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UN suspends leading carbon-offset firm

Emissions trading rocked as Norwegian company is left in limbo.

As international climate talks began last week in Poland, the United Nations (UN) suspended the work of the main company that validates carbon-offset projects in developing countries, sending shockwaves through the emissions-trading business.

Environmental groups have criticized the social impact of the Xiaoxi hydropower station. Credit: C. Larson

Based in Oslo, Det Norske Veritas has in the past four years validated and certified almost half of the 1,200 projects approved under the 1997 Kyoto Protocol's Clean Development Mechanism (CDM). At its meeting on 28 November in Poznań, the CDM's executive board temporarily withdrew Det Norske Veritas's accreditation after a spot check carried out in early November at the firm's headquarters revealed serious flaws in project management.

The board did not specify which projects are affected, but cites problems with the company's internal auditing processes, and says that one of its staff members was verifying CDM projects without proper qualifications. As a result, "validation activities could not be demonstrated to be based on appropriate sectoral expertise", the board reports.

Det Norske Veritas is a risk-assessment and consulting company with about 8,000 employees in more than 100 countries. Its 2007 revenue was 8 billion Norwegian krone (US$1.1 billion). It was the largest of 19 companies entitled to validate and certify projects proposed under the CDM, which aims to cut greenhouse-gas emissions by promoting climate-friendly energy technologies, such as wind or hydropower.

Certified emission-reduction credits from verified projects can be traded and sold on the emissions market, helping industrialized countries to meet their emissions-reduction targets under the Kyoto Protocol. However, only environmentally sustainable projects that would demonstrably not go ahead without additional revenue from sales of these credits are meant to be approved.

It is very unfortunate, but we don't want to start arguing about the decision. Tore Høifødt , Det Norske Veritas

Det Norske Veritas says that it is surprised by the board's strong reaction, and promised immediate action to regain its accreditation. "It is very unfortunate, but we don't want to start arguing about the decision," says Tore Høifødt, a senior vice-president and director of corporate communication for the company. "We feel that CDM, an emerging business, is still under development. We do have the required competencies, but we accept that we have to improve."

While suspended, Det Norske Veritas cannot propose new CDM projects to the UN for formal approval. Høifødt says that 20–30 projects currently in the process of validation are likely to be delayed, and that the company will not take on new projects for as long as the suspension is valid. It will continue to validate and verify ongoing projects.

Critics of CDM have long warned of possible conflicts of interest, pointing out that private companies such as Det Norske Veritas have a business interest in not deterring customers by being too critical about proposed projects.

The environmental campaign group International Rivers, based in Berkeley, California, for example, claims that firms such as Det Norske Veritas and the Munich-based TÜV-SÜD Group, the largest German verifying company, have been too lax in their assessment of the social and environmental impacts of hydropower projects in India and China.

The companies reject these accusations. "Our reviews, such as of the Xiaoxi hydropower project in China, are carried out in agreement with guidelines set up by the World Commission on Dams," says Thomas Oberst, a spokesman for TÜV-SÜD. The company has not yet had a spot check by the CDM executive board, but expects one very soon, he adds.

Since 2005, when the Kyoto Protocol came into force, CDM projects under way in 51 countries are thought to have saved some 250 million tonnes in greenhouse-gas emissions. The UN hopes that the scheme will help to abate almost 3 billion tonnes by the end of 2012, when the Kyoto Protocol is due to be replaced by a new treaty, currently being debated at Poznań.

But analysts say that ensuring reliable verification is a serious problem, and that the decision to suspend the largest player sends a powerful signal to others in the business.

"The UN has made clear it won't stand for lax validation," says Martin Kruska, a CDM expert with the First Climate Group, a carbon-trading consultancy near Frankfurt, Germany. "This is a warning not to be ignored."


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For a blow-by-blow report of the Poznań conference, visit _Nature_'s blog

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Schiermeier, Q. UN suspends leading carbon-offset firm. Nature 456, 686–687 (2008).

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