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Why doesn’t VCS warn against buying carbon credits as an investment?

There are many reasons not to buy voluntary carbon credits as an investment. The price is likely to fall over time. There is no secondary market. And you’re more than likely to be ripped off when you buy carbon credits.

The sums of money involved are large. Recently, two people in the UK were jailed after defrauding people out of £6 million for carbon credits. MH Carbon, which is in liquidation, sold carbon credits to more than 5,000 people, at a total cost of £18.7 million. World Future, also in liquidation, scammed £2.5 million from the public for what the Insolvency Service described as “near worthless carbon credits”. Another company in liquidation, Hildon Green Energy Markets, raised at least £3 million from sales of carbon credits.

This is only the tip of the iceberg. Over the last few weeks, I’ve noted down the names of similar companies – there are currently around 50 companies on the list. And even this is only the tip of the iceberg.

Many of the companies that sell carbon credits as “investments” use the fact that the carbon credits they are selling are certified to the Verified Carbon Standard (VCS) to prove that they are genuine and valuable. For example, on its website, MH Carbon quotes from a VCS press release to answer the question, “Why MH-Carbon uses VCS standard credits”:

VCS was founded to provide a robust quality assurance standard that projects could use to quantify greenhouse gas emissions and issue credits in voluntary markets. From its early days, VCS has grown into a comprehensive GHG program that is steadily evolving in response to market needs.

VCS has a mission statement that explains (among other things) that VCS provides “a trusted, robust and user-friendly program that brings quality assurance to voluntary carbon markets”. Which is just the kind of statement that a carbon credit boiler room operation would want to reassure a potential buyer of carbon credits.

VCS even has a page on its website titled, “Where can I buy VCUs [Verified Carbon Unit]?” VCS explains that, “VCUs can be bought directly from projects, carbon aggregators, retailers or exchanges.” However, VCS provides no warning about the risks of being ripped off if you buy VCS carbon credits, instead declining to provide any advice at all, “VCS is not an investment firm, and as such, does not provide any direct advice on the purchase or trading of VCUs.”

Given the scale of the carbon credit boiler room scam, this seems grossly irresponsible. APX, one of the registries for VCS carbon credits, has the following statement on its website:

Should I invest in VCUs?

 
Unlike instruments approved for use in compulsory carbon cap and trade programs, no entities are required to purchase and retire voluntary carbon offsets. Entities that voluntarily seek to offset their GHG emissions footprint (such as corporations, governments and individuals), project developers, traders and investors are active participants in the VCU market. Therefore, there is little ability to accurately forecast demand and supply in the voluntary carbon offset space. As a result, APX strongly believes that VCUs are not suited for individuals to target as a short, medium or long-term investment. Our view is shared by the UK Financial Services Authority as well as the International Carbon Reduction and Offset Alliance.

REDD-Monitor has written to VCS, suggesting that VCS should post this or a similar warning on its website – with a link from the VCS home page.
 


PHOTO Credit: A Hudson Forbes employee is searched. George Jaworsky.
 

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16 Comments

  1. It will be interesting to see what VCS has to say

  2. I received a response from VCS yesterday. I am, apparently, “off base”.

    Garrett Russo, Communications Director at VCS, seems to have missed the point. I wasn’t accusing VCS of being complicit with the boiler room carbon credit companies. I thought my request that VCS posts a warning about investing in carbon credits was easily met and could help to stop the abuse of VCS certification currently carried out by boiler room carbon credit companies. VCS appears not to agree.

    Here is the email from Garrett Russo:

    From: Garrett Russo
    Date: 21 May 2013 02:40
    Subject: RE: VCS, carbon credits and boiler rooms
    To: reddmonitor

    Chris-

    Thank you for reaching out. I have always enjoyed reading your blog, as often you offer some very interesting insights for the carbon community as a whole to consider. However, in this instance, you are off base; something I would have gladly helped you out with had you chosen to contact me before you published, instead of after.

    Your allusion to the VCS mission statement being fodder for boiler rooms is at best irresponsible conjecture. As you well know, the VCS has become the dominant voluntary standard in the carbon market by ensuring the validity of our credits. As such, any buyer of a VCU can be assured that one Verified Carbon Unit (VCU) is equivalent to one tonne of CO2e being removed from the atmosphere. For you to suggest that the VCS is in some way responsible for third party actors misrepresenting the VCS mission to suit their needs to fourth parties is disingenuous, although it is worth noting that this is exactly what you yourself are doing in this instance.

    In the same vein, you have cherry-picked a very small section of the VCS website regarding the purchase of VCUs, and passed it off as the whole story: it’s not. There are very clear warnings for potential buyers of VCUs, including recommendations for how to find a trusted seller of VCUs on that page. However, if someone as informed as you can misconstrue the information, perhaps we should revisit it, so thank you for bringing it to our attention.

    As we have always said (and as I would have told you had you contacted me prior to publishing) the VCS is not an investment firm, and as such, does not offer any advice to potential investors. Whether or not a speculative investment in VCUs will one day pay off years, or decades down the line is not for us to say. People are free to invest their own money as they see fit.

    However, I can say unequivocally that hard sell tactics and boiler room type solicitations have no place in the carbon market, or quite frankly any market. As with any investment, we recommend that anybody considering purchasing carbon credits conduct thorough research to be aware of all the risks associated with a given decision.

    Best

    Garrett Russo | Communications Director | VCS Association

  3. And here is my response to Garrett Russo, Communications Director at VCS:

    From: Chris Lang
    Date: 21 May 2013 08:47
    Subject: Re: VCS, carbon credits and boiler rooms
    To: Garrett Russo

    Dear Garrett,

    Thanks for your reply. I have posted it in full as a comment to the post on REDD-Monitor (http://bit.ly/14qvPnf).

    I am fully aware that VCS is not an investment firm. In fact, I quoted from the VCS website in the post: “VCS is not an investment firm, and as such, does not provide any direct advice on the purchase or trading of VCUs.”

    However, I do not think that advising people to find a “trusted seller of VCUs” is the same thing as providing a warning against buying carbon credits as an investment. And I am staggered by your comment that, “People are free to invest their own money as they see fit.” VCS is in an almost unique position to help stop boiler room companies from selling carbon credits as an investment. Instead of helping to stop them, you do seem to be encouraging them.

    The very fact that VCS is “the dominant voluntary standard in the carbon market” is what these boiler room operations are using to legitimise their operations. All I’m asking you to do is to issue a warning against investing in carbon credits, along the lines of APX’s warning. Is that really too much to ask?

    In your response, you advise people to “conduct thorough research” before buying carbon credits as an investment. The whole point of yesterday’s post is that unfortunately thousands of people have not conducted adequate research. In many cases they have handed over their life savings to companies selling carbon credits. My suggestion was, and is, that VCS could play a small, but important, role in helping stop the carbon credit boiler room scams by posting a warning about buying carbon credits as an investment on the VCS website.

    The fact that VCS is reluctant to do so speaks volumes about the carbon credit industry.

    Regards, Chris

    http://about.me/reddmonitor/

  4. “As you well know, the VCS has become the dominant voluntary standard in the carbon market by ensuring the validity of our credits. As such, any buyer of a VCU can be assured that one Verified Carbon Unit (VCU) is equivalent to one tonne of CO2e being removed from the atmosphere.”

    Considering some recent validated projects in DRC and Peru, this sounds like a questionable assertion.

  5. not at all right this article. VCS is yielding better prices than cdm in A/R projects. The pbuying when done from MARKIT, is pretty authentic since, no double counting.
    Investing in VCS is a good investment, since the prices ( although it vary) is actually based on the sustainability quotient the project brings to the table. Higher the quotient, higher the price.

  6. @shinu – Thanks for your comment. I think you’ve somewhat misunderstood the point of the post though. It’s written in the context of boiler rooms selling voluntary carbon credits at inflated prices, making misleading claims about returns and claiming that the carbon credits are a good investment. As I pointed out in the post, many of these boiler rooms refer to the fact that their carbon credits are VCS certified, but just because a carbon credit is certified by VCS does not make it suitable as an investment.

    VCS has now added the following advice on its website:

    Anyone wishing to transact VCUs should do their due diligence to be aware of all the risks associated with a given decision. Additionally, buyers should be particularly skeptical of sellers employing boiler room and “hard sell” tactics.

    For more information about boiler rooms and carbon credit scams, this is good introduction:

    Why you should not buy voluntary carbon credits as an investment: A carbon trader explains

  7. You are a moron! The next time you buy nails from the hardware store without the appropriate warnings on them try not to hammer them in to your pea-sized brain.

    Caveat emptor!

  8. @#climatechangeisreal – reduce or offset – Really? “Caveat emptor” is the best advice you can give to the thousands of people who have been scammed into buying carbon credits as investments?

    Several of the scam companies that sold carbon credits as investments used the VCS name and/or logo to make their scam appear believable. A warning on the VCS website explaining that carbon credits are not a suitable investment for retail investors might have been enough to convince at least some people not to hand over their life savings.

  9. You ARE way off base, the problem is the boiler room operation, could happen with every investment not just VCS

  10. @#getreal – Yes, the problem is the boiler room operations. Yes, it could happen with other investments. However, as I pointed out in my response to Garrett Russo, Communications Director at VCS:

    VCS is in an almost unique position to help stop boiler room companies from selling carbon credits as an investment.

    VCS was not directly part of this scam. However, some of the boiler room companies used the fact that the carbon credits were VCS certified to legitimise their scam. VCS had an opportunity to help prevent people from buying carbon credits as investments. VCS chose not to do so.

  11. I have been approached by a Timothy Davies claiming to be from VCS asking me to provide details of my investment in Carbon Credits so he may get a valuation for me. He suggests he will then be able to find a buyer? Is this likely to be a genuine approach or like others I have had, whereby an up front investment was required and after paying this the company disappears!!

  12. @Dennis Myles – Thanks for this comment. You were contacted by a scammer. There is no secondary market for voluntary carbon credits. The unfortunate reality is that your carbon credits are worthless.

    Did you get a phone number for “Timothy Davies”?

    Of course, if VCS put a notice on their website explaining that there is no secondary market, that carbon credits are not a suitable investment, and that VCS would never cold call you about your carbon credits, the scammers would not find it so easy to use the letters “VCS” to lend legitimacy to their fraudulent activities.

  13. Hi Chris, thanks for response. Here is brief email sent as follow up, I have not answered or tried the phone number:
    “As dicussed, can you please respond to this email with the information you have on file.
    Please mark F.A.O Timothy Davies.
    Many thanks in advance. (Message sent by:
    | Adam Posen | Junior Program Officer | Verified Carbon Standard | tel: 0845 528 0484 | email: vcs-uk@europe.com

  14. @Dennis Myles – Thanks for this. That confirms it’s a scam (not that there was ever any doubt).

    There is no VCS UK. The phone number seems to belong to Home Rescue Computer Services, in Croydon.

    And VCS email addresses end with @v-c-s.org, not europe.com. Here are the contact details for the real VCS in Washington DC:

  15. P.S. I’ve just written to VCS to ask them a few questions about this. I’ll write a post about this recovery room scam once I’ve given VCS a couple of days to respond (and I’ll write the post regardless of whether VCS replies).