Poorer nations hit with 'exorbitant' consultancy fees for carbon offset projects

Nepalese government has paid a Norwegian consultancy €150,000 (£123,000) to get UN certification for biogas projects.

The UN-certified scheme that allows developed nations to pay for carbon reductions abroad instead of making domestic cuts has come under fire for paying high fees to consultants from rich countries.

The Guardian has learned that the Nepalese government has so far paid €150,000 for a Norwegian company to verify a greenhouse gas reduction programme, for which Nepal is seeking carbon credits. The money is paid via a World Bank contract with the company for this evaluation work; the bank then pays the consultancy for the work. Such a sum would pay for 340 of the small-scale carbon cutting projects the Nepalese government is trying to set up.

[27 August 2010: After publication of this article, a representative of the Oslo-based company used by the Nepalese government, Det Norske Veritas (DNV), contacted the Guardian to say that DNV disputes the figure of €150,000. Further information will be added to the story soon, when inquiries are completed. DNV also took issue with being described as a consultancy, noting that it does no consultancy work: "We only do validation and verification of in this case CDM (clean development mechanism) project activities."]

Meanwhile, in a separate case not involving DNV, the conservation charity WWF pays €20,000 (£16,000) per verification visit for a smaller project using the same technology, but under a different scheme.

Kyle Ash, a Greenpeace official in Washington DC called the fees "exorbitant" and questioned the entire UN-administered cap and trade system. "It doesn't seem like a good investment especially when there are other ways to reduce emissions," he said.

"We need to restrict global warming pollution [in industrialised countries]," he said. "And we need to finance clean development in third world countries. But the two things aren't connected."

Stein Jensen, a spokesman for DNV, said that there is such competition to provide verification services that the fees reflect the market rate. He added: "for small projects the transaction costs are high."

The UN says verification is necessary to ensure that schemes attracting carbon credits really do lead to reductions in CO₂, but it has currently approved only 33 companies worldwide to evaluate carbon offset projects.

Samir Thapa, an official with the Nepalese government's Alternative Energy Promotion Centre, said the demand for evaluators outstrips the number of companies available. "You may have to wait to validate your project for six months or one year," he said. "Economically, that's not very viable for the project, especially in terms of smaller projects like ours."

The Nepalese government has been working since 2006 to receive UN certification to sell carbon offsets for two biogas projects. The government subsidises farmers to install equipment that turns animal and human waste into methane cooking fuel. Under the scheme, local people will use less firewood and other fuels, thereby reducing carbon emissions.

Via the World Bank contract, the government paid DNV €150,000 (£123,000) for initial site visits and related services. It will have to pay €50,000 (£41,000) for subsequent annual visits. Nepal hopes to complete the UN-administered certification process by the end of this year and ultimately wants to build 200,000 biogas installations. It expects to earn $400,000 (£259,000) per year in carbon credits.

The biogas equipment currently costs $575 (£372) per household, a significant sum for farmers earning under $1,500 (£971) per year. The government offers partial subsidies, but farmers must spend some of their savings and take out microcredit loans to pay for the rest.

Villager Sabitri Dairi said the scheme had brought environmental benefits. "It's harmful to the forest and the environment to cut firewood down. There could be landslides and floods."

WWF helped finance the biogas for people in Badreni, a village in the south of the country near Chitwan national park. In a project separate from the Nepalese government's, WWF hopes to raise $1m for a microcredit fund by participating in the voluntary carbon offset market. Voluntary credits are not recognised by the UN as meeting a country's carbon reduction goals under the Kyoto protocol. But participants such as WWF must go through a similar validation and verification process as those who do.

WWF will get credit for each tonne of carbon not produced as a result of using biogas. It sells the credits to the Zurich-based NGO Myclimate, which in turn provides offsets to individuals, airlines and other European companies seeking to reduce their carbon footprints.

Thomas Finsterwald, project manager with Myclimate, admitted that the high fees make "it difficult to do small projects." He said inspection fees might eat up 40% of income for some other projects. "This is really a problem."

• This article was amended on 26 August 2010, to clarify that Nepal's payments for the services of Det Norske Veritas (DNV) are made via the World Bank.