Carbon Market Watch

For fair and effective climate protection.

Non-compliance by DOEs should be sanctioned (Newsletter #3)

05 Sep 2009

During the upcoming meeting, the Board will agree on the draft policy framework to monitor performance and address non-compliance by DOEs.

Designated Operational Entities (DOEs) are accredited third party entities that are responsible for evaluating proposed CDM project activities against requirements established by the COP/MOP and the CDM Executive Board (validation) and verifying that the monitored emission reductions have actually occurred (verification). Originally, the expectation was that the Board would only intervene in exceptional cases and that DOEs would have the main responsibility for ensuring that CDM projects meet all requirements. However, the outcome of several spot checks by the Board and the high number of reviews and rejections of projects by the Board clearly show that the current system in which DOEs have the main responsibility to ensuring the integrity of the mechanism has failed.

Commissioned by WWF, the Öko-Institut has published a rating of DOEs in May 2009 assessing to what extent DOEs are fulfilling the requirements and expectations of the CDM Executive Board (EB). The rating includes 900 projects of the DOEs. In the rating none of the DOEs scored well. On a scale from A (best) to F (worst), TÜV-Nord and TÜV-Süd are leading the rating with a D, followed by SGS with an E rating. BV Cert and DNV get F scores and are at the bottom of the table.

The high number of poor quality projects in the pipeline goes hand in hand with the poor performance of DOEs. The current weak mechanism which allows the common practice of DOEs to copy paste information from PDD to PDD without seriously considering the details needs urgent improvement and real sanctions for non-compliance. According to current standards, buyers cannot trust the environmental and social quality of CDM credits.

Action to be taken by the Board: During the upcoming meeting, the Board will agree on the draft policy framework to monitor performance and address non-compliance by DOEs. While CDM Watch welcomes this move, it calls on the Board to include the following items into the policy framework:

  • All identified non-compliances and grades for DOEs shall be made publicly available. A facultative publication is not sufficient.
  • The proposed categories must include non-compliance with the stakeholder consultation process.
  • Each case of non-compliance must go hand in hand with a request for public comments related to the non-compliance. Frequently local stakeholders have access to information that is important to judge the degree of non-compliance. For example, regarding additionality assessment local stakeholders can assess whether the validator took into account locally available information regarding investment parameters, barriers and common practice.
  • A wider set of sanctions should be developed. This would provide incentives for DOEs to implement internal procedures that ensure that validations and verifications are undertaken as required by the Board. For these sets of sanctions, rigorous criteria are needed:

– A DOE should be suspended automatically if it has failed three times to meet a key requirement of the CDM.

– A spot check at the DOE should be triggered automatically if two reviews have been requested by the Board.

– The Board should also introduce financial penalties for DOEs if they fail to meet requirements (i.e. the correct application of the Verification and Validation Manual ).

  • If non-conformities in the validation or verification process are detected in cases where CERs are issued in excess after the registration of the project or after the issuance of CERs, the DOEs should have a general obligation to replace the CERs issued in excess.