U.N. suspends clean energy project auditor

LONDON Mon Dec 1, 2008 10:57am EST

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LONDON (Reuters) - The U.N. climate change body has suspended one of the largest auditors of clean energy projects under Kyoto Protocol, a move highlighting problems long aired by critics of the climate pact's greenhouse gas trading scheme.

Norway's DNV had their accreditation as project auditors suspended late last week for five "non-conformities" relating to its practices, the U.N. said after performing a spot check of the company's operations in early November.

The suspension means DNV cannot file for project registration or request credits under the Clean Development Mechanism (CDM) for its clients, which include project developers EcoSecurities and Trading Emissions.

"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," Chief Executive Henrik O. Madsen said in a statement, adding that the company was "surprised" at the decision.

DNV said the non-conformities related to project auditing and verification procedures.

This is the most visible recognition yet of problems with the CDM, with worries over project auditing long voiced by NGOs like International Rivers and WWF.

"The Board (carried out) two spot checks. One (company) was suspended and one was not," said the CDM Board's Martin Hession.

"The (company) can come out of this very fast ... within a couple of months," the CDM Board Chairman Rajesh Kumar Sethi told Reuters on the sidelines of U.N. climate talks in Poland.

Delegates from around the world meet this week in Poznan, Poland to attempt to lay the foundation for a new climate treaty, which may include reforms to the CDM.

A DNV spokeswoman said the company had not lost any clients as a result of the suspension, and would carry on as usual with project validation and verification work.

"We assume that we'll be back in business in January," the spokeswoman said. "We will be very quick in closing these non-conformities."

Under Kyoto's CDM scheme, companies from rich nations can invest in clean energy projects in developing countries like China and India, and in return receive offset credits which can be used toward emissions targets or sold for profit.

IMPACT

DNV is a major player in the $13 billion CDM market, having validated close to half of the projects registered by the U.N..

"Only a limited amount of our projects are close to issuance of (credits) and will be delayed due to the suspension," said DNV's spokeswoman. "We cannot at this stage quantify the exact figure of issued CER's potentially affected between now and when the accreditation is regained."

U.N. data show that CDM projects verified by DNV have received over one quarter of the more than 200 million credits issued to date, with over 900,000 in October.

"We've got a handful of projects with them that are in validation (but) we've diversified away from them," said Simon Shaw, adviser to Trading Emissions Plc.

The CDM market has been plagued by criticisms, with WWF saying last year that one in five CDM projects may have helped to increase greenhouse gas emissions.

The suspension also stresses an already strained credit supply pipeline, slowed this year by regulatory bottlenecks in the U.N.'s project approval process, heavier workloads for auditors like DNV and more complex project guidelines.

Observers said the suspension is a warning to others.

"It is a clear message to other (CDM auditors) to perform their work even more diligently," said Edwin Aalders of the International Emissions Trading Association.

"Overall the market will benefit (but) it will reduce the availability of (auditors) in restricted market."

For additional news and analysis on the U.N. climate talks or on the global carbon markets, go to here

(Additional reporting by Gerard Wynn in Poznan; Editing by James Jukwey)

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