A Chinese government investigation into a new carbon emissions trading system has uncovered accounting fraud and misrepresentation.

If left unchecked, such practices could potentially derail the country’s ambitions of reaching a historic peak in carbon emissions in 2030 and carbon neutrality in 2060, officials recognised.

A three-month investigation carried out in the final quarter of last year by the Chinese Ministry of Ecology & Environment (MEE), which also serves as an environment protection watchdog, discovered a cluster of cases involving the falsification of carbon dioxide emission figures, fake coal samples used for testing and false emissions reports.

One of the companies accused of fraudulent practices was named as China Carbon Energy Investment & Technology (GreenTech).

The MEE report accused it of tampering with and falsifying test results and related statistics and advising its clients to provide fake coal samples for tests.

The company allegedly falsified the carbon content, test date and results on coal samples sent by Inner Mongolia Ordos High-Tech Material through its editable auditing template, the MEE said.

The Beijing-based carbon auditing company allegedly encouraged clients who are obliged to control emissions to send fake coal samples for testing, leading to inaccurate results.

In its consulting contracts with loss-making power utilities, the company promises to lift them back into profit through carbon emissions’ allowance trading, offering allowance allocation and calculation methodology among its services.

GreenTech also made false carbon emissions reports by distorting the data on coal heat intensity and power purchases, and by using the wrong parameters and computing system for reporting, the MEE report alleged.

China launched its carbon trading system in July last year, with more than 2000 coal and gas power plants involved in the initial stage.

Official data suggests that the coal-dominated power sector in China is responsible for emitting 4 billion tonnes per annum of CO2, which is about 40% of the total CO2 emitted annually in the world’s most populous nation.

The Chinese government allocates an allowance to each power plant. Those that emit more than their allocated amount can buy more carbon credits at the Shanghai exchange through the carbon emission trading system, and those with a surplus can sell them.

The ministry also listed carbon emission certifying company SinoCarbon Innovation & Investment as another company accused of fraud in carbon emissions auditing.

The Beijing-based company allegedly turned a blind eye to the fake test reports and applied false statistical parameters in emission reports submitted by auditing clients to arrive at inaccurate conclusions.

The MEE also accused Shandong-based Qingdao Xinuo New Energy of issuing certificates to clients without checking their environment appraisals and emissions and of drafting appraisals of carbon emissions without checking raw data submitted by its clients.

Similar charges are being lodged against Liaoning East Coal Test Research Institute for producing fake reports by allegedly changing sample testing data as well as falsifying test records.

Rooting out fraud

MEE’s recent crackdown is intended to stop fraudulent misstatements of carbon emissions and other forms of malpractice relating to carbon trading

MEE said investigations into the carbon emissions fraud are continuing in order to root out cheating and irregularities in carbon emission accounting to create a level playing field for all carbon emission trading participants and to improve the overall integrity of carbon trading.

The regulatory report warned that fraudulent emissions representations could distort data and undermine the working of China’s fledgling carbon trading market.

MEE committed to intensify its efforts to monitor emissions and compliance reporting across the sector.

SinoCarbon Innovation and Investment issued a statement saying the company takes the MEE allegations seriously and is checking the data in an effort to “rectify” the auditing process.

Qingdao Xinuo New Energy said the irregularities were due to a lack of skilled manpower in the wake of the Covid-19 pandemic and also blamed “poor internal communications”. The company also promised to improve its own work procedures.

GreenTech and Liaoning East Coal Test Research Institute could not be reached for comment.

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