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An ounce of prevention: opportunity structures for white-collar crime in environmental markets

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Abstract

Markets, in which participants are given a right to pollute that can be bought and sold, are an increasingly popular form of environmental regulation. The bulk of research in this area focuses on market implementation, efficiency, and effectiveness, but merely notes the need for strong government oversight. Despite large-scale instances of fraud in several markets, detailed understanding of what monitoring and enforcement mechanisms will effectively protect market participants is lacking. Research on criminal opportunities is primarily limited to a few studies of the European carbon market. In the following paper, we begin to fill this gap in the literature. We draw upon Benson and colleagues’ extensions of routine activities and situational crime prevention theories to examine how business systems, processes, and networks increase or reduce opportunities for white-collar crime. Specifically, we assess whether these reconceptualized opportunity theories explain the differing levels of known white-collar crime in two domestic markets: the United States Acid Rain Program and the U.S. Renewable Fuel Standard Program. Implications for theory and practice will be discussed.

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Notes

  1. Therefore, if a source emits 5000 tons of SO2, it must hold at least 5000 allowances, which are worth 1 ton of SO2 emissions each.

  2. The RFS program classifies biofuels as either total renewable fuels, advanced renewable fuels, cellulosic biofuel, and biomass-based fuel. Currently, the majority of biofuel produced in the United States is ethanol made from corn starch, which falls under the renewable fuel category [11].

  3. Failure to surrender a sufficient number of RIN’s to cover the party’s obligation results in civil penalties of over $30,000 per day plus disgorgement of any economic benefit that resulted from the failure to comply (Schnepf and Yacobucci, [53]).

  4. We focus on literature on the Acid Rain Program, the RIN Market, and general overviews of environmental markets. With the exception of research on criminal opportunities that is directly relevant to this study, we exclude any literature that only examines the European (or other) carbon markets.

  5. Frunza and colleagues [26, 27] use forensic econometric methods to quantify the impact of the VAT fraud on European carbon allowances markets. They estimate the impact to be approximately 1.3 billion pounds sterling.

  6. We acknowledge the potential for undetected fraud in the ARP. However, given the age of the ARP, criminal activity would have likely been detected by now. In addition, emissions are continuously monitored [12] and the EPA generates ARP credits. Therefore, generating fake credits or misreporting credits would be difficult and detection of those fraudulent activities would be relatively easy. These dimensions of the ARP market are important for understanding criminal opportunities and are discussed in further detail below.

  7. Obligated parties with excess RINs can also hold them to surrender or sell during the following year (Schnepf and Yacobucci, [53]).

  8. However, no company can generate allowances themselves. Rather, the EPA controls the creation of these credits. [2]

  9. This distinction between the victim and the target is comparable to discussions of routine activities theory and property crime. In property crime research, the victim may be a person or the household, whereas the item stolen (e.g., lightweight electronics) is the target [18].

  10. For example, one offender (Rodney Hailey of Clean Green Fuels) parked numerous new cars in front of his neighbors’ houses, forcing the school bus driver to take an alternative route and parents to walk longer distances to drop off their children. Many of his neighbors complained to the authorities, helping to launch one of the largest fraud investigations in the history of the EPA [19].

  11. The National Biodiesel Board is working to establish a more formal process for RIN certification called the RIN Integrity Network. Through the network, obligated parties can access information on legitimate biodiesel producers. It remains unclear to what extent the network is being utilized [60].

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  1. School of Criminal Justice, Michigan State University, 655 Auditorium Rd. Room #508, East Lansing, MI, 48824, USA

    Carole Gibbs & Denzel Pugh

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  1. Carole Gibbs
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Correspondence to Carole Gibbs.

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Gibbs, C., Pugh, D. An ounce of prevention: opportunity structures for white-collar crime in environmental markets. Crime Law Soc Change 67, 133–151 (2017). https://doi.org/10.1007/s10611-016-9667-x

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