Carbon Market Watch

For fair and effective climate protection.

Record of project and issuance reviews based on DOE non-compliance (Newsletter #6)

09 Feb 2010

In 2009, 660 projects requested registration. Due to non-compliance with registration requirements, 367 reviews were requested and 163 projects were finally reviewed. During this 52th EB meeting, the number hits records: 117 projects will be discussed. Review is requested of 82 projects and 35 projects are already under review and might be rejected. Also the number of reviews for issuance of CERs has grown: The Board will have to double check whether 23 projects qualify for the requested issuance of 4.587.937 CERs, equalling more than 55 Mill € and 4 requests of issuance are already under review. In other words, whether the DOEs have done their job right or whether their non-compliance adds to non-additional credits on the carbon market.

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.

The Board is finally responding to the poor performance of DOEs with past suspensions of DOEs (DNV and SGS) as well as recently conducted spot checks of formerly well reputed DOEs TÜV-SÜD and TÜV-NORD that might lead to suspensions during this EB meeting. However, it is not only the growing number of reviews that is worrying but also the serious concern about registered projects and issued CERs that have already slipped through the process with less scrutiny and quality. According to current standards, buyers cannot trust the integrity of any DOE that is currently accredited under the UNFCCC to deliver acceptable environmental and social quality of CDM credits.

To address the serious downfalls of the performance of DOEs, the Board has adopted a policy framework to monitor performance and address non-compliance by DOEs and will discuss a first progress update of the policy during this meeting. Unfortunately, this first progress update lacks substance and did not take CDM Watch´s recommendations to ensure a robust monitoring system on board. Therefore, CDM Watch recalls its recommendations:

Action to be taken by the Board:

Transparency: Ahead of presenting the initial thresholds for non-compliance during their next meeting, the findings of the current performance analysis must be made public. As a next step, all identified non-compliances and grades for DOEs shall be made publicly available. Publicly available information about the performance of DOEs is a first and efficient step to support overall improvement of the quality of validation and verification work performed by DOEs. Each case of non-compliance must go hand in hand with a request for public comments related to the non-compliance.

A wider set of sanctions should be developed. This would provide incentives for DOEs to implement internal procedures that ensure that validations and verification 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. correct application of the Verification & 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 must replace the CERs issued in excess.