Carbon Market Watch

For fair and effective climate protection.

Pressure by DOEs to limit their liability (Newsletter #4)

12 Oct 2009

During the next meeting, the Board will consider the “concept of materiality”, which would limit the liability of DOEs for errors in checking data in PDDs and accompanying documents.

In theory, DOEs are held responsible for any CER which may be inappropriately issued. In such cases, DOEs have to replace a corresponding amount of “valid” CERs for those CERs issued in error. The EB has finally shown in its new regulation for Programme of Activities that this potential “buy back” sanction is a serious option.

However, in practice, this situation has never occurred. But DOEs remain concerned over their liabilities and have pressured the EB to set a materiality threshold. They argue that without the application of materiality a DOE should be 100 % sure that no wrong figure or statement is given within the assessed documents no matter what significance such a mistake would have. Well, CDM Watch understands that it is indeed the task of DOEs, to ensure that no wrong figures or statements are given in the PDD and assessed documents.

Even DNV and SGS UK, the two DOEs that were suspended in December 2008 and last month respectively, were never held responsible for any excess CERs issued on the basis of their non-conformities. SGS UK was unable to prove that its staff had properly vetted projects that were then approved for the carbon-trading scheme. It even failed to prove that they were qualified to do so.

Action to be taken by the Board: The Board should not give in to the pressure by DOEs to set a materiality threshold for limiting the liabilities of DOEs. In order to safeguard the environmental integrity of the CDM, CERs issued in excess have to be replaced by a corresponding amount of “valid” CERs. No difference should be made whether the error concerns 1 or 1000 ton CO2e as even minor errors may result in significant deviations.