London, UK (The Guardian) - According to a recent report in the Guardian, leading academics and watchdog groups allege that the UN’s main offset fund - the Clean Development mechanism (CDM) is being routinely abused by chemical, wind, gas and hydro companies who are claiming emission reduction credits for projects that should not qualify under the program.

The result is that no genuine pollution cuts are being made, thereby undermining assurances by the UK government and others that carbon markets are dramatically reducing greenhouse gases.

The Clean Development Mechanism is an international system established pursuant to the Kyoto Protocol that allows developed nations to meet emissions targets by funding clean energy projects in developing countries.

Under the CDM, greenhouse gas emission reduction projects in developing countries can earn saleable emission offset credits, called certified emission reductions (CERs), each equivalent to one tonne of carbon dioxide. CDM projects have so far generated more than 135 million certified emission reductions credits.

Credits from the project are being bought mainly by European companies and governments who are unable to meet their carbon reduction targets.

The market for these credits is growing fast. At present it is worth nearly $20 billion a year, but this is expected to grow to over $100 billion within four years.

A working paper from two senior Stanford University academics examined more than 3,000 projects applying for or already granted up to $10 billion of credits from the UN’s CDM funds over the next four years, and concluded that the majority should not be considered for assistance. “They would be built anyway,” says David Victor, law professor at the Californian University. “It looks like between one and two thirds of all the total CDM offsets do not represent actual emission cuts.”

This is not the first time the CDM Program has been questioned. A article published last year (Cleaning Up the Carbon Market) noted that U.N. regulators were very concerned that some independent auditors responsible for vetting the environmental legitimacy of CDM projects were letting developers push through ventures of questionable environmental value.

And while UN Regulators are responding to the criticism that the CDM scheme is plagued with incompetence and fraud by tightening up on their evaluations, others argue that the problem is much more profound. If the CDM were to be discredited entirely, polluters could no longer buy carbon credits and would each have to cut their own emissions which, according to most analysts, would cause significant rises in the price of goods to consumers.

Governments consider the CDM is vital to reducing global emissions under the terms of the Kyoto Protocol. To earn credits under the mechanism, emission reductions must be in addition to those that would have taken place without the project.

But critics argue this “additionality” is impossible to prove and open to abuse. The Stanford paper, by Victor and his colleague Michael Wara, found that nearly every new hydro, wind and natural gas-fired plant expected to be built in China in the next four years is applying for CDM credits, even though it is Chinese policy to encourage these industries.

“Traders are finding ways of gaining credits that they would never have had before. You will never know accurately, but rich countries are clearly overpaying by a massive amount,” said Victor.

A separate study published this week by US watchdog group International Rivers, an environmental think tank from California, argues that nearly three quarters of all registered CDM projects were complete at the time of approval, suggesting that CDM money was not needed to finance them.

“It would seem clear that a project that is already built cannot need extra income in order to be built,” said Patrick McCully, director of International Rivers in California. “Judging additionality has turned out to be unknowable and unworkable. It can never be proved definitively that if a developer or factory owner did not get offset income they would not build their project.”

A spokesman for the CDM in Bonn, Germany - quoted recently in an on-line environmental newsletter - said the fund was significantly cutting emissions and providing incentives for companies to employ clean technologies: “There is a responsible level of scrutiny. The process is in continual reform. All the projects are vetted independently and are then certified by third parties. There are many checks and balances and we can show how all projects are vetted.”

The UK government has defended the CDM. “We completely reject any assertions that [it] is fundamentally flawed,” said the UK government in a release. “We’ve worked consistently for and seen improvement in CDM processes over the past few years of its operation. We believe the CDM is essentially transparent and robust, though we will continue to press for the environmental integrity of projects.”