Carbon Market Fraud: 'Carbon Cowboys' Profiting from the Amazon's Protected Forests

The carbon market, although a promising approach to steering our economy towards sustainable development, has faced significant challenges due to recently discovered fraud. Police operations and suspensions of carbon credit projects in Brazil highlight the urgent need for regulations to come into force, including the provision for this type of practice from now on.

The 'Carbon Cowboys' Scandal

A six-month investigation has revealed that many carbon credit enterprises are profiting from public land to which they have no right and failing to share the revenue with those who actually protect the forest. This scenario highlights the urgent need for regulation of the carbon market in Brazil, to protect both the environment and local communities.

The lack of effective regulation of the carbon market in Brazil allows private companies to encroach on protected areas and trade carbon credits without sharing the benefits with the local communities that protect these areas. The investigation revealed that 11 carbon credit projects in Brazil are overlapping public lands for collective use, such as indigenous territories and conservation units.

Operation Greenwashing and the Suspension of Verra

The Brazilian Federal Police recently launched Operation “Greenwashing”, which revealed a land grabbing and illegal logging scheme disguised as carbon credit projects. Three large carbon projects, developed by Carbonext in the Amazon, have been suspended by Verra, the main internationally recognized certifier of the voluntary carbon market.

Legal implications

With regulations still pending on the carbon market in Brazil, some issues arise in projects that are already completed and offered on the market, or those that are in progress:

Land ownership and environmental law

Many carbon credit projects involve public or indigenous lands. Land grabbing and the inappropriate use of these areas to generate carbon credits violate environmental laws and the rights of local communities, which will be investigated both by the certifier and later by the market, which is increasingly attentive to the quality of projects.

Fraud and Compliance

In a carbon credit project, all activities related to the place where the project is being carried out, and to the person, are relevant and subject to fraud analysis. In this sense, it is essential that companies or people planning or executing carbon credit projects carry out compliance and analysis of their activities in accordance with current legislation. They must be attentive to the demands of the market, which is already aware of illegal practices that go against sustainable development and are aimed solely at profit.

These practices will be analyzed in order to validate and certify the project, in addition to the growing scrutiny by public security throughout the country. Fraud can result in the project's inability to be certified or in a project with no market value, subject to penalties and legal sanctions, including imprisonment, under the terms of the law.

Contracts and legal certainty

Legal certainty is crucial for the stability of the carbon market, especially at a time when the market already exists and is well established in other countries. In Brazil, although not yet specifically regulated, there is a wide range of projects completed and already offered on the market. It is therefore important that contracts are well drafted and respect the rights of local communities, ensuring that all agreements are transparent, fair and legally sound.

The exposure of fraud in the carbon market, as revealed by Operation “Greenwashing”, serves as a wake-up call and a lesson for our market, which is being consolidated in Brazil and around the world, and which is the new currency of the future.

It is imperative that carbon credit projects are conducted with total transparency and integrity, ensuring compliance with environmental laws and respect for the rights of local communities. Implementing good compliance practices and drawing up legally secure contracts are essential steps in building a project and consolidating a reliable and sustainable carbon market.