A Kyoto Protocol mechanism encourages developing nations to not improve factory efficiency, according to a United Nations methodology panel report released last week.

The $2.7 billion Clean Development Mechanism (CDM) allows companies and countries in the developed world to meet carbon caps by funding emissions cuts, called certified emissions reductions (CERs), in developing nations. The panel is concerned that this scheme would motivate factories to emit more greenhouse gases than necessary in order to earn more CERs.

“There is a strong incentive to … not improve the efficiency of the plant … during any refurbishment because of the CDM benefits,” said the report.

“Further investigation is required … to identify situations in which overestimation of CERs occurs and improve the methodology accordingly,” it added.

The U.N. methodology panel makes recommendations to the CDM executive board on the types of projects that should qualify for CERs. The methodology panel asked the board for guidance for its next meeting on July 26-30.

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