September 1, 2010 / 1:14 PM / 9 years ago

OFFICIAL CORRECTION-Sanctions may hurt CO2 auditors

* EB delays three more HFC-23 issuance requests

* EB meeting includes proposal to make auditors liable

* If passed, could have serious financial implications

(Point Carbon withdraws reference to Jiangsu Meilan Chemical Co and replaces with an HFC project in Ulsan)

By Nina Chestney

LONDON, Sept 1 (Reuters) - A proposal to make carbon emissions auditors liable for issuing excess U.N. carbon offets would hurt the verifiers and could both cut supply and increase demand for credits, Point Carbon analysts said.

Under the U.N.’s clean development mechanism (CDM), companies can invest in emissions reduction projects in developing countries and in return receive carbon offsets.

The offsets — called certified emissions reductions (CERs) — can be traded and bought by emitters to offset their carbon dioxide output.

From Sept. 13 to 17, the CDM’s Executive Board will hold a meeting. The meeting’s agenda contains a proposal to make clean energy project verifiers, known as designated operational entities (DOEs), liable for issuing too many CERs.

Last month, the executive board delayed issuance of CERs from HFC-23 destruction projects, which account for around half of the 430 million CERs issued to date. [ID:nLDE67G1GZ]

The board has launched an investigation into whether some refrigerant gas manufacturers, who earn CERs by destroying the greenhouse gas by-product HFC-23, had been ramping up production.

This week the board has delayed another three HFC-23 CER issuance requests, totalling 3.5 million tonnes of CO2, Point Carbon reported.

These include requests from Zhejiang Dongyang Chemical Co., Limin Chemical Co., and an HFC-23 project in Ulsan, South Korea. The board has delayed ten requests from eight different HFC-23 projects since the start of August.

EXCESS

“This draft procedure, proposing the correction of significant deficiencies and the excess issuance of CERs, would be a very tough provision,” said Kjetil Roine, manager at Point Carbon, in a statement.

It could also be applied retroactively so that a DOE is forced to replenish the CERs it previously incorrectly issued.

“Should 10 percent (or about 22 million) of already issued HFC-23 CERs be deemed as inappropriately issued, it would cost the DOEs in question up to 150 million euros ($189.6 million) to replace these CERs at current prices,” the analysts said.

In comparison, the operating profit for DNV, one of the largest DOEs, was just short of 150 million euros in 2009.

If the board approves the proposal, it would be up to a U.N. climate meeting in November in Cancun, Mexico, to make a final decision.

If the sanctions are then imposed, there would be delays to the validation and verification of projects in general as DOEs would be much more careful in their assessments. Some might even withdraw from the carbon business altogether.

CER supply would be constrained and demand increased at the same time, if HFC-23 CERs are deemed “excess” and are replaced by other CERs, the analysts said. (Reporting by Nina Chestney; editing by Keiron Henderson)

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