africapractice in Point Carbon
Author: Gregor Pfeifer
Date: 29/09/2009
Carbon financing in Africa inches ahead
Africa is seeing an increase of interest in carbon financing, but deep challenges remain.
Once investors get over the hump of such challenges as political risk and poor infrastructure in Africa, they still have to cope with an uncertain future of the Kyoto protocol’s clean development mechanism (CDM).
“Africa is one of the hardest places to do business for structural reasons,” said Fabrice Le Sache, managing partner and co-founder of Ecosur, an advisory and brokerage firm for global carbon credit markets.
For instance, Ecosur has recently negotiated a carbon credit contract for a CDM project owner in the Ivory Coast, which is slowly recovering from a civil war earlier this decade.
“Understanding the complexity of political and economical dynamics is key to success in Ivory Coast, and this rationale can be applied to the whole sub-Saharan region,” he told Point Carbon.
In June, the municipal waste to energy project in the Ivory Coast city of Abidjan became the country’s first registered CDM project. It aims to generate 71,000 carbon credits per year.
Le Sache expects other CDM registrations in Ivory Coast.
For instance, a fuel-switch project using biomass starts validation in early September, while four other projects are under development in the West African country.
“We are starting validation for seven projects in five African countries before the end of 2009. We expect to triple this figure next year,” he added.
Progress remains slow
According to UN data, Africa is host to less than 2 per cent of the 1,749 projects registered to earn carbon credits under the CDM.
Almost half of the registered CDM projects are based in South Africa, which is the continent’s leading economic power and biggest emitter of carbon dioxide emissions.
So far four CDM projects were registered this year on the African continent, the same as in 2008.
“The long term trend line (in CDM activity) is up although very obscured by the economic downturn,” said Johan Van Den Berg of CDM Africa, a provider to advisory and project development services for CDM.
“I think CDM is much better understood now and a lot of capacity has been built,” he said, pointing out that “many projects have been initiated but they will take time to progress through the cycle”.
In the case of South Africa, he added: “The economic downturn has eased electricity supply constraints and caused a big focus on core business with some projects being delayed or shelved”.
CDM allows governments and companies in rich nations which have ratified the Kyoto protocol to invest in emissions-cutting projects in developing countries, in return for carbon credits.
However, all proposed CDM projects must first go through a strict validation and registration process before generating the credits.
Making commitments
“If there is a high level of political commitment, then it’s easier to attract investments – internationally as well as locally,” said Gregor Pfeifer, senior consultant at Africapractice, which provides advisory services for carbon markets.
He cited Tanzania as an example, saying that decisions about CDM financing have a high level of commitment from the president’s office.
While Tanzania only has one registered CDM project, at least nine more are in the pipeline.
Also, Pfeifer said that foreign-local partnerships are needed not only to ensure a steady flow of carbon financing but to cope with such challenges as poor economic conditions and political risk.
However, he said investors may still be reluctant to start new CDM projects in Africa and elsewhere, because of uncertainty about the future of the market after 2012.
For now the CDM only the Kyoto protocol’s first compliance period, running from 2008 through 2012.
The market’s future hinges on whether world governments can secure a post-2012 agreement at UN climate change negotiations in Copenhagen in December.
“African people have been used to failed promises and are paying attention to newcomers. Trust can be built exclusively on tangible and implemented projects,” added Le Sache.
By Jeff Coelho - jc@pointcarbon.com, http://www.pointcarbon.com/news/1.1174133