FAQs - Carbon trading systems – open to fraud?
Q. It has been suggested to me that carbon trading systems are vulnerable to fraud. The commodity being traded is difficult to measure, arguably both sides in the transaction have an incentive to exaggerate the amount traded; and it must be hard for public authorities to verify or challenge those transactions. What systems are in place to prevent abuse of carbon trading systems, and what reassurance do we have that these systems are robust?
A. The European Union Emissions Trading Scheme (EU ETS) aims to promote the reduction of greenhouse gas emissions to help in combating the threat from climate change and it is the world's largest market for trading CO2 allowances.
At the end of each year, operators must ensure they have enough allowances to cover their installation’s emissions. They have the flexibility to buy additional allowances (on top of their free allocation), or sell any surplus allowances generated from reducing their emissions. These options create a flexible compliance regime for operators and also ensure emissions are effectively capped across the EU.
Industry operators have to submit annual verified emission reports and surrender formal allowances (EUAs) which match the amount of carbon dioxide emitted (each EUA is equivalent to one tonne of carbon dioxide). There are significant penalties for not surrendering sufficient allowances on time. Details of how the EU ETS works are available at: EU Emissions Trading Scheme
Page last modified:
22 February 2008
Page published: 22 February 2008