Building capacity to attract carbon markets

Industrialised countries can earn greenhouse gas emission reduction credits by investing in projects that lower emission levels in developing countries, but little of this money has found its way into Africa.

This could be about to change. On 6 December at the climate change conference in Bali, Indonesia, the United Nations Framework Convention on Climate Change (UNFCCC) announced that efforts were being made to direct more money into Africa.

Industrialised countries can earn the credits under the Clean Development Mechanism (CDM), one of three options offered by the Kyoto Protocol to meet their emission reduction targets. They are required to reduce greenhouse gas emissions by at least five percent against a 1990 baseline in the Protocol's first commitment phase, which expires in 2012.

"There are 850 Clean Development Mechanism projects in 49 developing countries, but only 23 of those projects are in Africa," said Yvo de Boer, Executive Secretary of the UNFCCC. "It's time that the benefits of this important Kyoto Protocol mechanism were expanded in Africa."

''Marginal women farmers in Burkina Faso or Ethiopia are not well placed to negotiate with carbon brokers in the City of London, and carbon brokers seeking to minimise transaction costs have an inbuilt preference for large suppliers of mitigation credits''

The problem with the CDM is that it is a market-based mechanism, said Antonio Hill, climate change policy advisor at Oxfam, the UK-based development agency. Most environmentalists opposed inclusion of the CDM in the Protocol.

The idea behind the CDM was that it would allow industrialised countries to reduce greenhouse gas emissions more cheaply by financing emission reduction projects in developing countries, where costs are lower. Countries like China and India, which have organised themselves so as to attract carbon markets, have benefited.

"Africa has not created a market; besides, it is accountable for a small amount of greenhouse gas emissions, so it is a bit perverse to try to expand CDM in the Least Developed Countries, particularly in Africa," Hill pointed out.

Moreover, finance flows have been heavily skewed towards greenhouse gases like hydrofluorocarbons (HFCs), rather than carbon dioxide, especially in countries such as China and India, said the UN Development Programme (UNDP) Human Development Report 2007/2008.

"Because the cost of destroying these gases, which account for over one-third of all emission credits, is much lower than the price that credits can make on the open market, carbon trading has generated large profits for chemical companies and carbon brokers. Benefits for the world's poor have been less evident."

By setting up CDM projects, the developed world can help steer developing countries towards sustainable development while helping them reduce emissions.

In 2006, a round of negotiations on implementing the UNFCCC established the Nairobi Framework, assembled by six UN agencies to help developing nations, particularly in Africa, obtain increased funding to promote clean energy technology, such as wind and hydropower, and manage the climate threat.

The agencies attempted to spread the benefits of CDM and several more projects were launched in Africa, but the continent still accounts for just 2.6 percent of all CDM projects, according to the UNFCCC.

The way of the market

"It is unfortunate that the CDM has chosen to operate like foreign direct investment, driven by the market," said Daniel Violetti, coordinator of the Nairobi Framework.

The UN agencies are attempting to change that with a comprehensive project proposal, for which they are seeking donor support. "It is a two-year project which will attempt to build capacity in African government to build markets to attract CDM projects," he said.

The six-country CDM capacity development project - in Ethiopia, Kenya, Mauritius, Mozambique, Tanzania and Zambia - was launched in October 2007 and is jointly run by the UNDP and UN Environment Programme, and managed by a UNDP Regional Project Coordinator based in Addis Ababa, Ethiopia.

No flexibility

Market barriers are just one of the problems limiting developing country participation said the UNDP report, citing current rules for the flexibility mechanisms in the Kyoto Protocol that restrict the scope of carbon financing linked to land use.

The more "serious structural problem is that groups such as small-scale farmers and forest dwellers do not have opportunities to engage in carbon markets, partly because the markets themselves are remote, and partly because they lack marketable rights in land and environmental resources," the UNDP report pointed out.

"Marginal women farmers in Burkina Faso or Ethiopia are not well placed to negotiate with carbon brokers in the City of London, and carbon brokers seeking to minimise transaction costs have an inbuilt preference for large suppliers of mitigation credits."

Social organisation is one of the keys to tapping the potential of carbon markets for sustainable development, the UNDP report noted. "We are looking at trying to make it [CDM] more flexible - it is something that the post-2012 mechanism could look at - but we are looking at afforestation, waste management, land degradation; sectors which could work for Africa," said Violetti.


Photo: UNFCCC
Most of carbon markets' investment has gone to India and China

The UNDP said social organisation had helped in the instance of Kenya: in 2006, Greenbelt Movement, an environmental NGO, successfully marketed a programme to reforest two mountain areas as part of an emissions reduction agreement, so women's groups will be planting thousands of trees with the money coming from a carbon trade for removing 350,000 tonnes of carbon dioxide from the climate system.

Konrad von Ritter, Sector Manager for Sustainable Development at the World Bank Institute, said capacity building had resulted in a pipeline of 30 CDM projects already in Africa in the past year.

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