Kenneth Newcombe, a carbon-offsetting pioneer, is accused of a 100-million-dollar fraud scheme that could see him sentenced to 20 years in jail. The businessman previously sat on the board of the industry’s largest regulator, and the charges have led to a wider fallout and questions about oversight.
In theory, everyone was a winner.
C-Quest Capital gave families in countries like Malawi and India energy-efficient stoves, reducing the amount of carbon going into the atmosphere.
In return, the organisation was able to sell ‘carbon credits’ to companies like Shell and BP, helping them meet environmental goals by offsetting their own emissions with savings elsewhere.
But US federal prosecutors say Kenneth Newcombe, the former CEO of C-Quest Capital and a pioneer of the carbon offsetting industry, vastly inflated the savings being made. In the process he allegedly committed a 100-million dollar fraud that could see him sentenced to 20 years in jail. Newcombe denies the allegations against him.
The carbon-offsetting industry has been rocked by a series of scandals in recent years. Critics accuse such schemes of amounting to little more than greenwashing, allowing companies and governments to bolster their image while doing little of practical use.
And the FBI’s arrest of Newcombe this month highlighted flaws at the heart of the way such schemes are regulated.
“He has been involved in this market from the beginning and knows exactly how it all works”
Until December 2023, half a year prior to the US charges on October 2, the 77-year-old sat on the board of Verra, the world’s largest certifier of voluntary carbon credits. He was on the board when the organisation approved a new calculation model provided by C-Quest capital – the very model on which the US case now focuses.
Throughout 2021 and 2022, C-Quest Capital attracted investments from Shell, the Australian investment bank Macquarie Group, and Gen Zero, a subsidiary of the Singaporean state-owned investment firm Temasek. Gen Zero said it would review its investment in C-Quest Capital following the charges.
The Dutch ministry of Foreign Affairs also invested more than six million dollars in Newcombe’s company. In response to questions from Follow the Money, the ministry said it would not include figures from C-Quest Capital in its environmental impact report.
Conflicts of interest
When Newcombe started his own carbon credit business with C-Quest capital in 2008, he was already a big name in the field.
He was an executive at Goldman Sachs, head of the World Bank’s Carbon Finance Unit and a board member of Verra.
“At the World Bank, he was a spider in the web of carbon projects in developing countries,” said Maurits Blanson Henkemans, a former senior policy officer at the Dutch ministry of economic affairs.
Blanson Henkemans often met with Newcombe as a fellow member of the World Bank Carbon Finance Unit board. “He has been involved in this market from the beginning and knows exactly how it all works.”
When Newcombe started his business, he had already spent a year on the board of Verra.
The NGO’s role is to assess the calculation methods of entrepreneurs like Newcombe and have them verified by an external auditor, supposedly to ensure their quality.
But in 2020, according to the FBI, Verra adopted a calculation method written by one of its own board members and his colleagues. The apparent conflict of interest is symptomatic of wider problems in the market.
Journalists and scientists have in recent years revealed how the world’s biggest carbon traders and certifiers frequently overestimate the impact of carbon credits. These revelations led, in part, to the market to crash by more than 60 per cent in 2023, dropping in value to less than a billion euros, according to a report by Ecosystem Marketplace.
There are other such conflicts of interest in the carbon market. For example, non-profit Verra receives 10 euro cents per approved carbon credit. The organisation therefore has a financial interest in not being too exacting when it assesses project calculation methods.
In addition, the auditors engaged by Verra are paid not by the organisation but the entrepreneurs behind the projects themselves. For these auditors, it is in the interest of keeping companies like C-Quest Capital friendly as they may otherwise switch to a competitor.
Prosecutors rarely pursue cases around carbon credits. But in this case, C-Quest Capital itself turned in its former CEO and founder.
At the start of this month, a New York prosecutor announced he was seeking up to 20 years in prison for Newcombe, based on an investigation by the FBI.
“They [Newcombe and colleagues] sold these credits to unsuspecting buyers,” prosecutor Damian Willaims said. “The alleged actions of the defendants and their co-conspirators threatened to undermine the integrity of that market, which is an important part of the fight against climate change.”
According to the FBI, the new calculation method approved by Verra while he was a board member allowed Newcombe to sell more carbon credits.
Newcombe also allegedly persuaded an investor to put more than 100 million euros into his company thanks to the allegedly inflated figures. According to the FBI, Newcombe earned $15 million from this deal after selling his own shares in C-Quest Capital .
Fallout
The alleged fraud has added to concerns around the industry, according to analysts.
“This is obviously not good for confidence in the [voluntary carbon] market, which had already taken a big dent in recent years,” said Adriaan Korthuis, a market veteran and co-founder of the Climate Focus consultancy.
He said there were “question marks” about Newcombe’s role on the Verra board from the moment he founded C-Quest Capital.
“He should have cited too many conflicting interests and withdrawn from Verra much earlier,” Korthuis said. “But Verra probably also benefited greatly from having someone like him on the board. He knows everything, he has all the contacts. It’s very difficult to say goodbye to someone on your board who is this kind of giant with this knowledge of the market.”
“behaviours that have undermined the integrity of the market must stop”
According to Korthuis, Newcombe was not the only one on the Verra board with conflicting interests. “Verra was founded by market practitioners and since the beginning there have been numerous carbon market practitioners on its board. To me, it could have been clearer how Verra has managed these conflicts of interest.”
The Integrity Council for the Voluntary Carbon Market, an industry body, declined to comment on the details of ongoing cases but said it strongly believed that “behaviours that have undermined the integrity of the market must stop, and appropriate enforcement actions taken where allegations are proven.”
The Dutch development bank FMO – which is 51 per cent owned by the Dutch state and through which the country’s foreign ministry invested six million dollars in Newcombe’s company – said it was “shocked” by the charges.
“FMO exists to combat inequality and climate change,” a representative of the bank said. “It is very distressing when [alleged] fraud undermines much-needed climate action and the chance of a slightly better life for the world’s poorest women, in addition to eroding already fragile confidence in the carbon credit market.”
Jules Kortenhorst, a former member of the Dutch parliament who succeeded Newcombe as CEO of C-Quest Capital at the start of this year, said in June that his goal was to “transform the company”.
He wanted to establish a new culture of quality, integrity and transparency that will help address the abuses we have uncovered,” according to a press release. He declined to comment to Follow the Money for this article.
A public document from the US Department of Justice shows that Kortenhorst struck a deal with prosecutors: in exchange for turning in his former CEO and cooperating fully in the investigation, C-Quest Capital will not be prosecuted for the same charges as Newcombe.
The charges against Newcombe will be heard in a criminal trial in New York on an as yet unspecified date.
Speaking to Bloomberg news agency last week, a spokesman for Newcombe said his client, who has terminal cancer, is “confident” that the jury will “dismiss the false charges and restore his good name”.
