Page 88 - Carbon Frauds and Corruption

Corruption of Bribery

Chapter 6 : Corruption in the “Carbon World”

The bottom line is that most offset projects rely on the honesty of blue‐collar workers who record the parameters
(such as meter or weighbridge readings, acid volumes and concentrations) on which credits are based. They work
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in countries high on Transparency International’s list of the most corrupt and their remuneration may barely
exceed survival level.
12.2.4 Host Country Approval
The majority of offset projects take place in countries in which corruption, if not endemic, is
highly likely. Thus developers and promoters, who fight for "low fruit” projects, are exposed to
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extorted demands or tempted into paying bribes to obtain host country approval.
In July 2010, a British man, with a less than an impeccable track record, was arrested for allegedly promising a
$2million bribe to politicians in Liberia to secure $2 billion carbon offset project based on the country’s rain forests.
There is some dispute over whether the contract was signed or not, but Liberia guaranteed that if the entire $2.2
billion target was not achieved it would make up the shortfall. Liberia’s GNP is estimated at $1.6 billion.

12.2.5 Downstream Processes
Issued credits are entered into a register in the name of the principal participants and used for
compliance or CSR purposes, sold to a broker, over the counter to a third party or listed on a
trading platform. The term “primary market” relates to sales by the project participants directly
to a third party and “secondary market” where they are resold, often through an exchange or
aggregator.

Many large project developers are associated with carbon finance houses (sometimes called
“aggregators”) or banks who act as wholesalers. Sometimes CERs and other credits are sold well
in advance of their possible delivery dates and may be used as “hedges”, futures, options,
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forwards and derivatives in both the primary and secondary markets and they may be listed on
more than one exchange. There is a risk that both valid and retired credits can be sold through
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more than one market: this happens or they may be used more than once in different
compliance schemes.

12.2.6 Pricing of Credits
Patricia Adams, Executive Director of Probe, a Canadian independent advisory group, summed up
the position on carbon credits thus:

“In the final analysis, carbon markets are political constructs, where the “underlying” is a dematerialised
allowance certificate as opposed to a physical commodity, controlled by politically empowered regulators who
will be gatekeepers to a multi‐trillion dollar market. The regulators themselves will become too numerous to
regulate. This then becomes the tried and tested recipe for good old‐fashioned, widespread corruption

106 Such as Korea, China and Brazil
107 Since most of these developers and promoters provide services for UK businesses bound by the Bribery Act, the risks
are very significant.
108 See the CERPSA web site for standard CER contracts
109 See the Hungarian case page xxx

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