Page 89 - Carbon Frauds and Corruption

Corruption of Bribery

Chapter 6 : Corruption in the “Carbon World”

CERs and ERUs usually trade at a discount to EUA's. This is because of a perceived risk premium
associated with:

 the fact that only a limited percentage of CERS can be used for compliance purposes

 many CERs carry an associated delivery risk

 CDM projects may not be approved or produce the quality of the RA's anticipated
initiation

The object of the cap and trade schemes (such as the ETS) is obviously to make sure that the cost
of compliance credits rise, thereby encouraging operators to invest in new technology and to
genuinely cut carbon emissions. The economic tipping point ‐ to persuade companies to follow a
technical solution rather than an offset ‐ is said to be a carbon price of approximately €40 a
tonne. Prices are highly volatile and have never reached this level, mainly because of the over‐
allocation of AAUs.

The pricing of credits in the voluntary sector is also complex but prices are normally well below
those in the “compliance market” of AAUs, EAUs, CERS etc: again the problem is oversupply but
this time worsened by doubt over the authenticity of the underlying projects.

The UK government established a rating scheme – Quality Assurance Scheme – but this was inexplicably
abandoned in June 2011
110

12.2.7 Accounting for Credits
111
GAAP and IFRS are unclear on the way carbon credits should be recorded in accounting records
but the general approach is that they are entered at cost with profits being booked at the
realised sales or transfer price. Although this is seems a fair treatment it has the effect of creating
hidden reserves that can be used for both genuine and dishonest purposes, and especially for
bribe payment.

PRINCIPLE
The “Carbon World” has created new unregulated financial systems that are “perfect” for
processing bribes in any context

There are many ways that AAU/CDM accounting can be manipulated. For example:

 Project participants decide for themselves when they will submit Monitoring Reports
which are the basis for credit issuance. They can delay submission for as long as they like
thereby deferring income recognition

110 Private rating schemes are run by Idea Carbon and the International Carbon Reduction of Offset Alliance
111 As opposed to National Registry reconciliations and trading

C:\Cobasco\NEW BOOK ON BRIBERY AND CARBON\For Cobasco Web Site Remove Chapters\Chapter 6 Corruption in 71
the Carbon World for Gower.docx | OFFSET PROJECTS