By Pianpian Wang
Scams have become more and more prevalent across a number of industries, attacking under educated consumers who are willing to invest in seemingly lucrative solutions to the problems they care about most. In recent years, scammers have begun to target carbon credits, a component of national and international strategies to mitigate the increase of greenhouse gases (GHGs) concentrations. In this article, I will share some common scams with real stories, and will also give some tips to help you identify these traps.
Examples on Common Carbon Credit Scams
The examples below are selected from our inquiry box.
Example 1: In February 2012, Michelle purchased 2,000 carbon credits from a company. Unfortunately, the company is no longer in business. In 2019, she wants to see if her credits are ‘bogus’. The only information about this transaction is a certificate she received from the company, which simply lists the number of credits she purchased and shows that the project falls under the landfill gas category.
The certificate, however, did not contain the full name of the project nor the registered project number This made it impossible to verify that the landfill gas project actually ever existed, not to mention if the project has the qualification to issue carbon credits or that these credits are properly verified.
This case study shows a typical false selling of a project that may not even exist. Michelle is not alone. Victim buyers believe that they could earn money by purchasing carbon credits as an investment.
Example 2: Peter owns a piece of land in Ohio that is about 18,000 acres. The land is filled with trees and Peter decided to maintain the current status without cutting down trees. He received an email from a company that claims that they can help him develop a carbon credit project on his land. They informed him that through the establishment of such a project, Peter had the potential to earn 100 million USD every year. Luckily, he contacted us before working with the company.
This is a typical example of over-calculation of the number of carbon credits that are capable of being generated by a given project. Based on existing project data, 1 acre of land (with trees) can only absorb and reduce 1 to 2.5 metric tonne of carbon emissions. 1 metric tonne of carbon emission reduction is equivalent to 1 carbon credit.
The variation of emission absorption depends heavily on the species of tree planted. In other words, Peter’s land has the potential to generate at most between 18,000 and 45,000 carbon credits per year. Currently, the voluntary carbon market’s highest unit price per carbon credit is about $20, while the average is $12 per credit. Therefore, Peter’s estimated annual gross revenue is $900,000, not quite the $100 million he was promised.
Other Common Scams Types and Features
The case studies listed above are the most common scams that one may encounter via cold calls, emails and letters in an effort to sell fake credits or collect investments for pursuing project development. In addition to the examples above, there are projects that do in fact exist, yet do not perform proper retirement and certification procedures. Here are a few scams that you should be aware of:
Recycling or double selling carbon credits: it means the seller takes advantage of the unretired credits by selling allowances twice to unsuspecting clients.
Incomplete or wrong files to show a carbon credit project is registered and verified: it means the project does not have the required documents to show the legitimacy of the project.
Tips for Buying Carbon Credits
While this industry suffers from those intending to take advantage of an unfamiliar system, do not be discouraged from participating in legitimate markets. Carbon credits are an effective and innovative tool to fight against climate change impact. Properly certified credits provide an option to people and business who are concerned about this subject to take action to reduce their carbon footprint and restore the balance of nature.
Carbon credits have a set of clear metrics to measure the outcome of carbon emission reduction as well as other social benefits, such as community development, women education and job opportunity, as mentioned in my colleague Shannon Mora’s article. However, scammers have abused this effective tool, and thus leave the impression to the public that carbon credits are not trustworthy. Here is how to identify verified credits:
- 1. Take extra caution about forestry projects. Avoided deforestation is attracting substantial development financial aid, as well as increasing interest from the private sector. Therefore, forestry projects are one of the most popular project types used by scammers to implement their fraud. If a red flag pops up, you can also check if Redd Monitor already listed the scam.
- 2. Check if the carbon credit project is registered in the project databases run by the third party, such as Markit, VCS and Clean Development Mechanism Registry. If the project is not listed in the databases, forget about it.
- 3. Check if the company is properly established. You can run such research through state business registration online portal.
- 4. Use the Entrex Carbon Market platform to purchase carbon credit security offerings. The platform is under the Security Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA)’s supervision, which provides a secure and transparent way to trade carbon credits. You can even check if the company has a right to represent a carbon credit project. Carbon Credit Capital recently has joined the Platform to trade carbon credits to assure authentic and verified carbon credits to investors.
- 5. Talk to us if you are not so sure about the offer you are given.