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UN Suspends Third Carbon-Credit Audit Firm

UN suspends latest carbon credit verification firms

Credibility of CDM receives yet another blow as major auditing firm is suspended

BusinessGreen, March 30, 2010

The UN's carbon offsetting scheme has become mired in yet more controversy after the panel overseeing the initiative suspended its third auditor in 15 months.

The executive board in charge of the Clean Development Mechanism (CDM) last week suspended Germany's TUEV SUED and also partially suspended Korea Energy Management Corporation, after spot checks undertaken at their offices revealed procedural breaches.

Both firms are recognised by the UN as so-called designated operational entities (DOEs) and provide official third-party verification of emission reduction claims made by projects operating within the CDM. Emission reduction projects have to gain approval from DOEs before they can sell carbon credits under the scheme, making their auditing and verification role essential to the credibility of the scheme.

The latest move follows a similar suspension of Danish verification firm DNV in December 2008 and of SGS UK last September, although both organisations were subsequently reinstated.

TUEV SUED is the second largest CDM validator and had approved 1,147 renewable energy projects – almost one fifth of the total – by the end of February this year.

It is also a major auditor of emission reductions, having verified that 100 CDM projects succeeded in cutting emissions by nearly 84 million tonnes, over a fifth of the 395 million tonnes cut as a result of the scheme.

In contrast, Kemco is a much smaller operator, having validated only 0.8 per cent of renewable projects and confirmed emissions cuts for a single initiative.

The CDM board said that TUEV was suspended for failing to follow procedures and also raised concerns over the qualifications of some of the company's personnel.

It also ruled the company had approved some projects despite having concerns over whether they adequately met "additionality" standards designed to ensure projects require CDM funding to make them commercially viable.

Kemco's application for reaccreditation was likewise rejected due to a number of issues, including concerns about inadequate staff qualifications.

Although both organisations are allowed to continue with existing verification work, they are prohibited from taking on new contracts.

The latest controversy follows criticism of the CDM scheme by the International Emission Trading Association at the end of last year, however. It warned that the initiative was "buckling under the weight of its own success" and called on the UN to increase the resources made available to manage it.

The CDM has also been slammed by green groups for allegedly approving renewable projects that would have gone ahead anyway without the extra revenue generated by selling certified emission reduction credits.

The move represents a further blow to the global carbon market after HSBC yesterday axed carbon trading firms Climate Exchange and Trading Emissions from its high-profile Climate Change Index.

The bank said the value of the two firms had fallen below the threshold for the index, primarily as a result of the failure to deliver progress towards a wider carbon market at last year's Copenhagen Summit.