Bloomberg News

African Wind, Cook Stoves May Benefit From New Carbon Rule

July 29, 2011

(Updates carbon price in ninth paragraph.)

July 29 (Bloomberg) -- Wind turbines, hydro-electric dams and efficient cooking stoves in Africa and other regions may attract up to $1 billion in investment after the United Nations agreed on new carbon market rules that may grant such projects more emissions credits, according to ClimateCare.

The UN Clean Development Mechanism’s Executive Board, regulator of the world’s second biggest carbon market by traded volume, agreed this month on new standards for projects in places where basic human needs aren’t met. The new rule melds the CDM’s goal of reducing emissions blamed for global warming with an aspiration to transfer technologies that poor nations need to avoid higher-polluting development paths akin to Europe’s Industrial Revolution.

“With the new rules governing avoided future emissions, the less-developed countries of the world can avoid investments in fossil-fuel technologies and leapfrog directly to clean technologies,” Adam Harvey, a vice president at ClimateCare, said in a telephone interview. “It really doesn’t make sense to spend money on adopting dirty technologies and then spend money again on becoming clean.” ClimateCare, based in Oxford, England, is a unit of JPMorgan Chase & Co. that develops emissions-cutting projects.

Acceptable Standard

The so-called “guidelines on the consideration of suppressed demand in CDM methodologies” were approved during the executive board’s meeting in Marrakech, Morocco, that ended July 15. The guidelines include ways to calculate CO2 emission reductions in poor areas against a benchmark that represents so- called minimum service levels for heat, water and light. These levels represent an acceptable standard of living, which many communities have not yet achieved.

About a quarter of the world’s population don’t have access to modern cooking fuels or electricity, forcing them to use kerosene-burning lamps and cooking fuels such as wood and charcoal not just to cook but also to boil water to make it safe for drinking, Harvey said, citing United Nations Environment Program figures.

“It’s been a tremendous battle to agree on this because the issue of environmental integrity has been more prominent than the requirement to achieve sustainable development,” Steve Thorne, a Cape Town-based director at SouthSouthNorth Africa, a not-for-profit group advocating sustainable development, said in a telephone interview. “They’ve not allowed the use of predictive tools to estimate avoided future emissions either, and this is key for reducing the transaction costs of projects that take suppressed demand into account.”

Displace Coal

The new rules may tempt investors into projects they may have otherwise avoided, such as installing millions of fuel- efficient stoves into houses through to building hydro-electric plants and wind farms. These may displace the need for coal-fed stations or growing reliance on diesel generators in the poorest areas in countries such as Sudan, Uganda and South Africa.

“This guidance has been controversial in the past because it questions baseline assumptions in the world’s poorest and most undeveloped regions,” Martin Hession, chairman of the CDM executive board, said by e-mail today. “It is conservative because its application is limited to projects that can clearly demonstrate a situation of suppressed demand.”

Cover Costs

Rwanda hosts a CDM project that uses solar energy to purify water and earns 3,148 metric tons of credits a year. That’s worth about 29,000 euros ($42,000) at current prices on the ICE Futures Europe exchange. That won’t be enough to cover the costs of monitoring the project to ensure emissions savings, according to information on the Climate and Development Knowledge Network website. It could have been awarded as many as 60,000 credits a year, worth 551,000 euros, under the new standards, according to the website.

Thorne first highlighted the issue of suppressed demand in 2001 while attending the conference that brought about the Marrakech Accords, the rules governing the UN’s carbon market. The 10-year delay in agreeing these rules reflects the fact that “there was anxiety about the market response to emission reductions which may not be real and measurable under the normal definition,” Thorne said.

Demand for UN credits comes from companies participating in the European Union and New Zealand emissions trading systems, and from countries seeking to meet emission reduction targets imposed under the Kyoto Protocol. BP Plc and Electricite de France SA are among companies that invest in projects in developing countries to generate credits that can be sold to EU, New Zealand or Kyoto buyers.

Rural Power

“Developers are no longer in darkness as to whether a project which promotes clean development and avoided future emissions will go through,” Harvey said. Rural power projects to curb fossil fuels as well as cooking and water purification programs avoiding uncontrolled tree felling for charcoal and firewood, may boom under the new guidelines, he said.

China and India, two of the world’s fastest-growing economies, have been the main beneficiaries of the UN’s carbon market so far. Investors have flocked to the speedy industrialization which is causing CO2 emissions to soar and opening up greater opportunities to curb those emissions.

Emissions-cutting projects in China have issued 381 million tons of emissions credits since 2005. That’s 57 percent of total emissions reductions achieved so far under the CDM, according to UN data compiled by Bloomberg. Indian projects have issued 99 million tons, or 15 percent of the total, while projects in Africa have issued 8.9 million, or 1.3 percent.

Unlock Revenue

“The ability to use suppressed demand baselines will unlock carbon revenue for numerous energy related projects in poor countries,” Yariv Cohen, president of Camco International Ltd., a developer of carbon offset and renewable energy projects, said by e-mail. It can “create a far greater impact on both climate change and peoples’ lives across the continent.”

The UN’s carbon market was created by the 1997 Kyoto Protocol, an agreement ratified by 191 countries, excluding the U.S., that set emissions limits for developed countries in the eight years through to 2012. The market is governed by rules agreed under the Marrakech Accords in 2001. Nations are due to meet from Nov. 28 in Durban, South Africa, to negotiate a climate-protecting agreement to continue after 2012.

--Editors: Alessandro Vitelli, Rob Verdonck.

To contact the reporter on this story: Catherine Airlie at cairlie@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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