Over the last two decades, carbon credits have been heralded as a powerful financial tool to accelerate the transition to a low-carbon economy. Marketed as a way for corporations and individuals to offset greenhouse gas emissions, voluntary carbon markets (VCMs) and compliance-based trading schemes promised a mechanism through which climate goals could be monetised. Yet, in parallel with their rise, there has been a persistent undercurrent of suspicion, scandal, and outright fraud. In the last ten years, this underswell has erupted into high-profile criminal and regulatory enforcement actions across the United States, the United Kingdom and further afield, exposing the inherent vulnerabilities of a market whose value is intangible and not easy to verify.
Investigations have identified persistent issues such as:
- Misrepresentations about the bona fides of environmental projects claimed to reduce carbon emissions;
- Audit/supply chain problematics as to whether buyers of carbon credits are purchasing genuine and unique carbon credits;
- Misrepresentations about the onward commercial investment potential of purchasing voluntary carbon credits.
Recent Examples:
A prominent recent example of these kinds of issues came in October 2024 when U.S. federal prosecutors unsealed an indictment in the Southern District of New York charging executives of CQC Impact Investors LLC with wire fraud and securities fraud. The U.S. Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) brought parallel regulatory actions, alleging systemic misrepresentation of data underpinning carbon projects that generated millions of voluntary carbon units (VCUs).
At the heart of these charges was the alleged inflation of the environmental benefits from cookstove and LED replacement programmes in the developing world. Prosecutors argue in that case that false and misleading data about fuel use, operational equipment, and monitoring systems induced registries to issue VCUs far beyond what was warranted, also that those credits were then sold to buyers in good faith and were used to attract investors, securing investment income of up to $100 million.
For the green energy sector and the legal community that surrounds it, this case provides a telling illustration of the structural weaknesses in carbon markets and the formidable challenges facing regulators and prosecutors alike.
Likewise, in Brazil, 31 individuals were charged in October 2025 in connection with an alleged R$180 million (£13 million) fraud involving two REDD+ (Reducing Emissions from Deforestation and forest Degradation) projects named Unitor and Fortaleza Ituxi. The accused in that case are alleged to have used falsified documents and data to register properties and protected areas that, in fact, belonged to the Federal Government. The alleged objective was to inflate the number of hectares ‘preserved’ and so to generate non-existent carbon credits. Brazil’s Federal Police claim that the two REDD+ project areas were generating carbon credits at the same time they were being used to launder timber taken from other illegally deforested areas.
Although these two high-profile cases are yet to be concluded, they show the immense scope for problems on a worldwide scale when there is serious money to be made from laudable environmental aims.
The Mirage of Intangibility
Unlike commodities grounded in tangible goods such as barrels of oil, bushels of wheat, ounces of gold, the value of a carbon credit derives from an avoided emission, a counterfactual world where a tonne of carbon dioxide might have been emitted but was not. This inherent abstraction creates fertile ground for exploitation. Verifying whether a household cookstove is actually being used as intended, whether deforestation has genuinely been prevented or whether a renewable project delivers additional carbon reductions is often logistically challenging, expensive, and dependent on local monitoring structures.
Fraudsters exploit this uncertainty. The U.S. indictment against CQC executives alleged that monitoring data was manipulated. Prosecutors allege that surveys overstated usage, digital logs were tampered with and reports to verifiers misrepresented project efficacy. The scheme thus create an illusion of climate benefit, transforming unverifiable promises into marketable commodities.
This problem, however, is hardly confined to the United States. In Europe, investigations have revealed abuses of the EU Emissions Trading System (EU ETS) through “carousel” VAT fraud schemes, where credits were traded across borders in order to exploit tax loopholes. In the UK, however, while large-scale fraud prosecutions at the corporate level have been relatively rare, both the Serious Fraud Office and the Financial Conduct Authority have signalled their awareness of vulnerabilities in the voluntary offsetting market.
Parallel Enforcement: Multiplying Tools, Limited Success
The CQC case is emblematic of a growing trend: multi-agency enforcement strategies that bring criminal indictments, civil complaints, and regulatory actions in parallel. In October 2024, the DOJ pursued wire fraud and securities fraud charges, the CFTC then characterised the VCUs as ‘commodities’ under the US Commodity Exchange Act, whilst the SEC brought a cease-and-desist order based on securities law violations.
This layering of enforcement reflects both the seriousness with which regulators view the issue and also, perhaps, some uncertainty over which legal framework will ultimately prove the most effective. The CFTC’s approach at that time, asserting jurisdiction over VCUs as commodities, offered an alternative regulatory hook, but it remains to be seen whether this view will prevail in the long term.
Despite this multifront approach, enforcement outcomes have often been underwhelming. Likewise, Juries and judges may also be uncomfortable arbitrating the contested frontier between environmental science and financial fraud.
The Evidential Conundrum
The most formidable barrier to effective prosecution lies in the evidence. In cases where there are allegations about whether carbon emissions in other parts of the world have genuinely been avoided, prosecutors must prove beyond reasonable doubt in criminal cases that the carbon reductions claimed did not, in fact, occur. Yet this is precisely the most difficult element to prove. Verifiers and registries often rely on extrapolated models, surveys, and assumptions. Demonstrating to the required standard the manipulation of raw data may be feasible, but proving that the actual emission reductions were illusory may require intrusive monitoring and complex scientific testimony.
Moreover, the very nature of carbon credit projects complicates matters. A cookstove in Kenya or a reforestation programme in the Amazon exists in fragile, dynamic environments, subject to local behaviours, economic shifts and climatic variations. Separating deliberate fraud from genuine, but flawed, modelling is no easy task. Prosecutors risk conflating poor project design or optimistic assumptions with criminal misrepresentation.
For defence lawyers, this evidential murkiness potentially provides fertile ground for reasonable doubt. For regulators, it exposes the limits of due diligence and raises uncomfortable questions about the credibility of certification bodies.
The Regulatory Response: Playing Catch-Up
At the international level, initiatives such as the Integrity Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Market Integrity Initiative (VCMI) are attempting to establish universal principles for quality and transparency. Yet these bodies remain voluntary, and their standards have yet to be universally adopted.
Prosecutors and regulators thus operate in a patchwork environment: voluntary codes, emerging standards, national enforcement tools, and international markets. Fraudsters tend to thrive in these gaps.
The Allure of Green Gold
Why does the market remain so attractive despite these risks? The answer lies perhaps in the twin forces of demand and narrative. Corporations under pressure to demonstrate climate responsibility find in carbon credits a convenient way to ‘neutralise’ emissions without necessarily overhauling their core business models. Investors chasing returns can be enticed by the rapid growth projections for green finance. The narrative of doing well by doing good, the alchemy of profit and planet, remains powerful.
This allure blinds even sophisticated actors. The promise of large-scale investment in ostensibly transformative projects, such as those touted in the CQC indictment, reflects the seductive power of ‘green gold’. Yet, as history has shown, whenever markets are built on abstractions that are difficult to verify, fraudsters will follow. From tulip mania to subprime mortgages, the pattern is familiar.
The Way Forward: Realism and Rigour
What, then, is to be done? For prosecutors, the key could be to focus on the clearest lines of deception (fabricated data, forged monitoring records, false communications, overstated investment potential and inflated pricing) rather than attempting to litigate the science of carbon reduction itself. For regulators, mandatory disclosure, rigorous audit requirements, and clear liability regimes for verifiers and registries may help close gaps.
For the legal community, the message is twofold. Defence practitioners must be alive to the scientific uncertainties that can undermine prosecutions, while prosecutors must recognise the limitations of existing tools and build interdisciplinary teams that combine legal, financial, and environmental expertise.
For the green energy industry, transparency and accountability are paramount. Without them, the credibility of carbon markets will erode, leaving companies, investors, and indeed the climate itself worse off.
Conclusion
The past years have seen carbon credit fraud rise from a somewhat marginal concern to a front-page scandal. The 2024 U.S. prosecutions mark something of a watershed but also highlight the deep structural challenges that face any attempt to regulate and police carbon markets. The lustre of green gold continues to blind investors who chase its promises and to frustrate those charged with policing its misuse.
Until regulators, prosecutors, and industry participants confront the evidential and structural weaknesses at the heart of the market, carbon credits will remain both an indelibly promising instrument for climate action and a tempting vehicle for fraud. The legal community on both sides of the Atlantic must prepare for more cases, more complexity, and more collisions between environmental aspiration and financial reality.
Kevin Dent KC is a highly persuasive advocate with a calm, measured, yet robust courtroom manner. Kevin took silk in 2019, building upon his heavyweight practice in the fields of financial crime and serious crime. Kevin is ranked in the Legal 500 and Chambers & Partners.
