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Carbon Trade Verifer Suspended by UN

Written By Gopal Krishna on Wednesday, December 24, 2008 | 10:39 PM

Note: Based in Oslo, Det Norske Veritas has in the past four years validated and certified almost half of the 1,200 projects approved under the 1997 Kyoto Protocol's Clean Development Mechanism (CDM). The suspension of the work of the main company that validates carbon-offset projects in developing countries has sent shock waves through the emissions-trading business.

Critics of the UN's carbon trade through Clean Development Mechanism (CDM) have been vindicated. Det Norske Veritas (DNV) was suspended from verifying CDM projects after an investigation carried out in early November, 2008 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.

DNV 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.

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.

Analysts say failure in establishing whether a project is additional or not may have 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.

If the UN agrees with verifiers who wish to do away with the current case-by-case method that slows down the process, it would compromise its own environmental integrity further. DNV investigation and suspension is meant to demonstrate that the efficacy of methods for accreditation being practiced.

Gopal Krishna

Top Kyoto CDM credits verifier suspended

Det Norske Veritas has been suspended from verifying projects under the Kyoto Protocol’s Clean Development Mechanism (CDM).

The company was one of the first auditors to gain CDM accreditation in 2004, and is the first to be suspended (ENDS Report 351, p 12 ). It has validated nearly half of the 1,261 projects qualifying for certified emission-reduction credits (CERs).

The CDM’s Executive Board decided to suspend Det Norske Veritas at its 28 November meeting, after a spot-check at its Oslo office earlier in the month found five so-called non-conformities. These related mainly to internal auditing procedures and documentation.1

In a review of five sample cases, the board concluded that "validation activities could not be demonstrated to be based on appropriate sectoral expertise", due to a lack of written evidence.

While it is suspended, Det Norske Veritas cannot submit new projects for registration or request new CERs, but ongoing registrations can continue.

In a statement, the firm said it was surprised at the board’s "strong reaction".2 It acknowledged some shortcomings and said it will do its "utmost" to regain accreditation, which it expects to take one to two months. They expect 20-30 projects in process to be delayed.

If confidence in validation and verification of projects fails, the whole CDM could be undermined. Critics point to a broader potential for conflict of interest among auditors, who might not be best served by highlighting the shortcomings of prospective customers’ plans (ENDS Report 395, pp 38-41 ).

Further information

* 1. List of non-conformities (http://cdm.unfccc.int/EB/044/eb44_repan02.pdf)
* 2. DNV statement (http://www.dnv.com/press_area/press_releases/2008/dnvtakesactiontoregaincdmaccreditation.asp)
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