The red flags started to appear late last year, when an Arizona investment company contacted Washington’s Department of Ecology wondering how it might sell millions of dollars’ worth of greenhouse gas allowances.
Derek Nixon, who runs the state’s carbon market, grew confused.
The company, Climate Care Innovations, wasn’t legally allowed to own allowances, which are used by polluters to counterbalance their emissions. Sure, polluters and investors can buy or sell these allowances in Washington’s carbon market. But this company, CCI, wasn’t a part of that market, Nixon said.
So how could it claim to hold millions of these allowances potentially worth nearly $200 million?
The mystery is still unraveling, a trail of breadcrumbs leading from Arizona to Washington and California. But state regulators here now know enough to understand that CCI’s claims were spurious: It never held allowances and anybody who sought to buy them was likely being misled, state documents say.
Last month Ecology fined the company $425,000 and banned it from ever participating in the state’s carbon market.
This is the first time Washington has banned a company from its carbon market, marking a new stage of maturity for the still-young program. Nixon said he and his team must keep a close watch for scammers and evolve their vetting process to safeguard its integrity.
Washington doesn’t seem likely to collect that fine, though.
John Jensen, chair of CCI, said he won’t pay and, instead, plans to sue Ecology. These problems amount to clerical errors and miscommunication. The fine adds insult to injury, he said.
Via a phone call Monday, Jensen said Ecology can “kiss my ass.”
Warning signs
CCI put itself on the state’s radar. Representatives for the company emailed Ecology in December asking how they could sell their allowances.
“Right off the bat, this was fishy,” Nixon said.
That’s because CCI was registered with the state as an offset project operator. These companies do things that reduce the amount of greenhouse gases in the atmosphere, like planting new forests or capturing methane from livestock operations. Polluters can then buy offset credits to balance out their own emissions.
Allowances, on the other hand, are something the state’s major polluters are required to buy through the carbon market. One allowance equals one ton of greenhouse gas. Over time, the state will ratchet down the number of allowances sold, thereby reducing the amount of emissions pumped into the air.
Offsets credits and allowances are similar but distinct. And offset project operators aren’t allowed to participate in carbon market auctions or hold allowances.
So when Nixon saw that email, he immediately wanted more information.
Scrolling through the company’s website, state officials found more specifics.
“We also hold a robust portfolio of compliance allowances, including 3,338,124 allowances from the Washington Cap-and-Invest Program … and a significant number of EU ETS allowances available for ownership transfer,” the website said.
At the latest price of $58.51 in Washington’s latest carbon market auction, that many allowances would be worth more than $195 million.
The company’s website was taken offline in late July.
About as soon as Ecology reached out for more information, representatives from the company stopped responding. But Nixon’s team kept digging and, it turns out, other states are familiar with the group as well.
Climate Care Innovations
Precisely what the company does is unclear. Jensen speaks broadly about the scope of his work.
“We’re one of the few companies that perform project-specific methodologies and modalities as it relates to carbon projects,” he said.
Jensen described the company as a licensing group that connects the dots between polluters and other firms. Usually, he doesn’t have to explain the operation to people. Rather, they come to him, he said.
Jensen’s company, CCI, is just one under a broader umbrella operated by him, called the Prolific Fund. That group includes Kompo Green Inc., Botanlytics Inc., and FOD (Family Office Development) LLC. Jensen said he founded the group with his partners about two years ago and primarily operates between Washington and Arizona.
“We got an office in Cyprus, and I’m getting ready to go to Prague and open up some stuff in Prague and Dubai,” he said.
Jensen’s company registered as an offset project operator with Washington in summer 2023 and twice attempted to register as a “covered entity,” though the applications were denied both times. Generally speaking, “covered entities” are the state’s largest polluters, which are required to purchase emission allowances under the 2021 Climate Commitment Act.
Still, Jensen and his partner contacted Ecology saying they were involved in a “pending transaction” with a company looking to buy allowances, according to state documents obtained through an open records request. But Nixon said his team informed them the company did not own any allowances, requested more information and even offered technical assistance. Jensen stopped responding.
State regulators emailed, called and left voicemails. They even tried to track down the homes for high-ranking staff at the company. One person listed the address of an abandoned and, evidently, destroyed home in Pierce County.
Meanwhile, online, CCI continued to claim it owned millions of allowances.
That claim would have allowed the company to inflate its own value, pose as an important player within Washington’s carbon market and potentially attract new investors with that fraudulent information, according to a notice of penalty issued by Ecology in July.
Ecology revoked CCI’s registration within the program in February. Jensen filed no appeal or complaint. In July, the regulators issued the $425,000 fine and banned the company from the carbon market.
But the problems don’t stop there. In May, the Arizona Corporation Commission issued a cease-and-desist order, accusing Jensen’s companies (which are incorporated there) of securities fraud.
Through these companies, Jensen offered investments in the form of carbon offset credits and more, which would “transcend traditional returns,” according to the commissioner’s letter. Not only did he claim to have millions of allowances from Washington’s carbon market but he also claimed to have more than 2 billion “verified carbon credits” ready for trading.
Trades and sales would, in turn, funnel money to Jensen and his partners, at least two of which were not registered securities salespeople, according to the commission’s filing and Security and Exchange Commission documents. As of October 2024, one of Jensen’s companies claimed to have sold $266,000 in securities to more than 104 investors.
In another SEC filing, submitted last year, Jensen’s company claimed to hold $150 million worth of carbon credits and indicated it wanted to sell them. Seven percent of the profits from those sales ($10.5 million) would have been split among Jensen and his two partners, the filings show.
Jensen and his partners remain under investigation by the Arizona Corporation Commission and in the coming weeks will have a hearing to determine whether they broke the law, which could open them up to administrative penalties, restitution payments and criminal prosecution.
Miscommunication?
Jensen said he never bought allowances in Washington, rather he insists Ecology gave them to his company. He said he emailed the department in December only to ask how he could transfer them into his account so he could sell them off.
He and his partners didn’t respond to following inquiries because they were dealing with serious health conditions that forced them to travel for treatment, so they had no stable point of contact, Jensen said.
The whole ordeal can be chalked up to a miscommunication with Ecology, Jensen said. He plans to challenge the fine and defend his company “vigorously.” Not only is he considering suing Washington, but he said he has three law firms working on his Arizona case.
California’s another matter. Jensen said he’s managing projects eligible for the “Cap and Trade” market there.
But state officials in California say his company was denied entry to the market years ago after submitting incomplete registration information and ignoring requests for more details.
Back in Washington state, Nixon with Ecology said his team tweaked their vetting process a bit and sent out a message to carbon market participants to better clarify which companies can and cannot buy or sell allowances.
The main goal is to ensure Washington’s carbon market itself is protected and its reputation for safe business is untarnished, Nixon said. Regulators want to send a message they’re watching closely.
