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.