The schemes get credits for cutting emissions of greenhouse gases, in tonnes of carbon dioxide equivalent, if they can prove the reductions are "additional" to business as usual. Credits for guaranteeed delivery trade at some 12 euros (US$15.6) a tonne.

"We have a good tool in additionality," said Einar Telnes, director of climate change services at Det Norske Veritas certification group which dominates the market for veryifying cuts in emissions.

But he added: "For those rejections we've been involved in, it seems quite an arbitrary decision. It looks like there are different standards to some extent". He said all sides needed to work for more consistent application of the yardstick.

So far the Clean Development Mechanism (CDM) board has approved 493 projects ranging from trapping methane from a dump in Bolivia to a geothermal scheme in Indonesia. It has rejected 11, including expansion of a hydro-electric dam in India and a project to improve sugar milling in Mexico.

Most controversial is the inclusion in the CDM of factories that produce refrigerants, largely in China, that as a by-product create HFC 23, a powerful greenhouse gas.

Investors can get CDM credits for destroying HFC 23, a relatively cheap process at some 20 cents a tonne.

Critics of this practice say that it is very wasteful to use the CDM mechanism to ensure destruction of these HFC 23s, when it would be far cheaper to give the factories directly enough money to install equipment that can destroy the gases.

DISTORTION

"HFC 23 emitters can earn almost twice as much from the CDM credits as they can from selling refrigerant gases -- by any measure a major distortion of the market," Michael Wara of Stanford University, California, wrote in the Journal Nature.

He said it would cost only US$100 million to pay producers to capture and destroy HFC 23 against about 4.6 billion euros (US$5.97 billion) in CDM credits. He said almost 30 percent of projects in the CDM pipeline were for destroying HFC 23.

The "obvious solution", he said, was to limit the CDM to carbon dioxide, rather than to six greenhouse gases covered by the UN's Kyoto Protocol.

The carbon trading chief at the UN Climate Change Secretariat said there would be no "perverse incentives" to build new refrigerant plants simply to get credits linked to HFC 23s.

"The idea of easy money is out of proportion. What CDM is doing broadly is to leverage additional investments to make a project financeable," said Halldor Thorgeirsson, the incoming director of sustainable development mechanisms.

"There are potential solutions on the table (for new HFC 23 facilities). The current way of doing it will be taken off the table. (Credits) would not be issued to the project," he said.

Among possible solutions, a public or private group would pay to destroy HFC 23 and get incentives to cover the cost. Or carbon credits could be issued to a government that would destroy HFC 23 and make emissions cuts elsewhere.

Telnes said it was right to include HFC 23s now because of a lack of regulation. "There's hardly any more of an 'additional' project than HFC 23 because without the CDM these gases would still be vented into the atmosphere," he said.

"We see the CDM as a success," said Daniele Violetti, the CDM team leader for registration and issuance.

On another key issue, governments have until 2008 to decide whether to allow technologies to capture out carbon emissions, for instance from a coal-fired power plant, and bury them below ground. That could lead to a vast expansion of the CDM.