(September 21, 2009) The UN’s new plan to help regulate the carbon market will make auditors liable for their work, writes Brady Yauch.
As the controversies surrounding the United Nations’ (UN) carbon credit scheme continue to mount, the agency is trying to pass the buck on liability for exaggerated carbon-reducing claims. The Executive Board—the body that overseas the UN’s international carbon credit scheme, the Clean Development Mechanism (CDM)—has tabled a proposal [PDF] to make the companies that verify carbon emissions liable for excess credits.
The plan, in essence, would allow the UN agency to shift responsibility to police the market away from itself and ultimately, help shield the agency from controversy.
According to reports, the UN’s proposal will require carbon credit authorizing auditors, known as Designated Operational Entities (DOEs), to buy back excess credits if they over-estimated carbon reductions for a particular project. Secondary buyers, according to the UN would not be held liable if they purchased carbon credits that were wrongly issued.
To enforce the new rules, the proposal says the UN will conduct regular surveillance, including on-site visits. If the UN finds serious flaws in the validation reports of a DOE, it also retains the right to suspend or revoke the DOE’s licence to review UN-approved carbon credit projects.
Unsurprisingly, the International Emissions Trading Association (IETA), which boasts the major auditors and many of the banks invested in the carbon market as its members, says the proposal would seriously damage the CDM.
In a letter obtained by Reuters, IETA said: “IETA is concerned that the risk to DOEs…is so great that it could lead to the decision to exit the CDM system.” IETA also said the proposal, which will impose liability for, “incorrectly applying a CDM rule or requirement,” is too ambiguous.
According to Reuters, IETA believes it is unfair to make auditors liable without evidence they have acted at fault and is concerned about situations where a project developer has misrepresented information.
But, says Patricia Adams, Executive Director of Probe International and watchdog of carbon markets, the role of the auditors is precisely to expose project developers who are misrepresenting their emissions reductions. If neither the auditors nor the UN are prepared to stand by their carbon reduction estimates, then why should the public have any confidence in buying them, she argues.
The dispute comes after the UN said it is reviewing the issuance of new carbon credits for the destruction of HFC-23, a by-product in the manufacturing of the refrigerant gas HCFC-22. According to Bloomberg [PDF] , UN regulators have frozen new credits to plants emitting hydrofluorocarbons HFC-23 until it completes a comprehensive investigation to ensure the projects are not producing excess credits.
The move by the UN, and subsequent reaction by the auditing and emissions trading companies, shows the difficulty—and likely impossibility—of policing the global carbon market. Proving emission reductions has been controversial from the get-go.
The current set-up means the UN is the ultimate arbiter of projects in the developing world that are approved to receive carbon credits. As a result, it has become mired in a number of controversies regarding the environmental benefit or accuracy in measuring the emissions reductions of these projects.
Now, it plans to pass the buck to the auditors—who, for obvious reasons, are resisting.
Adams thinks that if the carbon credit market actors aren’t prepared to take responsibility for the quality of their product, this may be a sign that the “market” for carbon credits is imploding. “If the market participants can’t monitor and enforce standards for carbon credits,” she says, “then this may spell the end of the carbon credit market experiment.”
Brady Yauch, Probe International, September 21, 2009
Further Reading from Probe International:
- Subsidizing monoculture plantations: Indonesia officials want palm oil farms to receive carbon credits
- Devil is in the (lack of) details: citizens left in the dark on carbon credit schemes
- Scamming the carbon markets in ten easy steps
- Paying the polluters: The carbon credit way
- Carbon credit fraud makes its way to Liberia
- It’s official: global warming solutions will destroy the environment
- Power taken from the people: UN carbon scheme threatens to ‘recentralize’ forest governance, spelling doom for forest ecologies
- The Offsetters’ Paradox: Wind mills in China highlight incurable problem with international carbon credits
- Carbon may turn subprime
- Carbon offset companies: the new snake oil salesmen?
- Coming soon to a carbon market near you: regulation and corruption
- Gasping for air: Carbon markets stumble, again
- The great carbon con
- Carbon markets deflating in the wake of Copenhagen
- The state of affairs for carbon
- Breathe of fresh air: banks pull out of carbon market
- The next big scam: carbon dioxide
- Russian Roulette: Russia’s surplus of carbon credits too big of a gamble for some
- Group tracks carbon credit trading and issues warning
- Carbon credit scams add to the growing list of alleged fraud cases
- At what cost are carbon credits funding hydro projects in the developing world
- How Kyoto credit scams work
- Carbon Boondoggles
Categories: Carbon Credit Watch