LONDON A U.N. proposal to make project auditors liable for excess Kyoto carbon offsets could seriously damage the U.N.'s Clean Development Mechanism (CDM), the International Emissions Trading Association (IETA) said in a letter obtained by Reuters.
The letter responds to a U.N. board proposal to make project auditors or Designated Operational Entities (DOEs) responsible for issuing too many U.N. carbon offsets from projects which destroy the harmful greenhouse gas HFC-23.
"IETA is concerned that the risk to DOEs...is so great that it could lead to the decision to exit the CDM system," IETA said in a undated letter addressed to Clifford Mahlung, chairman of the CDM Executive Board.
IETA was not immediately available for comment.
The $2.7 billion CDM lets companies invest in emissions cuts in emerging nations and in return get offsets once the projects are verified by DOEs.
The Executive Board has delayed issuing offsets called certified emissions reductions (CERs) after claims that some refrigerant gas manufacturers, who earn CERs by destroying HFC-23, have been artificially ramping up production.
This week, the board could vote on making project auditors liable, which could mean they have to replace millions of CERs if there is evidence that manufacturers exploited the system.
Market players have also criticized the proposal, saying it could halt investment in clean energy projects and stifle CER supply. The association, which represents the emissions trading business community, is worried that auditors will withdraw from the market and projects could be de-registered if the board's plans are implemented.
"To create a process that allows the deregistration of a project that has already made its way through the time-consuming, tedious CDM process will send a very negative signal to a struggling market."
IETA said it was unfair to make auditors liable without evidence they have acted at fault and voiced fears they could be punished for instances where a project developer has misrepresented information.
Instead, the EB should make only DOEs who have acted "negligently, recklessly or with malicious intent" liable, IETA said.
IETA also asked for more clarification about a proposal to impose liability for "incorrectly applying a CDM rule or requirement," saying it was too ambiguous.
"Unless clarification is provided...it will be difficult for DOEs to take effective steps to avoid future excess credits," the letter said.
(Reporting by Nina Chestney; editing by Keiron Henderson)