Explosive growth in a US$2 billion United Nations (U.N.) carbon market — under the Kyoto Protocol on greenhouse gas emissions — is largely bypassing Africa, delegates told a Nairobi climate change conference November 7.
The U.N.-backed Clean Development Mechanism (CDM) allows rich countries that are exceeding their Kyoto emissions limits to fund projects in developing countries, including hydropower, that can avoid emissions. But buyers want confidence in projects, driving them to countries like China and India, and away from Africa.
“There’s been a revolution over the past 24 months in CDM,” the European Commission’s Artur Runge-Metzger said of the rapidly mounting investor interest.
A pipeline of 1,200 projects will generate emissions cuts through 2012 that exceed the annual greenhouse gas emissions of Japan, if they all get approval.
“The pipeline is growing exponentially,” said Jose Miguez, chairman of the panel that judges projects, speaking in a side event at the conference of 189 countries that have signed the U.N.’s climate change convention.
But of the US$2.3 billion in pledged emissions cuts, as of September, 75 percent came from China and India, and just 7 percent from the whole of Africa, a World Bank carbon market report showed.
Africa lacks institutions, up-front financing
Many African countries lack the basic institutions for setting up projects, leaving African businesses with nowhere to submit their project proposals. Besides that, local companies do not have the up-front cash to invest in projects; carbon investors only pay when projects are up and running.
“Even if you’ve got the capacity problem solved, the bigger question is where you get the money to implement CDM projects as a company in Africa,” said Philip Gwage of Uganda, another member of the U.N. judging panel. “All the investors are interested in is the (carbon) credits — ‘You go ahead and implement the project. Once the credits are ready we’ll buy them.'”
Gwage said developers first must find some kind of initial financing to stimulate CDM projects in Africa. Once the private sector sees it can make money, he said, it will invest there. Such help could include debt financing, Gwage said.
So far, highly profitable, industrial-scale projects in China and India have dominated the U.N. market, drawing fire from green groups that want CDM money to go to poor communities.
About 6,000 delegates attended the Nairobi talks to discuss ways to extend the Kyoto agreement beyond its 2012 deadline, and to look for ways to help developing countries adapt to climate change.