Fudge data, then trade
The potential for fraud is particularly high in VCM, which, according to a 2024 article in Colorado Law Review, is not only highly unregulated but is also plagued by conflicts of interest and lack of transparency. Main players in this market, states the article, are the project developers (entities that develop emissions-reduction projects like planting trees or distributing clean cookstoves), verification and validation bodies or VVBs (third-party entities that assess claims made by project developers) and standard setting bodies (groups of non-profits and business leaders that define project standards, certify offsets, and host registries that maintain information about credits issued, traded and retired or removed from circulation after a company uses it for offsetting emissions). Verra and Gold Standard are the two leading standard setters in VCM. “The problem lies in the fact that each of the players in this game—the project developer, the standard setter, and the VVB—has incentives to overstate offset claims,” states the Colorado Law Review article. For instance, standard setters’ fees depend on how many offsets they certify. VVBs that audit projects are hired and paid for by the project developers. And these conflicts of interest appear to have played a role in the case of C-Quest.
In 2020, Newcombe, who was on the Board of Directors of Verra, which certifies C-Quest’s projects, proposed that the standard setter adopt a new methodology for calculating emissions reductions from cookstove projects. As per the indictment report, Newcombe was in favour of the new methodology “because he believed it would allow CQC [C-Quest] to generate more VCUs [credits].” It probably did. According to “Voluntary Carbon Market Dev-eloper Overview” for 2022-23 and 2023-24, in 2022, C-Quest ranked 11 among the top 25 developers operating in household devices and cookstoves space of VCM. A year later, it rose to the top, registering 354 per cent year-on-year growth in credits issued and 42 per cent growth in projects. The indictment report suggests that from about 2021, through 2023, the former executives used the new methodology to manipulate data related to emissions reduction and obtain credits.
While the methodology involved several inputs, the number of carbon credits that the project developer would receive largely depended on two variables. One, the amount of fuel used on the new cookstove (known as “ByNew”), which is the methodology used to calculate the fuel saved per stove by comparing with the traditional one and then estimate the emissions avoided. Two, the percentage of stoves installed during the project that were still operational (“p” value), which the methodology used to determine the number of stoves for which emission reductions could be claimed. Under the methodology, both the values were to be determined through surveys, which allegedly allowed the former executives of C-Quest to fudge data.
Investigations by the US authorities showed that the original ByNew values for a project in Malawi, for instance, was 2.35 kg per stove per day. Since a higher ByNew value represents higher emission reduction and thus more carbon credits, the former executives inflated the values to 3.66 kg per stove per day. Similarly, a loophole in the methodology allowed them to alter the p-value; surveyors could inflate the sample size in case they found missing or broken stoves in the original sample. “This practice was explicit in CQC’s non-public training manual, which stated: ‘Additional households should be surveyed to compensate or cover up for households where any one or both project stoves were not found operational’,” says the indictment report.
During a parallel investigation, the US Securities and Exchange Commission found C-Quest manipulated thermal efficiency of its cookstoves that failed to meet the minimum standard of 25 per cent.
Usually standard setting bodies depend on VVBs for cross-checking information provided by the project developer. Most of the projects that have come under scrutiny were audited by one VVB Carbon Check, based in Noida, India. Vikas Singh, executive director of Carbon Check, did not respond to DTE’s email regarding the verification process, The case came to light in 2023, after employees of C-Quest reported data discrepancies to the company’s Board of Directors, which then initiated an investigation into the projects and informed US regulatory authorities and Verra of its former executives’ wrongdoings. In June, Verra put 27 projects, most of them in Africa, on hold and initiated a review. As of October 17, it has announced the results of 22 projects, which shows C-Quest was issued over 5 million excess credits. To compensate for these, Verra has “cancelled” 5,004,915 carbon credits of C-Quest. When DTE approached Verra to understand if the excess credits issued between 2021 and 2023 had been bought and then retired, it declined to comment, saying, “this is now subject of a criminal investigation”.
