Wednesday, October 24, 2012

Czech police uncovers a $20 million carbon credit fraud

A day later, it also foils a $100 million solar fraud

The most straightforward way to learn what's going on with carbon trading in my country is... to read e-mails from a well-informed Malaysian American at Harvard. ;-)

The CZK 1,000 banknote was chosen as the World's Best New Banknote in 2008 by the Association of Currency Affairs.

Willie Soon sent me this URL:
Police suspect two of carbon credit fraud worth CZK 378m (Prague Monitor)

News in Czech
One U.S. dollar is worth 19 Czech crowns (CZK) so the amount these two men earned was nice, $20 million. Some real estate worth half a million dollars was already blocked.

The "trick" wasn't too difficult. They bought and sent some carbon indulgences. Officially, they pretended that both transactions occurred within Czechia. As payers of the 20% or so value-added-tax (VAT), they would buy the carbon permits for an increased price with the VAT tax included, i.e. 120% of the "tax-free price", and they would sell it for a price including VAT, too. They would pay the 20% VAT as the difference between the 20% VAT they received for the sale and the 20% VAT they had to pay during the purchase.

(All the "VAT payers" – usually companies except for tiny ones – get all the VAT they pay back. The only folks who don't get the VAT back and who "really" pay it are the regular consumers etc. who are paradoxically called "VAT non-payers", and that's why the government ultimately gets some money from the VAT game.)

Under normal circumstances, a VAT payer (I had to become a VAT payer as well, due to some small amounts and crazy EU laws) would sell it for the same amount as the price for which he bought it. That would include the tax and our IRS would return nothing if both transactions involved the same amount of money. No profit, no loss. VAT is about the "added value" and nothing is added if you just buy and sell for the same price. However...

However, in reality, they actually bought the carbon credits outside the Czech Republic, in another EU member state. It means that they didn't actually pay any VAT – although they later requested that the Czech IRS de facto "returns them" this tax they haven't paid. They had to "reclassify" the purchase as an internal Czech transaction.

This is probably particularly simple in the case of carbon credits because their actual value (which is a completely artificial construct) is something that no one really understands, especially if you start to move the credits from one country to another. I am pretty confident that our Pilsner IRS officers who sometimes harass ordinary people because of a few crowns wouldn't dare to question similar transactions because it's over their heads. Fortunately, the anti-corruption police in Prague knows better.

The men face up to 10 years in prison. However, due to the messiness and irrationality of this "carbon market", there may exist lots of people with similar nice profits who will never be caught.

A solar fraud for $100 million

You may think that the two men above are just bad apples and exceptions. Well, one day after the information about $20 million carbon fraud above, we were told about another success in the Czech anti-corruption police's campaign against assorted environmental and renewable fraudsters that was celebrated just one day later, namely three hours ago.
Anti-corruption police accused 9 people, foiled a $100 million solar fraud (Czech radio, automatic translation)
Among the 9 accused people, three are pretty interesting because they're employees of the National Energy Market Regulation Office which supervises the photovoltaic industry in my country.

In 2010, the fraudsters managed to get stamps on all the paperwork proving that two solar power plants in Northern Bohemia began operation. The advantage was that this achievement guaranteed subsidies – well, guaranteed much-higher-than-market price for the produced electricity to be purchased by the state – for the next 20 years. The subsidies for power plants started after 2010 have already been substantially lower.

There was only one problem with these two solar power plants in 2010: they didn't exist in the reality yet. You may agree that it's irresistible to acquire all the paperwork that is needed to get insanely high subsidies for nothing. If you could build 100 solar power plants (on the paper or, perhaps in the future when you're rich, in the reality as well) with a guaranteed profit for 20 years, you would want to do it.

The profit of the "group of nine little Czech Al Gores" (stolen subsidies that shouldn't have been paid) was quantified as $100 million (two billion Czech crowns) – comparable to one American Al Gore's net worth. The police has ordered the court to arrest the three bureaucrats. In America, Al Gore remains at large.

Incidentally, the Czech government decided today to significantly shrink the subsidies for the renewable sources once again – which is good. However, the rules of the game are such that the government will indirectly force the consumers to pay these subsidies instead – which is bad. The latter fact will make the electricity 2-4 percent more expensive since 2013. See Electricity price will jump again; due to the premium for green energy (automatic translation).

At the same moment, companies' mandatory fee for renewable energy should jump from CZK 419 to CZK 613 since January 2013. A coalition of Czech industrialists sent a complaint (autom. translation) to the government against the liquidating ransom in which they warned against coming losses, bankruptcies, and tens of thousands of new unemployed people.

Especially the Northeastern region of North Moravia near Ostrava – which is rather poor and has depended on coal and steel to make living for quite some time – has been switched to a revolutionary mood (autom. translation). If you're an advocate of the global warming hysteria, renewable energy, and similar pathological concepts, I recommend you not to travel to Ostrava because your mouth could be reshaped in the way that no one has dared to reshape your mouth yet even though it should have been done for many years.

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