A word of caution to all companies and organisations who will likely be liable to account for their carbon emissions under the Carbon Reduction Commitment (CRC) scheme, which comes into effect in 2010 (and there are +/- 20,000 of you out there).

If you are forced to buy carbon credits, in a market that is already worth over £80 billion despite not even having opened for business proper yet, be careful who you deal with; if you are a trader, your cash cow could turn into a barrel of sour milk.

As proof that nothing is sacred and everything, including climate change, is fair game for the fraudsters, it has come to light that a major VAT scam is operating concerning carbon trading; known as “carousel” VAT fraud or “missing trader” fraud, the fraudsters bring in the carbon credits, VAT free from member EU states, trade them over here to other (legal) traders (or sell them to companies) inclusive of VAT, then disappear. If you are the recipient, you would claim the VAT back from HMRC, leaving them out of pocket.

So far, the scam is thought to be worth around £1 billion to the fraudsters. It has brought the Emissions Trading Scheme (ETS) into further disrepute and the UN has even been forced to suspend accreditation of a number of companies dealing in carbon offsets. There is also a big sting in the tail for your company if you have already started to stock up with credits ahead of a CRC scheme that is still, despite some recent updates and clarification, not fully worked out.

HMRC is within its rights to require the company or trader to prove that it took reasonable care to check that it was dealing with a bona fide trading company, and withhold the VAT refund if not satisfied. In other words, you are assumed to be guilty unless you can prove your innocence. If you fail to satisfy HMRC, the cost to your organisation could be substantial, especially in a market where the price of credits is not based on any particular value and prices paid can vary widely.

The French Budget Ministry have responded to the problem by making carbon trading permits VAT exempt, after rumours of an attempted fraud on BlueNext, an environmental trading exchange. So far, this example has not been followed anywhere else and HMRC have merely stressed their commitment to bringing this fraud down by continuing to engage constructively in EU-level anti-fraud work.

Of the 20,000 or so organisations that will be liable to account for their performance from next April are many whose core competencies are not financial trading and they could be particularly susceptible to a sophisticated fraud.

It might be best use of resources to stop prevaricating and actually do ‘stuff’ to measurably and significantly reduce your carbon emissions and work toward to receiving credit refunds rather than having to purchase additional credits. If this story proves anything, it is that action is by far the best course and the time for talking about the issue of carbon emissions is now properly past.

If you still cannot mobilise your organisation into action, then at least make sure you employ creditable agents to complete due diligence and ensure you are not dealing with the fraudsters; your inability to reduce your carbon emissions is going to cost enough as it is without having to pay HMRC for your additional negligence.

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