Saving the planet isn’t as squeaky clean as it’s hyped to be – as some quarters of the green energy sector have been morphing as hotspot for carbon emissions trading scams and potential money laundering havens, leaving well-intentioned investors caught into the crossfire of the ‘dirty hustles’ of shady players who are just out to make a quick buck.
Just recently, the green energy world was shaken by a multi-billion-dollar fraud – when a German firm's investment in carbon emissions reduction anchored on the installation of energy-efficient technologies at an oil field in China—was exposed as a massive scam; as the supposed investment was nothing more than a paper trail of fabricated documents.
The Philippines is among the economies in the world with bold decarbonization strategies - not just with massive renewable energy (RE) installations, but also with ambitious net zero targets of businesses and a comprehensive drive for a low-carbon economy that cuts through various industries.
On the policy front, carbon emissions trading is getting a full-throttle push from many relevant stakeholders, while the Philippine electricity spot market has just recently rolled out the commercialization of renewable energy (RE) certificates trading —an innovative incentive mechanism within the green finance sphere; which is designed to entice fresh wave of capital into clean energy investments.
Deceptive power play
With growing concerns over scams and potential money laundering activities in the clean energy sector, the Philippines faces a critical question: how exposed is the country to these perilous fraudulent schemes that could then undermine its honest-to-goodness energy transition agenda?
Sources from global banks have been warning that countries with fragile financial systems are prime targets for dubious money—often streamed into renewable energy and clean technology investments.
Similarly, economies with loose carbon emissions trading protocols and limited expertise are ripe for exploitation—and unfortunately, the Philippines still finds itself dangerously classified in both of these high-risk categories.
At this stage, the Independent Electricity Market Operator of the Philippines (IEMOP) qualified that trading of renewable energy (RE) certificates will initially be limited to the renewable portfolio standards (RPS) compliance of mandated players in the domestic scene, thus, minimizing immediate risk of exploitation by offshore buyers. However, the long-term strategy must be approached with caution and rigorous analysis, especially if the country eventually opens the market to international purchasers, which could expose the RE market to greater vulnerabilities.
Beyond that, the Department of Environment and Natural Resources (DENR) has a broader plan for future carbon emissions trading, but this policy is still in the works – hence, leaving some fog of uncertainty as well as many ‘unknowns’ that even industry players are still scrambling to understand.
By design, carbon credit trading is meant to drive companies to cut emissions by allowing them to trade unused credits—but as the market grows, so does the window of opportunity for fraudsters to exploit the system for their own gain.
As already evident, shady companies or operators have discovered loopholes to manipulate carbon credits and emissions reduction – with them either resorting to falsifying data, inflating credits, or peddling non-existent carbon allowances—and these scams are notoriously hard to trace, because typically, the entire trading process relies on intangible assets that could then allow fraudulent activity to be buried beneath layers of red tape and convoluted paperwork.
Another escalating fear in the 'green finance' world is the influx of sketchy capital - whether from money laundering or terrorist financing; because when these illicit funds are funneled into new companies, the quickest escape for dodgy players is to pour them into clean energy investments, be it for renewable energy and decarbonization projects to energy efficiency ventures, all while obscuring their true origins behind a green façade.
Bank sources explained that money laundering in green investments would typically involve criminal or terrorist-leaning organizations as well as corrupt individuals or politicians who may inject money into businesses under the guise of green investment – and these projects could range everything from solar farms to wind energy installations, and even fake carbon offset schemes. Typically, these projects are packaged as ‘legitimate investments’ – with all the warranted certifications and service contracts, but in reality, they serve as a smokescreen for washing dirty money.
These shady deals are already happening in many parts of the world – be it in Asian energy markets, Latin America and many African countries, hence, the intensified call on policymakers and regulators to enforce rules and policies that can invoke transparency into carbon markets – ensuring that emission reductions are accurately reported and there shall be robust verification process and stringent auditing systems; and that green projects are properly vetted, including the fund sources as well as the ultimate beneficial owners of companies, especially those that have layered corporate registrations across various countries.
Then for regulators in the country’s financial system, policies must be enforced to close the gap as well as recalibrate the ‘grey areas’ and blind spots in the prevailing money laundering law; then improve the monitoring of financial transactions in the green investment space.