CDM Auditing Process Cheats the Climate

Investigative reporter Mark Schapiro's most recent article, "Conning the Climate" provides an inside look into how Clean Development Mechanism (CDM) projects are validated and verified, as well as the many problems that arise.

Schapiro aptly describes validation as the "Achilles' heel of the system" due to the flawed concept of additionality. Not only is additionality unprovable, but the project validator, known as a Designated Operational Entity (DOE) in UN speak, has to rely on the project developer's explanation.  By the way, did I mention that the project developer hires the validator?  As you can imagine, the judgment of DOEs are often selective.

There is also a revolving door between validators, verifiers, project developers and trading firms.  Many validators and verifiers move on to the more lucrative field of project development and then ask their former colleagues to audit projects.  Many project developers are also in the business of trading carbon credits. For example, JP Morgan Chase owns Ecosecurities, the world's leader in developing carbon offsets projects, and also trades carbon credits globally.

Leaving aside validators and verifiers for a moment, offsets themselves are an interesting commodity.   Once the UN CDM Executive Board registers a project, carbon credits can be sold on the market as a type of futures contract, representing the estimated reduction of greenhouse gas emissions sometime in the future. Yet, what happens if during the verification stage it is found that the emissions reductions were spurious? Or if it is later found that the verification was false?

Nothing happens, as there is no way to remove credits from the market and no one is held liable for junk credits. Although negotiators foresaw this issue when the CDM was being developed, they decided to sidestep the problem by not addressing it.  The end result is that "we're conning the climate,"  according to my colleague Sanjeev Kumar from WWF's European Policy Office.  Emissions go up instead of down.

Fundamentally though, the problem is that validators and verifiers are given an impossible task to prove the additionality of credits and determine the appropriate quantity of credits. The minute a non-additional project is approved, the climate has already been conned.  We'll never be able to screen out bad projects with high accuracy because it is impossible to prove that something would not have happened without the aid of crystal ball.  If you happen to know any good fortune tellers, please let me know!