UN suspends top CDM project verifier over lax audit allegations

Critics of the UN's Clean Development Mechanism (CDM) carbon offsetting scheme were given fresh ammunition today, when the UN announced it is to suspend the company that has been responsible for checking the validity of almost half the emission reduction projects in the scheme.

In a shock move, the UN said it had suspended Det Norske Veritas (DNV) from verifying CDM projects after an investigation carried out in early November revealed flaws in its auditing processes and found that the individual who had signed off reports on five separate projects had not actually surveyed them.

The company is the largest single verifier of CDM projects and is responsible for checking that those projects permitted to sell certified emission reduction (CER) carbon credits are delivering the additional carbon emissions reductions that they promise.

The UN said DNV will remain suspended from the CDM until its verificiation processes have been improved.

DNV chief executive Henrik Madsen expressed surprise at what he considered to be an overly aggressive move by the UN.

"We acknowledge and accept that we have to improve in some areas, but in our opinion a temporary suspension is a strong reaction by the CDM Executive Board, " he said in a statement.

DNV says it hopes to regain its license within one to two months and will continue its verification work on current projects, though it can not pass any forward for official registration with the UN until its suspension is revoked. It added that those projects already accredited within the CDM will be unaffected by the suspension.

The move is particularly surprising given the UN has recently worked with a number of designated verifiers to produce a verification manual which clarified the necessary processes for approving and verifying projects. The manual was formally accepted at the last meeting of the Executive Board of the CDM and is in the process of being applied by verifiers.

Arne Ike, an analyst with research firm Point Carbon, said that the UN ban does not necessarily mean DNV is guilty of cutting corners in its verification processes.

"Much of this work is done in a grey area, especially establishing whether a project is additional or not," he said. "There seems to be some miscommunication between the verifiers and the executive board over the necessary standards, which has resulted in this suspension."

The concept of additionality has been a vexed topic for the CDM since its inception. A verifier must prove that any project that receives funding through the CDM would not have happened if that funding had not been forthcoming, but this has often proved difficult to ascertain given the project operators have a financial incentive to claim that they can only operate with the revenue generated from the sales of CERs.

Green groups have repeatedly criticised the scheme for providing millions of dollars worth of financing to projects that either deliver minimal emission reductions or would have gone ahead regardless.

Sara Stahl, business development director at carbon exchange the European Climate Exchange, said that in the face of this criticism the UN was under pressure to maintain the "environmental integrity" of the CDM, adding that as such it had to take a tough stance when the credibility of the scheme was compromised.

"[Accreditation and verification] is the backbone of the scheme," she said. "The US already has concerns that the CDM is not delivering additional emission reductions, so the onus is on the UN to prove that it is."

The UN is due to look at the case for reforming the process by which CDM projects are accredited at this week's climate talks in Poznan. Verifiers have claimed for some time that the case-by-case method currently in use is slow and leads to bottlenecks in the system.

One source familiar with the talks said that the DNV investigation is effectively a gambit in these negotiations that will help the UN to demonstrate that the current methods for accreditation are working.