Germany Cracks Down on China Green Fraud in Deepening Scandal

(Bloomberg) -- German authorities have rejected €18 million ($20 million) worth of carbon credits after finding “irregularities” in China-based projects that were meant to lower emissions.

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But avoided-emissions credits have come under intense scrutiny in recent years after many projects were shown to have exaggerated their green claims. Countries globally have incorporating offsets into more regulated carbon markets, but experts warn such a move risks rubber stamping poor quality credits.

The malpractice identified by Germany’s Federal Environment Agency followed an investigation launched earlier this year and affects eight different projects in China, it said in a statement Friday. Authorities rejected 215,000 UER carbon credits linked to those projects, which had been previously authorized, and will continue to investigate similar initiatives.

“No new UER certificates from these projects will be released onto the market,” said Dirk Messner, the agency’s president. “The Federal Environment Agency will continue its investigative work at full speed on the basis of the findings now available from China.”

UERs currently trade at around €85 a ton of carbon dioxide equivalent, according to Argus Media, and reached peak prices of €440 a ton as recently as 2022.

Whistleblower allegations in January helped trigger the agency’s investigation, which will scrutinize another 13 projects in addition to the ones it has already disqualified. Globally, there are 75 UER projects, most of which are in China.

The agency’s statement hinted at some of the difficulty the market faces in uncovering fraud, including the fact that remote assessments using satellite imagery and desktop reviews of reports are often insufficient.

The agency has hired an international law firm, which is now physically visiting sites on-the-ground in China. However, only five of the 21 projects it is looking at granted the agency’s representatives unlimited access during inspection visits.

“For us, the refusal to carry out on-site inspections is a very strong indication that the project sponsors are either not prepared to fulfil their obligations or do not have the necessary control over the projects,” Messner said. “We will ensure that only legitimate UER certificates for new projects are placed on the market.”

The probe identified “serious legal and technical inconsistencies” in seven of the eight projects, which are operated by “large, international companies,” the agency said. The eighth project was disqualified for starting prematurely and not in accordance with the rules.

In parallel, Berlin’s public prosecutor is investigating 17 managing directors or employees of the verification bodies responsible for checking the UER projects on suspicion of “joint commercial fraud.”

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