Corruption Hits Emissions Trading

The Los Angeles Times today has the sad story (reg. req., alas) But here's the gist:

Federal authorities arrested an architect of one of Southern California's most ambitious clean air programs Wednesday, culminating an investigation into claims that she defrauded companies of tens of millions of dollars.
……
A decade ago, [Anne] Sholtz helped the South Coast Air Quality Management District design a controversial pollution program called the Regional Clean Air Incentives Market, or RECLAIM. It allows more than 300 companies, including some of the region's largest businesses, to trade "pollution credits" among one another, while capping the overall amount of unhealthful exhaust they are allowed to emit from their factories and power plants.

The year the program was launched, 1993, Sholtz started a Pasadena-based auction house where companies could buy and sell the pollution credits. Federal prosecutors now allege that she made fraudulent trades and other illegal transactions while acting as a broker in the system she helped establish. According to investigators, the bogus transactions proved costly to dozens of large oil and power companies, including Sempra Energy and Reliant Energy.

$13 million passed through her personal bank account in 2002, which is apparently suspicious, I guess. The parent company of her emissions trading exchange filed for bankruptcy in 2002, and aggrieved companies who did emissions-trading business with Sholtz have filed many multi-million dollar claims against that company. Among the schemes she is alleged to have indulged in are selling the same pollution credits to different companies.

I wrote about the early stages, theories, and realities of emissions-trading programs (including RECLAIM) intended to help manage pollution in Reason way back in 1996.