IS CARBON CREDITS REALLY THE ANSWER ?

For a certain, highly influential, school of economists, the whole problem with the environment – the reason there’s air pollution and shitty water and pesticide contamination and industrial runoff – is that these things aren’t priced into any market. So when it started to become clear that climate breakdown constituted a global crisis, economists proposed creating markets for emissions. In the 90s, Europeans were adamantly against the idea; they wanted industries to be taxed directly for what they pumped into the environment. But in meetings leading up to the Kyoto protocol, American negotiators championed a suite of so-called flexible mechanisms, including carbon markets, and prevailed. (The US then refused to ratify the agreement.) European policymakers came around and created what’s known as a cap-and-trade system, which would eventually cover nearly half the emissions in the EU, including those produced by the energy sector, manufacturing and airline travel. The way the system was supposed to work was simple enough: the EU would set an annual cap on its overall emissions, then issue various emitters a certain number of EU allowances (EUAs). Each EUA would entitle its holder to emit one tonne of carbon. If a company had extra EUAs at the end of the year, meaning that it hadn’t emitted all the carbon it was allowed, it could put them up for sale, and companies that had too few EUAs could buy them. Companies could also purchase carbon offsets, which basically meant investing in sustainability measures in other countries. The plan was for Europe to issue fewer EUAs year over year, so it would become progressively more expensive to emit carbon. What made the market interesting to scammers was the potential for VAT fraud. To understand the scheme they cooked up, it’s important to know two things: because economic policies in Europe are aimed at facilitating trade across borders, VAT is waived on sales between EU member states. Also, since governments only want to tax the value added at each stage of the economic process, they credit or reimburse the buyers of certain products for the VAT paid to suppliers. VAT fraud has existed since the inception of Europe’s tax system. Mobile phones were once popular targets. Criminals imported phones from other EU countries, sold them to consumers with VAT tacked on, pocketed the tax, and disappeared. Or they used so-called carousel schemes, pretending to sell phones through a chain of businesses and requesting VAT reimbursements from governments at each point of sale. According to European law enforcement, VAT fraud involving mobile phones alone has siphoned billions of euros away from public budgets. In some cases, VAT scammers dealt in fake goods: the only things that were real about their schemes were the fleets of empty vans driven around to generate sham import and export records. The carbon market presented an unprecedented opportunity for VAT fraudsters. An EU Allowance was just a serial number on a computer. It could be transferred with the push of a button, and it could be bought and sold by anyone – companies in carbon-heavy industries, as well as traders and bankers speculating on price fluctuations for EUAs. This was music to the ears of the crooks and so a whole industry was created to the detriment of governments and the environment.