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Think carbon credits for projects!

fpasoutpolecarbonkornikjon.jpgWhen a project promoter in Africa is considering and researching a project, he/she should stop and think whether there is any way the project can be adjusted to be more environmentally-friendly and capture or prevent greenhouse gas emissions – in order to earn increasingly-lucrative, and increasingly-traded, carbon credits in foreign currency. Even if the project envisaged is not big enough in one place, the promoters should consider whether it can be aggregated with other projects in order to create a sizeable enough project together to benefit from this additional income stream.
Carbon dioxide is the best-known greenhouse gas, but methane is 21 times more damaging (and therefore 21 times more valuable for carbon credits); nitrous oxide is, likewise, at a multiple of 310 to carbon dioxide; hydro-fluorocarbons are up to a multiple of 11,700; and sulphur hexafluoride is at a multiple of 23,900.
There is no doubt that a project has to be big in order for carbon credits to be an economic proposition – because of high "transaction costs" for registering it (including multiple approvals). However, this does not exclude smaller projects if they can be aggregated.
The approval process for carbon credits will cost E50,000-E100,000 ($75,000-$150,000). This means that in the best situation at least about 30,000t of carbon (or a proportionately smaller amount of the other more damaging gases) has to be captured/prevented in order for any project to be economic.
Nevertheless, if "critical mass" for a project can be achieved, potentially huge amounts can be earned from carbon credits.
For instance, the Omnia nitrous oxide abatement project in South Africa cost about $9m to install, and yet it can earn about $13m per year on carbon credits.
According to Jon Kornik, the Africa representative for South Pole Carbon, 26 CDM (Clean Development Mechanism) projects have been registered in sub-Saharan Africa (which means that these projects have the potential to earn from the highest-priced carbon credits, created in terms of the Kyoto Protocol).
Fourteen of those 26 are in South Africa and 12 are in the rest of Africa (but most of those 12 are in North Africa, not sub-Saharan Africa).
India, for instance, is far ahead of Africa, with many more  registered CDM projects. However, awareness of the potential of carbon credits is rapidly advancing in Africa.
Almost all African states (Zimbabwe is an exception) are among the 181 states which signed the 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change. Therefore, theoretically, investors in these countries qualify for the CDM mechanism.
But many countries in Africa do not have an efficient Designated National Authority (DNA), which is the first gateway to approval for the CDM system.
Kornik says there is risk involved until a DNA can prove it operates effectively by approving a relevant project.
Therefore companies in those countries should also, for the moment, consider the alternative voluntary system of earning carbon credits.
The voluntary system
The voluntary system was in place before the CDM system and today there are many forms of the voluntary system.
What has changed is that in the past two years demand for carbon credits of all kinds – CDM and voluntary forms – has increased considerably from international banks, large corporations, etc, which want to be carbon-neutral. This is often not because they have to adhere to legislation, but in order to enhance their images.
This means that a project promoter will have no shortage of buyers. It is also the main reason why the price of carbon credits is increasing and is likely to continue so.
The voluntary system is useful for project promoters to consider because the rigorous standards required for CDM approval (assuming the country has an efficient DNA) do not necessarily have to be met.
For the voluntary system there are different standards; the buyer specifies the standards which it requires, then it commissions a company like South Pole Carbon to find equivalent projects.
The highest standard in the voluntary system is the Gold Standard which was designed by the World Wildlife Fund (WWF) and is endorsed by 50 other NGOs (non-governmental organisations) and charitable organisations.
The problem with the voluntary system is that its carbon credits are priced at up to 50% below CDM carbon credits; also, buyers are not generally willing to make long term contracts for them.
Low-hanging fruit
There is a wide variety of projects which, in the correct circumstances, would qualify for carbon credits of one type or another.
An important general criterion is additionality – the project must not be viable without the addition of the revenue from the carbon credits.
Another important criterion is that it must result in sustainable development – the more sustainable, the higher the quality of the credits and the more likely that they will fetch a premium price, especially after the Kyoto Protocol expires at end-2012.
In some cases, pioneering technology in a particular country will qualify for carbon credits. For instance, in South Africa the pioneering use by one company of a particular control system which saves energy use in air compressors will qualify for CDM carbon credits – even though the same technology no longer qualifies in many other countries because it is commonly used there.
Says Kornik : "An important question is always what the baseline is … what is happening at present?"
Generally, the most likely possibilities for immediate carbon credit-earning projects in Africa are:

  • Municipal landfill waste dump projects. These generate methane which builds up over time and is slowly emitted from them. There are various well-established technologies which allow the installation of wells into sites which draw out gas. The methane can then be flared or can be used to, for instance, drive electric turbines (potentially earning more carbon credits).
  • Indigenous tree forestation projects. Forestry is a relative newcomer to the fast-evolving carbon credits system. As with other projects, forestry projects would have to be fairly large – a minimum of about 5,000ha – to qualify.
  • Micro hydroelectric projects.
  • Aggregations of agricultural projects – for instance jatropha. Kornik says that of all the requests concerning carbon credits from Africa, most are for jatropha projects. Anyone who has a credible possible project will find carbon credit customers for it, he says. Jatropha planted for rehabilitation of mining areas could earn carbon credits and produce a valuable resource from this previously-unproductive land. A possible alternative to jatropha is miscanthus, a perennial, high-yielding non-invasive grass with potential for use in land reclamation and energy production (see http://miscanthus.uiuc.edu/ ). Another alternative is moringa from India, which can also be used to produce foods and medicines. More on these in subsequent editions!
  • More energy-efficient housing developments. Individual households would be too small for carbon credits (as an energy-saving equivalent to about 250,000 CFL (energy-saving) bulbs are required), so aggregation would be necessary.

Aggregation
Whether or not carbon credits are CDM, aggregation is becoming increasingly important for smaller projects. But for this there are further complex requirements:

  • All the projects/units must be identical technologically. For instance, the energy-saving technology in each house in a housing estate must be identical.
  • All must comply with the same proof of additionality.
  • When aggregated, the project must be of the required size (as above).

There are two ways to aggregate:

  • A single composite project in one location. For instance a jatropha estate may be made up of smallholders, or a housing estate may have identical units in regard to greenhouse gas savings or alternative power.
  • A programme of activities with multiple owners across different regions.

Kornik says his company operates in all sectors and will examine any potential project. It is willing to take on the full risk – to only be remunerated once the project is registered successfully.
South Pole Carbon: Tel +27-11-280-6620;
j.Kornik @southpolecarbon.com