African businesses will earn carbon credits with new regulations

A loan scheme and guidelines adopted at this year’s African Carbon Forum in Addis Ababa are aimed at smoothing Africa’s entry into carbon markets, with East Africa set to play a leading role.

The move is designed to allow more African countries to adopt the Clean Development Mechanism (CDM), introduced by the United Nations Framework Convention on Climate Change (UNFCCC), which involves implementing emissions reductions projects and earning carbon credits. This has been adopted by many developing countries, but so far Africa has been lagging behind as a result of the lack of methodology. Of the registered 3,927 CDM projects across the world, only 84, just over two percent, are in Africa. East Africa seems to be the preferred destination for carbon investors, offering real opportunities to renewable energy businesses in the region. Seven of the nineteen carbon sequestration projects in Africa are based in Kenya, Uganda and Tanzania.

Carbon credits have become big business, with wealthier countries offsetting their pollution by paying developing economies to launch clean and renewable energy projects, as well as planting trees. Tackling climate change, it can also be of economic benefit to developing nations. The World Bank says that the carbon market can earn poorer nations more than $25 billion every year. Numerous companies also have the potential to earn carbon credits through reducing their emissions. Companies who deal with cooking stoves, domestic biogas and green charcoal can earn credits, as can those involved with small-scale hydroelectricity, LED lighting, solar water heaters and water purification and industrial companies in the cement, biodiesel and sugar sectors. Some firms are taking advantage of this. Kenyan firm East African Portland Cement began a project in 2010 that would enable it to sell carbon emissions for $1.7 million annually, while KenGen and Mumias Sugar Company are also engaged in carbon trading. Yet in general uptake in Africa has been limited.

The low global carbon price may have contributed in making entering carbon markets less attractive to African countries. Prior to the financial crisis projections that the price of a carbon credit would range from €30-€40 per ton of emissions by 2030, yet the crisis means that carbon credits are currently worth about €4 per ton. The cost of setting up the required infrastructure was also debilitating, hence the decision to introduce the loan scheme. Developers will be able to use the loans to build up their projects before demonstrating their ideas to investors and carbon credit buyers.

The United Nations Environmental Programme (UNEP) last year launched a scheme with the World Agroforestry Centre to calculate how much carbon trees and soils actually absorb and has estimated that selling 100 million carbon credits would earn African economies an estimated $1.2 billion each year. He added that the challenge was to make sure that such opportunities were available to everyone.

In the past carbon finance has not been employed for rural development, but experts agree that soil carbon has the potential to be of great importance to soil fertility and sustainable agriculture in rural Africa. It also provides a link between these and climate change mitigation on the continent.

The new regulations are likely to make it easier for CDM projects to take off in Africa. They will benefit from 2013 from privileged access to the EU Emissions Trading System (ETS), with market observers expecting richer African nations to agree deals with the EU.

There is a feeling that, with projects already in place and further assistance to come for further developments, Africa is the next big theatre for carbon finance. Rob Kelly, a senior technical advisor with the UN Development Programme (UNDP), thinks the spread of carbon finance in Africa is just a matter of time after the scheme took off in more-developed Asia.

 

 

Image 01 - Addis Ababa. Sam Effron.