CDM Executive Board has conflicts of interest

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CDM Executive Board has conflicts of interest

Click here for full New York Times story

Secretive U.N. board awards lucrative credits with few rules barring conflicts

Nathanial Gronewold, E&E reporter 04/07/200

UNITED NATIONS — An insider’s account of the closed-door workings of
the heavily regulated system of the United Nations’ greenhouse gas
offset trading program suggests that its secrecy could be covering
serious abuses by board members whose task is providing lucrative carbon
credits to private developers.

While individuals selected to the Executive Board of the Clean
Development Mechanism are made to swear under oath that no conflicts of
interest will get between themselves and the companies they regulate,
there are no rules or criteria requiring members to recuse themselves
from deliberations when a conflict arises or is perceived.

For months, the board — the most tangible result of the Kyoto Protocol
— has been deadlocked over whether or not to establish a code of
conduct for avoiding conflicts because the vast majority of members
stand opposed to such a move. Asked for comment, the board’s chairman
insisted that the matter has not raised concerns.

But one current member has asserted that many on the board are operating
in a highly unprofessional manner when reviewing carbon offset projects
in developing countries and awarding developers with Certified Emission
Reductions (CERs), the credits offset companies can sell to governments
and into the European Union’s cap-and-trade program.

Among the concerns: Some CDM board members tend to aggressively promote
projects that benefit their home countries, or projects developed by
companies from their countries. Some board members derived from the
private sector could also be favoring applications submitted by their
former employers.

There is no evidence of any direct corruption or illegal activities. But
the lack of outside scrutiny of the board’s closed-door assessments of
companies and offset projects is resulting in a casual work atmosphere
that is likely encouraging other questionable practices, one member said.

“I have a real problem with the way we are operating in the board,” the
member said on condition of anonymity. “To put it very bluntly, we have
board members that are very active in defending projects that come from
their country or that are hosted in their country, or where some
companies have a particular interest in.”

More seriously, in the recent past, one board member may have acted on
behalf of an offset project development firm with which the member had
either an ongoing business relationship or some other financial link.
Other cases like this could have arisen in the past, as the world of
offset project experts is small and board members are often recruited
from private-sector CDM players or government offices that negotiated
the 1995 Kyoto Protocol agreement.
Allegation of bias in off-the-record proceedings

Several active board members did not respond to requests by E&E for
clarification or comment. But at least one official who has served on
the board in the past admitted to witnessing bias in the board’s
off-the-record proceedings.

“They have, of course, some political preferences because their specific
countries have an interest in this and that sector or technology,” said
Martin Enderlin, who was a board member from 2001 to 2005 and is now
director of government and regulatory affairs at EcoSecurities, a CDM
project developer.

“There could be also potential situations where you have conflicts of
interest, but it’s probably a bit difficult to see what would be the
right criteria to define what is a conflict of interest,” he said.

The board member expressing concerns over the way that body is currently
operating said the problem is primarily a result of the failure of
governments to provide any legal protections to shield board members
from retribution by companies with investments at stake. Although
ostensibly a U.N. organization, the board has no diplomatic immunity,
and members are as vulnerable to prosecution or lawsuits as anyone else.

This results in board members fearing that libel charges could be
brought against them in European courts if it were known that individual
members made certain comments against specific companies. The board has
already faced the threat of a suit at least once last year, when the
Argentine power company Capex SA hired a German law firm to help it sue
the board for its rejection of Capex’s application for CERs.

“Because of that, we have to conduct our business in a very strange
fashion, which means under closed session and in a very untransparent
manner,” said the board member. “Even if I think there is something
fishy, or there is false information, I can’t say so openly.”

CDM observers say the board is making headway in improving transparency
and helping outsiders to better understand how it reaches its final
decisions. But the mechanism’s supporters say bolstering public
confidence in the CDM is far more important to its future, and a code of
conduct could be an important step toward that end.
An oath abjuring conflicts, but they remain undefined

Under existing rules of procedure, board members joining the body must
swear under oath, “I shall have no financial interest in any aspect of
the Clean Development Mechanism, including accreditation of operational
entities, registration of CDM project activities and/or the issuance of
related Certified Emission Reductions.”

But board members and the CDM’s secretariat admit that there are no
explicit rules or working practices to guard against conflicts of interest.

“There is no bright-line test for determining what constitutes a
conflict of interest in the context of the board’s work, and the board
has not determined what factors should guide members and alternates in
determining what constitutes a conflict of interest or a perceived
conflict of interest,” said CDM spokesman David Abbass. “Board members
and alternates, therefore, are left to exercise their own individual

discretion for this determination.”

A review of the recordings of several past public board meetings shows
that a handful of members are taking pains to publicly demonstrate that
they are doing all they can to avoid conflicts of interest, while the
vast majority of board members apparently disregard it as a matter of
serious concern.

At the start of each public board meeting, members are asked to declare
openly whether they have any conflict of interest in the reviews of CER
applications on the agenda. Of the 20 individuals serving on the board,
only five or six mostly European members go into any detail at all,
saying, for instance, that in the past some conflicts did arise but that
they recused themselves from discussing those cases.

The rest of the members, who hail mainly from the developing world and
big CDM host countries China, India and Brazil, state simply, “I have no
conflict of interest.” Akihiro Kuroki, the Japanese board member,
usually announces that, although his nation is a potential buyer of
CERs, he personally has no conflict of interest.

In the most recent board meetings, recorded on Webcast and open to
public viewing on the Internet, an atmosphere of tension is evident at
the start when members go around the room to make their
conflict-of-interest declarations. The code of conduct issue has
apparently resulted in a rift within the CDM board.

A movement by a small number of Europeans to have the board finish and
adopt a code of conduct has been in the works for over a year now, but
the board member expressing dismay at the current situation said the
matter is going nowhere, as most are satisfied with the status quo.

But Enderlin, A Swiss national who also serves as the head of the newly
minted Project Developers Forum, said questions over conflicts and
abuses in the CDM board are exaggerated. While companies active in
creating carbon offset projects under the CDM have long called for
greater transparency from the board, Enderlin said a code of conduct is
a low priority for project developers.

“Of course you have certain preferences for certain issues where certain
nationalities have interest, but talking about the majority of board
members, I would not think that they would try to really push for their
personal or national interests,” he said.
Chairman: ‘This issue has never raised any serious concern’

Lex de Jonge, a Dutch member of the board currently serving as its
chairman, also denied that the lack of a code of conduct, or rules
detailing what constitutes a conflict of interest and how members should
act, has in any way polluted the board’s work.

“This issue has never raised any serious concern or seriously influenced
any decision, simply because all board decisions are taken by consensus
or, if that would not be possible, by a 75 percent majority,” said de Jonge.

Opponents of the Clean Development Mechanism tend to be skeptical of
carbon offsets in general. Past negative reports involved accusations
that the board had awarded CERs to unworthy projects, resulting in no
net benefit toward action against climate change.

On the flip side, offset project development companies frequently
complain that the board is too stringent. It can take a year or more for
a project to win CERs to sell into the global carbon markets, and
companies have long pressured the board to streamline its processes and
speed up the review period.

But since its inception, the CDM has spawned a flood of entrepreneurial
zeal, and it is largely given credit for better professionalizing and
enhancing the climate change industry, encouraging the growth of a new
professional class of experts in carbon emissions accounting, offset
technology and project auditing and verification.

To date, more than 4,200 offset projects are considered to be in the CDM
pipeline. The board has registered and awarded CERs to more than 1,500
projects, and the huge backlog and workload facing the board could
explain its relative lack of attention toward procedural rules.

The Clean Development Mechanism is also the chief link between the
developed and developing worlds in international climate treaty
negotiations. Those working to make the board more transparent and
professional say that actions like adopting a code of conduct will help
to better legitimize the CDM in the eyes of skeptical individuals and
governments, especially the U.S. government.

Should the United States link its future carbon market to the Kyoto
Protocol mechanism, and assuming the E.U. stays committed to it, the CDM
would likely emerge as a crucial link in an expanded global carbon
market. In a recent report, two Canadian climate change economists
estimated that about 36 percent of CDM projects involved technology
transfers, a key demand of China and other heavy developing world polluters.

But the CDM could cease to exist post-2012 if the continuing world
economic crisis sees companies turning away from it and if the gap
between the developed and developing worlds in ongoing negotiations
shows no sign of closing.


George Marshall,
Director of Projects,
Climate Outreach Information Network,

George Marshall contacts in Wales
Direct 01686 411 080
Mobile 0781 724 1889
E-mail george@coinet.org.uk
The Friary
Pen-Y-Green Rd
Llanidloes
SY18 6PG

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Posted on 11 April, 2009, in Uncategorized. Bookmark the permalink. Leave a comment.

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