Wednesday, April 28, 2010

Another Big Nail in the Carbon Coffin; or is it a Stake Through the Chest of a Vampire?

Below is a story in it entirety regarding the carousel fraud involving the emissions allowances in Europe. 

As a carbon trader I have watched the carbon market get pummeled over and over again by scandals and economics. Mind you, I am not a religious zealot of the church of Kyoto. I am a cynical market participant with 20 years of trading, on three continents. Carbon was a new product in a place where I was at the right time. Now I am an 'expert'. 

But Carbon is like,... what? Kryptonite? Whoever handles it, gets weaker. 

Deutsche Bank, RWE Raided in German Probe of CO2 Tax (Update1)
2010-04-28 13:52:20.179 GMT

By Mathew Carr and Karin Matussek
    April 28 (Bloomberg) -- German prosecutors searched
Deutsche Bank AG and RWE AG in a raid on 230 offices and homes
nationwide to investigate 180 million euros ($238 million) of
tax evasion linked to emissions trading.
    The Frankfurt Chief Prosecutor's Office said it targeted
150 suspects at 50 companies and has frozen assets. Deutsche
Bank, Germany's largest bank, and RWE, the country's second-
biggest utility, said they are cooperating with the probe. They
aren't suspected of wrongdoing.
    The U.K., France, Netherlands are among nations that said
last year they were investigating "carousel fraud," where
traders buy and sell carbon permits, collect tax and disappear
before turning it in to authorities. Today's raid was the
biggest related to a fraud that may have tainted an estimated 7
percent of carbon trades in 2009.
    "We are glad to see that German authorities are taking the
necessary steps to deal with a fraud which has affected, however
unfairly, foreign perceptions of the EU emission trading
system," Henry Derwent, chief executive officer of the Geneva-
based International Emissions Trading Association, said in a
phone interview. The lobby group speaks for CO2 trading firms.
    Europe lost about 5 billion euros in revenue for the 18
months ending in 2009 because of value-added tax fraud in the
CO2 market, according to Europol, the law enforcement agency.
    "We're supporting similar investigations in other EU
member states," said Soren Pedersen, spokesman for Europol in
the Hague. He declined to elaborate.

                        Turning Higher

    EU carbon allowances for December rose as much as 0.5
percent to 15.28 euros a metric ton on London's European Climate
Exchange, reversing earlier losses. They traded at 15.13 euros
as of 2 p.m., bringing this year's gain to 22 percent.
    Deutsche Bank is cooperating with investigators and isn't
the focus of the probe, spokesman Ronald Weichert said by phone.
    RWE AG's Supply & Trading offices were searched, spokesman
Michael Rosen said today. RWE is cooperating with authorities,
and the company "hasn't been charged and is not under
suspicion," he said today in an e-mailed statement.
    The investigation concerns one company that had business
relations with RWE Supply & Trading in 2009, Rosen said.
     About 400 million metric tons of emission trades may have
been fraudulent last year, or about 7 percent of the total
market, including futures transactions, according to estimates
from Bloomberg New Energy Finance. BNEF is a unit of Bloomberg
LP, the parent of Bloomberg News.

                       Fraud Estimates

    Europol's estimate would indicate about 27 percent of the
market was fraudulent over the 18-month period, or 1.9 billion
tons. The comparison of the BNEF and Europol estimates is based
on a value-added tax of 17 percent, an average CO2-permit price
of 15.80 euros a ton and 7 billion tons traded in the period.
    The EU last month approved measures to fight value-added
tax fraud in the bloc's emissions-trading market, the world's
largets, by shifting the levy to customers. The law calls for
"optional and temporary" application of the reverse-charge
mechanism, which eliminates the need for the supplier to submit
the payment to the treasury.
    E.ON AG's energy trading arm hasn't been affected by the
investigation and no raids took place at its offices, said Jamee
Majid, a spokesman for the unit. EnBW Energie Baden-Wuerttemberg
AG spokesman Dirk Ommeln said the utility isn't affected and no
raids took place at its offices. Vattenfall AB's German unit
isn't affected by the investigations and no raids took place,
said Berlin-based spokeswoman Sandra Kuehberger.

                         Tax Evasion

   The Frankfurt Chief Prosecutor is investigating allegations
that firms may have evaded value added tax when trading emission
rights, Guenter Wittig, the prosecutor's spokesman, said today
in a statement.
    Prosecutors suspect "that emission rights were bought from
foreign companies and were sold via a chain of corporations for
the purpose to evade value-added tax," he said.
    The "VAT-carousel" led to the loss of 180 million euros in
tax revenue, and prosecutors froze money in accounts that may be
linked to wrongdoings, Wittig said. He declined to name the
account holders or say how much was frozen.

For Related News and Information: Emissions-trading stories: NI
ECREDITS BN <GO> Today's top energy news: ETOP <GO> Natural-
gas markets menu: NATG <GO> Link to Company News: DBK GR
<Equity> CN <GO>}

--With assistance from Ewa Krukowska in Brussels, Catherine
Airlie in London and Nicholas Comfort, Christiane Lenzner and
Angela Cullen in Frankfurt. Editors: Mike Anderson, Reed

To contact the reporter on this story:
Angela Cullen at +49-69-92041-158 or
Mathew Carr in London at +44-20-7073-3531 or

To contact the editors responsible for this story:
Stephen Voss at +44-20-7073-3520 or

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