Simpler carbon financing can accelerate sustainability in Africa

by ClickGreen staff. Published Mon 11 Apr 2011 12:32
Cookstoves underpinned by carbon financing
Cookstoves underpinned by carbon financing

There are an estimated 1.4 billion people around the world living without electricity. 2.4 billion rely on wood, charcoal, animal dung and kerosene for fuel. In East Africa, 90% of the population rely on solid fuels for cooking, typically charcoal or firewood for urban dwellers, and firewood for rural households.

The cost to the environment is significant. The wood collected or harvested to fire the traditional stoves, or to be converted into charcoal for use as fuel, consists of a high percentage of non-renewable biomass in most African countries.

Reliance on traditional fuels has human costs too. Two million people die every year from causes that can be traced back to exposure to smoke from cooking with biomass and coal and 99 per cent of those deaths occur in developing countries.

The problem is particularly acute for women, who spend hours each day crouching over small fires in homes with no or poor ventilation. The small children around them are equally vulnerable. Having to rely on firewood for fuel affects women’s lives in other ways too. As deforestation reduces supplies, women have to walk further and further to collect what they need and in conflict zones, women out collecting fuel are often at risk of attack.

The problem is not a lack of appropriate technologies. Clean and simple forms of lighting and cooking technologies have been developed. The problem is how to make these products affordable for the very poorest, those who live on less than US$2.50 a day.

D-Light’s solar powered lantern with mobile phone charging device, the Nova S250, won an award from Lighting Africa, a joint IFC and World Bank Programme, last year. Savings on kerosene mean payback rates for a household can be as low as four to six months. But the modest upfront costs are still beyond the means of most poor families.

A fundamental reason why products like this aren’t more widely in use is that small and medium-sized energy businesses lack access to finance. Without investment or backing, small and medium-sized energy enterprises are staying just that: small.

International non-profit GVEP International (Global Villages Energy Partnership International), however, has been working to find innovative ways to encourage the financial sector to offer more investment and backing and to connect energy enterprises with sources of funds including ‘carbon credits’.

Over the last year GVEP-I set up loan guarantee arrangements with a number of financial institutions and energy businesses, which enable lenders to lend with acceptable risk, small and medium-sized enterprises to borrow to invest in their businesses, and customers to pay for products like solar lanterns and improved cookstoves in affordable instalments.

The initiative is structured around a revolving guarantee fund, in which a portfolio of guarantees is made with different financial or intermediary institutions. This portfolio provides credit facilities to entrepreneurs, communities or clustered micro-enterprises. Once the guarantees have expired, the funds are then used to underwrite new loans.

The Women Empowerment Development Institution (WEDI), which manages funds for women’s savings and credit groups in central Kenya and promotes sustainable development, is one of the organisations that has benefited from the loan guarantee fund.

WEDI signed an agreement with BrazAfric, a supplier of D-Light solar lanterns, which was backed by GVEP International’s loan guarantee fund to cushion the financial risk for both parties. BrazAfric supplies solar lamps to WEDI, which distributes them to member groups on credit.
The initiative has so far been very successful. Demand for the lamps is currently exceeding supply and WEDI hopes that this affordable, energy-efficient lighting will enable the women to develop self-reliance and to grow their businesses.

The GVEP-I loan guarantee initiative is initially focusing on Kenya, Tanzania, and Uganda. However, the programme is also seeking to establish a methodology that can be applied in other African countries.

Consumer uptake of improved cookstoves, like solar powered technology, has also lagged behind expectation in East Africa. Again, it is not a problem of a lack of appropriate technologies; rather that lower-quality stoves are more readily available in the market and improved cookstoves, which are often imported - usually from Asia - are not only more expensive but also less suited to local cooking methods and less attractive to consumers.

There are domestic producers of improved cookstoves in East Africa. GVEP International for example, runs a number of technical and business training initiatives to help East African entrepreneurs to improve product quality and expand their businesses.

However, a well-made cookstove, whilst boasting a host of environmental and health advantages, can cost up to three or four times as much as their cheaper competitors, which puts manufacturers of improved stoves at a significant disadvantage in a price conscious market.

Cue carbon finance and the UN’s clean development mechanism (CDM), which allows developed nations to reduce their carbon emissions through funding clean energy projects in developing countries. The CDM has recently been adapted to make access to carbon finance easier to access for smaller energy projects, which has created opportunities for carbon financing which simply did not exist before.

The financial advantages of carbon financing are certainly attractive: a good efficient stove can amount to an emission reduction of up to 0.8tCO2 per year, which translates to a market value of around $4, a significant bonus for any producer. Carbon finance can be used to bring down the price of the products making them more competitive.

However, carbon finance is a complex area and many entrepreneurs are unaware of how to qualify and struggle to navigate their way through a jargon-filled application process.

“The complexity of the carbon markets means that it's often only large players that can put the resources into getting access to carbon finance,” says Anne Wheldon, Senior Advisor, at the Ashden Awards for Sustainable Energy, which commissioned GVEP International to produce an accessible guide to carbon finance.

The guide is designed to help energy entrepreneurs to understand better whether they should consider carbon finance more closely in their business plans, and to provide recommendations on the first steps to assess their potential.

GVEP International has recently signed a memorandum of understanding with the Uganda Carbon Bureau, one of the pioneers of carbon finance in East Africa, to help improve access to carbon finance for small cookstove producers. The Ugandan Carbon Bureau runs a Clean Development Mechanism Programme of Activities (CDM PoA), which acts as an umbrella for small cookstove producers in East Africa and aims to help them to earn the maximum amount of carbon finance as cheaply and easily as possible.

SMEs producing and selling improved stoves will receive advice and assistance from GVEP International to help them understand what is involved in registering under a PoA. GVEP International will also assist them in meeting the standards required.

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