from a project than were actually obtained; sale of carbon credits that either do not exist or belong to someone else; false or misleading claims with respect to the environmental or financial benefits of carbon market investments; exploitation of weak regulations in the carbon market to commit financial crimes, such as money laundering, securities fraud or tax fraud; computer hacking/phishing to steal carbon credits and … personal information.”

The Stockholm Environment Institute reported last year almost 75% of carbon credits generated by Russia and Ukraine could be fraudulent. There have been similar findings with regard to China, India and elsewhere.

The public pays the cost because carbon pricing increases the price of most goods and service, since most are made using fossil fuel energy. And if a carbon credit is fraudulent, there’s no lowering of emissions because of it.

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