We open by framing what this issue means for countries like Liberia and for firms watching global markets. Europe exposed a major fraud in the EU Emissions Trading System when criminals exploited VAT rules on EU Allowances (EUAs) via platforms such as Powernext.
That episode showed how immaterial credits can move online and vanish before authorities catch the trail. Early REDD-style offsets also raised doubts when preservation promises proved hard to verify.
We argue that weak registries and opaque trading make it easy for outside actors to control land under the banner of climate change. This can leave actual emissions unchanged while money flows through intermediaries and shell entities.
Our view is clear: we support meaningful climate action, but we call out structures that let funds move without durable, measurable results. In the sections ahead we will explain how companies, investors, and governments can spot risky projects and protect sovereignty and communities.
Key Takeaways
- Historic fraud in Europe used VAT gaps and weak oversight to exploit EUAs.
- Immaterial credits and poor registries let bad actors move instruments across borders fast.
- REDD-style doubts show how conservation claims can lack verifiable results.
- We recommend rigorous due diligence to reduce reputational and financial risk.
- Stronger national guardrails can protect Liberia from exploitative projects.
What do we mean by a carbon scam in today’s carbon markets?
We examine the gap between paper-based mitigation claims and what actually happens on the ground.
How “credits” tied to emissions reductions can be falsified
We define a scam as deliberate misrepresentation of traded instruments so claimed emissions reductions do not match real outcomes.
Many credits rest on modeled baselines. Those models can be inflated, creating instruments for benefits that never occurred.
The voluntary carbon market lacks a single standard. Multiple private protocols apply different scrutiny, so projects can shop for lenient validation.
Why opacity and weak oversight fuel fraudulent activities
Fragmented registries and shallow verification make it easy to create ghost credits and misreport baselines.
Investigations found large overstatements in some rainforest credits—over 90% in one analysis did not align with real reductions.
That hurts companies that rely on polished documentation and seals which may not ensure integrity.
| Risk | How it happens | Impact |
|---|---|---|
| Ghost credits | Duplicate listings across weak registries | Overstated supply, market confusion |
| Inflated baselines | Optimistic modeling of deforestation risk | False emissions reductions |
| Lenient validation | Shopping for soft standards | Lower integrity offsets |
We must validate how projects quantify reductions, not just that a credit appears on a registry. Weak transparency diverts funding from real greenhouse gas mitigation and raises legal and reputational risks. In later sections we outline enforcement changes and due diligence steps to reduce these fraudulent activities.
How carbon markets and carbon offsets work in practice
This section breaks down how tradable reduction units are created, issued, and traded across public and private systems.
Compliance vs. voluntary markets and how credits are issued
We distinguish compliance markets—mandated by law—from voluntary platforms where companies buy credits to meet internal goals.
In compliance systems like the EU ETS, regulators set a cap on total permitted emissions. Authorities allocate or auction EU Allowances (EUAs) and firms must surrender enough to match their measured greenhouse gas emissions.
Voluntary programs issue private credits for specific project activities: renewables, avoided deforestation, methane capture, or industrial energy efficiency. Each verified reduction maps to one tradable unit, usually one ton of CO2e.
Cap-and-trade basics, EUAs, and emissions accounting
A cap-and-trade system lowers the cap over time to tighten supply. EUAs can be traded, banked, or used for compliance at year end, which creates liquidity and a market price signal.
Emissions accounting converts project outcomes into tons of CO2e. Credits appear as registry entries with serial numbers, making transfers instant but also more vulnerable when oversight falters.
“All trading schemes treat reductions or removals as tradable units, typically one ton of CO2e per credit.”
| Mechanism | Where fraud risk appears | Why it matters |
|---|---|---|
| Issuance of credits | Unverifiable baselines, weak monitoring | Overstated reductions |
| Registry transfers | Poor traceability, duplicate entries | Double use or ghost credits |
| Corporate use | Mixing allowances and voluntary credits without reconciliation | Misstated footprints |
We note that companies often blend internal abatement, compliance instruments, and voluntary purchases while investing in longer-term energy transitions. Proper reconciliation—matching inventory emissions to surrendered allowances and retired credits—is essential to prevent double counting.
The carbon scam: common schemes undermining trust
Below we map the main tricks that let low-quality instruments trade as credible mitigation. These patterns erode investor confidence and weaken real emissions action.
Ghost credits and overstated baselines
Ghost credits come from projects that never operated or delivered a fraction of promised benefits. Investigations found more than 90% of some rainforest offsets lacked measurable impact, often because baseline deforestation risk was overstated by ~400%.
Double counting across registries and jurisdictions
Poor registry reconciliation lets the same reduction be claimed by multiple actors. Double counting can occur between private programs and national accounts, creating false supply and misleading corporate claims.
Wash trading that inflates trading volume and price signals
Wash trading fabricates liquidity. It boosts apparent trading volume, distorts prices, and masks low-quality supply in the market.
- We link overstated models to offset fraud and to weak retirement controls.
- Fragmented data and thin audit trails enable repeat issuance or reuse of serial numbers.
- Stronger monitoring, cross-registry checks, and standardized reporting are essential before relying on any carbon offset or carbon credit.
Notable cases: from EU VAT carousel fraud to the Verra controversy
We review two high-profile episodes that exposed deep weaknesses in trading and project validation.
How VAT loopholes enabled “fraud of the century” in EU trading
Fraudsters exploited cross-border VAT rules by buying EU Allowances VAT-free, selling with VAT on platforms like Powernext, then disappearing before tax authorities could collect. The immaterial, serial-numbered permits moved fast across accounts, which made tracing difficult.
The result: billions siphoned through carousel schemes that used intangibility and rapid transfers to mask theft. That episode shows registries and tax systems must be aligned for digital instruments.
Verra rainforest credits and questions of additionality and value
Independent analyses found many rainforest units did not reflect real emissions reductions. In some reviews, over 90% of studied credits showed limited impact because baseline deforestation risk was overstated by roughly 400%.
That raised serious additionality concerns and forced certifiers and buyers to tighten procurement criteria. The news dented market confidence and highlighted that price alone is a poor proxy for integrity.
- Lesson: verification, tax coordination, and public data are essential.
- Risk: weak units can inflate corporate emissions claims and misdirect finance.
- Way forward: stronger governance, transparent registries, and rigorous checks.
“When tradable permits behave like intangible tokens, oversight must move at digital speed.”
Verification processes, additionality, and permanence: do current safeguards work?
We review whether existing safeguards actually stop bad actors and protect real emissions reductions. Multiple private standards and varying protocols create gaps that projects can exploit. That risk matters for companies, governments, and communities seeking measurable climate outcomes.
Why multiple standards in the voluntary carbon market create risk
Inconsistent rules let developers shop for the easiest path to issuance. Some protocols demand rigorous field monitoring; others accept model-only baselines. This unevenness weakens trust and enables fraudulent activities.
Key vulnerabilities include weak additionality tests, short monitoring windows, and auditors with commercial ties to project owners.
What better monitoring, reporting, and registry controls should look like
Stronger practice combines conservative baselines, continuous remote sensing, and independent audits. Companies should ask for raw activity logs, third-party meter data, and clear monitoring plans before purchase.
| Area | Current gap | Recommended fix |
|---|---|---|
| Verification processes | Variable rigor, conflicted verifiers | Independent rotation, accreditation audits, public raw data |
| Registry security | Poor authentication, duplicate entries | Strong auth, transaction monitoring, whitelists |
| Permanence | Weak reversal rules | Reversal buffers, insurance, clear invalidation triggers |
We note the EU Carbon Removal Certification Framework as a useful harmonizing step. Harmonized data fields would enable automated cross-checks and reduce repeat issuance. Buyers should use a checklist to test integrity and demand transparency before relying on any carbon offset.
What changed at COP29? Article 6.2 and 6.4 rules explained
COP29 set a new baseline for transparency by requiring consolidated authorization records.
Public disclosure, consolidated accounting, and UN oversight
Article 6.2 now forces states to publish approvals and to submit authorizations through a consolidated accounting platform. This raises cross-border traceability for traded units and aims to cut overlapping claims.
Article 6.4 operationalized a UN Supervisory Body. The Body will oversee stricter monitoring, reporting, accounting, and reversal and leakage notifications.
New requirements on reversals, leakage, and authorization transparency
The rules require timely notification of reversals and leakage and stronger methods to link traded units to national inventories. That reduces mismatches between country accounts and market transfers.
“Buyers and companies must document authorizations and disclose whether units carry corresponding adjustments.”
| Change | What it requires | Why it matters |
|---|---|---|
| Public approvals | Publish authorizations on consolidated platform | Limits overlapping claims |
| UN Supervisory Body | Central oversight of reporting and reversals | Higher market confidence |
| Machine-readable data | Registries must offer structured exports | Supports independent verification |
- These updates should align national emissions inventories with traded units and tighten claims by companies.
- Critics still question enforcement and cross-jurisdiction penalties.
- We advise buyers to track implementation timelines and reconcile authorizations with national reports.
Enforcement is catching up: U.S. CFTC actions and Germany’s biodiesel/UER probes
Regulators are starting to step in where markets once self-policed, changing enforcement dynamics fast. These actions signal that data trails and supply chains will face closer scrutiny.
CFTC’s first voluntary carbon credit fraud case and remedies
On Oct 2, 2024 the U.S. CFTC filed its first enforcement action in the voluntary market. The agency alleged a developer submitted false registry data from 2019–Dec 2023 to obtain an excess amount of credits.
Remedies included a civil penalty and canceling or retiring the disputed credits. Damaged buyers may now seek civil recovery, which raises litigation exposure for sellers.
German GHG quota market disruptions tied to mislabeled biodiesel and UER projects
In Germany probes into mislabeled biodiesel—suspected palm oil relabeled as used cooking oil—and questionable UER projects drove GHG quota prices down from above EUR450/ton (end 2022) to about EUR80/ton (Jan 2025).
Authorities froze UER accounts and withdrew certifications, showing how enforcement actions can collapse price and trust across trading platforms.
“Enforcement will increasingly examine meter-to-registry data, not just final certificates.”
- Regulators now target false reporting and weak verification in the voluntary market.
- Companies should keep auditable records, pre-screen suppliers, and add clawback terms in contracts.
- Enforcement in one jurisdiction can ripple through global portfolios and change risk calculus.
| Action | Where | Impact |
|---|---|---|
| Civil penalty & retirement | U.S. CFTC case | Reduces issued credit amount, raises seller liability |
| Account freezes & withdrawals | Germany (UER, biodiesel probes) | Price collapse, market disruption, certification loss |
| Litigation risk | Buyers worldwide | Potential recoveries, contract disputes |
Why we call it climate colonialism: risks for Liberia and other Global South nations
In Liberia and similar countries, offset deals can reshape who controls forests and who benefits from natural resources.
REDD+-style projects sometimes grant long-term rights tied to future credits. Early models overstated deforestation risk and issued units without verifiable on-the-ground results. That pattern can transfer de facto land-use control to external actors.
How investor claims and project design can externalize local costs
When investors buy rights to future credits, they can limit local choices on agriculture, energy, or infrastructure. Contracts may restrict farming or pipeline siting to protect projected emissions reductions.
Inflated baselines and weak monitoring can produce payments while communities see no real emissions benefit. That erodes trust and can mask market failures or outright fraud.
Setting national guardrails to prevent extractive projects
- Require public contracts and centralized registries so deals are transparent.
- Make free, prior, and informed consent mandatory for affected communities.
- Mandate independent social and biodiversity audits and leakage monitoring.
- Prohibit tying national energy or natural gas planning to offset finance that shifts risk to locals.
- Prioritize domestic abatement and sector reform before commoditizing credits for export.
We argue that clear tenure, benefit-sharing, and grievance processes protect sovereignty and the long-term integrity of climate action. Good guardrails keep projects from becoming tools of extraction and support real emissions outcomes for host nations.
Signals investors and companies should scrutinize before buying carbon credits
A short checklist can help investors and companies avoid buying instruments that offer little real benefit.
“Do not rely only on seals — probe the numbers.”
Purchasers often lack visibility into reduction methods and may over-rely on accreditation. New reporting rules — EU CSRD/ESRS and California VCM Disclosures — raise disclosure duties. Guidance from the CFTC and updates to the FTC Green Guides are changing the market, while SEC rules remain contested.
Before purchase, we verify methodology rigor, conservative baselines, monitoring frequency, and third-party audit quality. We check registry lineage and whether corresponding adjustments apply for public claims.
- Assess value beyond price: require evidence for co-benefits, not marketing copy.
- Flag weak signals: vague descriptions, opaque data, frequent methodology changes, or hidden risk buffers.
- Match types of carbon instruments (reductions vs removals) to the buyer’s emissions goals.
- Triangulate impacts with satellite data, meter logs, or independent datasets.
- Include legal warranties, indemnities, and procurement site visits in contracts.
We also advise governance steps: assign executive ownership, board oversight, and integrate verification processes into procurement and disclosure readiness.
Tools to reduce fraud exposure: due diligence and transparent claims
We offer a compact toolkit for due diligence, registry security, and transparent disclosure. These steps help protect companies and public bodies from fraud and from buying low-quality credits.
Project checks and registry traceability
Verify original documents: require project design documents, monitoring reports, and verifier statements. Ask for serial-level links from issuance to retirement.
Cross-check registry entries and request corresponding adjustments where national inventories may overlap. This limits double counting and confused claims.
Security, contracts, and portfolio rules
Follow public guidance—use allowlists, multi-factor authentication, and transaction alerts for registry accounts. These reduce account takeover and wrongful transfers.
| Area | Minimum step | Why it matters |
|---|---|---|
| Due diligence | Raw docs, verifier notes, site logs | Detects inflated baselines and early warnings |
| Registry controls | MFA, allowlists, transaction alerts | Stops unauthorized transfers and ghost issuances |
| Contracts | Quality thresholds, substitution, clawbacks | Gives buyers remedies if offset fraud is found |
| Portfolio risk | Stress tests, avoid concentration | Limits losses from enforcement or method changes |
Disclosure, risk language, and governance
EU CSRD/ESRS and California’s disclosure law now require firms to report voluntary purchases. We align internal records with public statements to avoid misstatements.
Add risk-factor language to investor materials about verification uncertainty and potential invalidation. We also recommend independent re‑verification for high‑risk projects and an internal watchlist for red flags.
Finally, assign clear roles, document the process, and review controls annually so our system stays resilient as the market and trading rules evolve.
Market reality check: trading, news, price swings, and what drives value
Price swings in the trading arena reveal which instruments carry real mitigation and which trade on narrative alone. We look at how market signals, media reports, and enforcement shape value and liquidity.
How credit quality, co-benefits, and verification impact price
Quality matters. Methodology risk, verification depth, and additionality confidence drive buyer willingness to pay. Credits with measurable co‑benefits often sell at a premium.
Data point: one analysis found units with at least one verified co‑benefit sold for about 78% higher prices on average. That premium only holds when measurement and certification are credible.
When trading activity masks low-integrity credits
High trading volume can mislead. Wash trading and rapid flipping can inflate perceived demand and distort price signals.
Enforcement news can undo that illusion fast. Germany’s GHG quota shock shows how probes and alleged noncompliant options can collapse price and liquidity.
- Drivers of price: methodology risk, verification depth, permanence buffers, and co‑benefits.
- Look through discounts to assess underlying quality indicators before buying or selling.
- Build diversified portfolios across methodologies, geographies, and developers to reduce correlated integrity risk.
- Monitor registry notices, verifier updates, and policy shifts as leading indicators of repricing.
“We must value verified outcomes over headline prices when aligning sustainability with risk control.”
Conclusion
In conclusion, we focus on concrete actions that align procurement, disclosure, and governance with verified climate results.
New rules from COP29, U.S. CFTC actions, and recent German probes show enforcement is shifting the market toward greater transparency. EU CSRD/ESRS and California disclosures raise expectations for companies and investors.
We urge prioritizing real emissions abatement and high‑integrity carbon offsets over paper claims. Balance internal reductions, removals, and limited high‑quality offsets, and account openly for any natural gas use and gas emissions.
Vigilance matters: diversify sources, require audit‑ready documentation, set pause triggers when news questions a category, and strengthen national guardrails to protect host communities.
Integrity is a sustainability and business imperative. We invite readers to use our checklists and signals to reduce exposure and improve decisions across carbon markets.