Friday 27 April 2012

Emerald Knight carbon credits a scam?

Question
What is your opinion of this, is it a scam?

Emerald Knight is proud to offer investors an exclusive opportunity to purchase carbon credits direct from a prestigious project in the Amazon that will be sold to the offset market during a 12-month period to generate investors a fixed 30% return on investment.Answer
Sorry for the long delay in answering - been side-tracked the last few months. Anyway, catching up on a large backlog of questions, starting with yours.

Emerald Knight is proud to offer investors an exclusive opportunity to purchase carbon credits direct from a prestigious project in the Amazon that will be sold to the offset market during a 12-month period to generate investors a fixed 30% return on investment.

The first point to note is that Emerald Knight is not authorised or regulated by the Financial Services Authority, so if something goes wrong you're on your own.

Emerald Knight's website refers to two companies, one registered in the UK and the other in Gibraltar. A quick look at Companies House suggests the UK company was incorporated in November 2009 and the only accounts submitted to date (to November 2010) were for a dormant company. So no track record and no proper accounts available for analysis.

The above two points are sufficient alone to make me avoid a company selling investments. But let's a take a look at what appears to be on offer:

From what I can gather from the limited information available, Emerald Knight offers carbon credits sourced from Brazil with the aim of selling them on to companies (wishing to offset the pollution they cause) for a profit within a year, generating a 30% return for investors along the way.

The credits being sold appear to be Voluntary Emission Reduction (VERs), which means there's no official compliance framework, structure of market around them. As a result, the quality hence value can vary quite widely. They often originate from countries with tropical forests (e.g. Brazil) as the VERs are earned by reducing the amount of forest cut down. The companies that potentially buy these would do so in a bid to voluntarily offset their carbon production (i.e. pollution) - these credits do not form part of the stricter certified credit system formalised by the Kyoto Protocol.

The Chicago Climate Exchange did try to run a market/price for VERs, but it closed down in 2010.

As there's no formal standard or market (hence common price) for VERs it's hard to quantify the value of what you'd be buying (which is always a concern). It seems the estimated market value of VERs is up to a couple of pounds per unit.

I suppose there's a chance you might make 30% in a year, but this would seem to require Emerald Knight selling its low cost VERs for a price closer to 'proper' certified carbon credits, which seems a tall order. Of course, Emerald Knight's VERs might be especially high quality to warrant a premium price, but I've no idea how you could practically verify this. Personally I wouldn't risk my money to find out.

In any case, certified carbon credit prices have plunged over the last year - halving over the second half of 2011 as the global downturn has generally led to less production meaning producers need fewer credits. EU certified credits (by far the most popular) are trading at around €7 at the time of writing.

[I've seen a report suggesting Emerald Knight is charging £7.50 per credit - which is well over the odds for a VER, but can't verify this].

As always when sky high returns are supposedly on offer, ask yourself why the company pushing the investment doesn't just invest its own money and make a mint. If I could sure of generating a 30% return within 12 months I certainly wouldn't bother cold-calling strangers, I'd be too busy raising as much money as I could to invest myself!

Incidentally, the FSA to set up a web page warning caution against such schemes http://www.fsa.gov.uk/consumerinformation/scamsandswindles/investment_scams/carbon_credit.

Read this Q and A at http://www.candidmoney.com/questions/question571.aspx

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