Series: Carbon emissions reduction trade opens energy options for Kenya


Mbogo, Steve
Steve Mbogo is a freelance journalist, working frequently for Business Daily in Kenya. Based in Nairobi he has trained in several training institutions including the International Institute of Journalism in Berlin-Brandenburg.

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Series: Carbon emissions reduction trade opens energy options for Kenya

Mbogo, Steve
Winner: Sub‐Saharan Africa Regional Award
Business Daily (2009-05-28)
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Kenyan companies lose out on carbon emissions trading

Business Daily (2009-01-22)
Despite its potential to grow beyond the trillion shillings mark, not many know of its benefits

Emissions from a factory in Tokyo, Japan. Kenyan firms are not taking advantage of their potential to exploit the carbon credits market, Reuters

Kenyan companies are losing out on the global carbon emissions trade, a system where industrialised nations invest in clean energy projects in poorer nations and in return get offset credits which can be used towards emissions goals or sold for profit.

A survey by the Business Daily showed that no company in Kenya has so far earned a cent from the carbon market despite Sh8.8 trillion changing hands in carbon emissions exchanges last year, according to research firm New Carbon Finance.

This figure was a 84 per cent jump from the 2007 global carbon market worth, and could reach Sh11.2 trillion this year.

But three Kenyan companies could earn at least Sh1 billion in the next five years from the carbon credit projects that are now in the development stage.

Responses from senior executives in Nairobi found that while the awareness of carbon market is fast catching up, access to information on carbon trading is still lacking.

But this could change following the pitching of camp in Nairobi of two carbon market consulting firms J.P. Morgan ClimateCare and Co2 Balance, which are already working with some companies here to boost development of the trade.

KenGen, Green Belt Movement, Mumias Sugar Company, East Africa Portland Cement are some of the Kenyans companies engaged in carbon market projects.

But the earliest any of them can earn some money from the trade could be 2012, when the current regulations governing global carbon trade popularly known as Kyoto Protocol will expire.

Fredrick Njau of the Green Belt Movement attributed this delay partly to failure by local banks to understand carbon market, spawning hesitance to fund carbon market projects.

 "Banks are still not yet ready to invest in this area," Mr Njau said.

Carbon trading was started in 1996 as one of the ways to enable organisations, mostly manufacturers in the West and Asia offset their excess carbon dioxide emissions to atmosphere. Carbon dioxide is the principle contributor to global warming, considered the "greatest risk" facing the existence of humankind in this century.

Usually, companies with huge carbon dioxide emissions pay a fee for every tonne of the carbon dioxide they emit as a result of their activities.

This fee is then paid to another company involved in activities that help reduce carbon dioxide emissions, enhance manufacturing efficiency or supporting green projects that facilitates absorption of carbon dioxide from the atmosphere like reforestation.

The trade has expanded to include use of renewable energy like geothermal to produce electricity and use of improved wood fuel stoves or jikos, which reduce the pressure to cut trees because they use a fraction of the wood.

 In Kenya, carbon emissions projects with all these features are currently ongoing. The projects are tied to the carbon market window regulated under Kyoto Protocol, and the emerging window known as voluntary offset market.

In the certified market, payment is made based on a unit called certified emission reductions (CERs) while voluntary emission reductions (VERs) works for the voluntary market. Green Belt Movement is for instance involved in both windows of the market. The organisation is growing 2,000 hectares of trees in Aberdares and Mt Kenya forest for the regulated market.

A further 2,000 hectares are being grown under the voluntary carbon market. The World Bank has agreed to buy the carbon emission reduction units from the movement at Sh300 per tonne. The movement is seeking to earn at least Sh120 million initially from the trade.

The prevailing price for CER is about Sh900 per tonne while voluntary emission reductions are selling at Sh580, according to New Carbon Finance consulting company.

Market for the CERs has fallen by 20 per cent per unit in the last six months as a result of reduced demand for carbon credits informed by a drop in manufacturing process in the West; itself an effect of the financial crisis. Prices from emissions resulting from reforestation are usually lower because of the debate surrounding the permanence of trees. Some experts argue that when trees are grown to absorb carbon dioxide, their ability to perform the same task ends when they are cut.

But others urge the importance of reforestation because deforestation is responsible for 20 per cent of the global warming.

Mr Njau said the company started growing the trees in 2007. "We are likely to start earning by 2012. The money we earn will be used to support other tree growing areas and income generating activities among the participating community members," he said.

Tom Morton heads the J.P. Morgan ClimateCare unit based in Nairobi. The company is buying carbon credits from organisations and also initiating projects that generate CERs, then sell those units at a profit in London.

Last year, the company clinched deals with cement maker East Africa Portland Cement (EAPC) and the Muhoroni Sugar Company.

JP Morgan ClimateCare will purchase 105,000 tonnes of carbon credits annually worth Sh80 million. The carbon credits will be earned through reduction in the use of clinker in cement manufacturing, main raw material in the making of cement, leading to lower consumption of fuel oil in the firing process.

JP Morgan ClimateCare is waiting to conclude deals in three other projects, all of which are in the energy sector. "One is a community hydroproject located in the Aberdares area," he said, pointing to the impact of carbon trade to the grassroots level.

Fund investments

 In Uganda, the company promotes use of improved jiko, which has successfully reduced the amount of charcoal needed and eventually the number of tree that are cut down.

 He said there is a need to educate the financial sector in Kenya on carbon market so that it can fund related investments. "The local financial sector do not understand the concept [of carbon market] and there is need for capacity building in this area."

He said the real value of carbon market in Kenya would be unlocked if companies substantially cut down on energy while earning revenue from such initiatives. He said although there is uncertainty on carbon market beyond 2012, continuity would be guaranteed as humanity confronts the threat posed by climate change.

KenGen is also eyeing at least Sh300 million before the end of 2012 as proceeds from the carbon market deal it signed with the World Bank in 2006.

The company is seeking to earn the credits from the development of Olkaria II Unit 3 Project which is expected to produce 35MW of electricity when it starts operation around May 2010, according to KenGen communications manager, Mike Njeru.

The other projects include optimisation of Kiambere Power Project for additional 20MW and redevelopment of Tana Power Plant for additional 10MW.

These three projects are at the validation stage, which is being carried out by risk management company DNV of India under appointment of the World Bank. "KenGen has not earned any money so far from sale of carbon emission reduction units.

The process is only completed after the projects have been commissioned and operated for a certain period which is used to certify the emission reduction levels before the CERs are issued. Only issued CERs can be traded in the carbon market," said Mr Njeru.

Mumias Sugar Company is also eying Sh75 million annual revenue for the next 10 years from the sale of certified carbon emission to the Japan Finance Corporation.

Through use of sugar cane process waste (bagasse) that currently gets dumped, to generate steam and power for its internal operations, it will produce power of up to 35MW and therefore 100,000 tonnes of carbon dioxide equivalent.

Although the earnings were expected to start this year, it was not possible to confirm from the management if this has happened as the phones of senior officials went unanswered.

Low energy

In addition to JP Morgan Climate- Care's involvement in community hydro-power projects, another company known as Co2balance is also taking the benefits of the carbon trade to the grassroots.

The company says on its website that it is working with local social groups in East Africa to replace the use of open fires for cooking with energy efficient cooking stoves. "These stoves reduce firewood consumption by half and save in the region of three tonnes of greenhouse gas emissions a year, 15 tonnes over the five year life span, in comparison to traditional cooking methods," read the company's statement.

Its other initiative involves providing low energy bulbs to rural communities. These bulbs consume around 20 per cent of the energy used by the equivalent incandescent bulbs. It is estimated that over seven years three low energy bulbs will save one tonne of carbon dioxide.

The company gains by selling the certified emission reductions in the carbon market exchanges.

Other Kenyan organisations known to be involved in carbon market include African Conservation Trust and the media company Capital Group.

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