Gross incompetence, rule-breaking and possible fraud by companies in the developing world have plagued the Clean Development Mechanism (CDM), which is supposed to offset greenhouse gases emitted in the developed world by selling carbon credits from elsewhere, the UN, an unpublished expert report and alarming feedback from projects on the ground have indicated.
One senior figure suggested there may be faults with up to 20 percent of the carbon credits -- known as certified emissions reductions -- already sold.
Since the credits are used by European governments and corporations to justify increases in emissions, the effect is that in some cases malpractice of the CDM has added to the net amount of greenhouse gas in the atmosphere.
The problems focus on the specialist companies that validate and verify the projects in the developing world that produce the certified emission reductions.
Three of those companies have failed spot checks, which revealed a catalogue of weakness.
Separately, one of the CDM's experts calculates that as many as one third of the projects registered in India are commercial ventures that do not produce any additional cut in greenhouse gases and were wrongly approved.
There are only 17 of these validating and verifying companies.
Most of them have a clean track record and have approved reliable emissions reductions, but three of them have been performing so poorly that the CDM's executive board ordered spot checks -- and all three companies failed on multiple grounds.
The findings on one company believed to have validated dozens of projects and verified millions of tonnes of carbon reductions were so negative that the board considered whether to suspend its right to operate.
The chairman of the CDM board, Danish energy consultant Hans Jurgen Stehr, insisted that in the end the problem was not bad enough to require any of the companies to be suspended.
However, he said: "This has been serious. We are talking about competence and the ability of the company to do a proper job."
In the formal language of the UN, the minutes record findings for each of the three companies of "non-conformities regarding ... its competencies to perform validation and verification functions, its quality assurance and quality control mechanisms and compliance with the CDM requirements ... procedural and operational requirements, such as its management and operational structure, contract control ... and compliance with its own stipulated procedures."
The board has called for a new regime for inspecting their work.
One source who has been working closely with the CDM board had seen some companies filing reports with "all kinds of basic errors, which make you wonder if they have any idea what they're doing."
The errors include an entire report written in a foreign language when basic rules require it to be in English.
One report was submitted with remarks such as "We must check this before we submit the report."
Other errors are said to be more serious, including conjuring up numbers when projects on the ground failed to provide them; giving a green light to commercial projects that do not make a contribution to reducing greenhouse gases and approving existing projects that cannot claim to be part of the drive to cut greenhouse gas emissions.