Postcard from Marrakesh - Using suppressed demand to increase Africa’s share of the carbon market

Postcard from Marrakesh - Using suppressed demand to increase Africa’s share of the carbon market

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Date: 8th July 2011
Type: Feature
Country: Africa
Tags: carbon emissions, climate finance, carbon markets, Clean Development Mechanism, Clean Development Mechanism, clean technology, emissions reductions, greenhouse gas emissions, low emission development

By Shehnaaz Moosa, CDKN Africa Research Coordinator and Lisa McNamara, CDKN Africa Knowledge Management Coordinator

Day three of the ACF, and there are so many exciting meetings to go to. A ‘must-attend’ session was on ‘Suppressed demand and the carbon markets – does development have to become dirty, before it qualifies as clean?’

What is suppressed demand?

Suppressed demand (SD) has become a hot topic lately. Applying the concept of SD in the carbon markets is a powerful way to increase Africa’s share of the carbon market and enable the poor to gain wider access to carbon finance from the Clean Development Mechanism (CDM). The CDM is a tool established by the Kyoto Protocol to reduce global greenhouse gases (GHGs). It allows polluter nations to invest in GHG reductions projects in developing countries to offset their emissions. By raising carbon credits and selling them through the CDM, developing countries can finance development projects that reduce GHGs. The CDM was established as a mechanism to aid sustainable development.

One irony of the CDM is that the biggest polluters stand to earn the highest carbon revenues because they can achieve significant reductions of GHGs. Poorer regions, which have historically emitted less GHG from burning fossil fuels because of constraints on economic growth and development, would have to increase their emissions before they could raise substantial carbon revenues: their development would have to become dirty, before it qualified as clean!

Accounting for SD in determining emissions reductions in carbon projects, however, is an effective means for the CDM to help drive access to basic services while mitigating climate change. SD is where demand for basic services, like energy or water, is constrained either due to poverty or lack of infrastructure. By accounting for SD in CDM projects, it’s assumed energy demand will rise over time as the provision of energy services improves. Calculations of emissions reductions in these projects aren’t based on past or current energy demand (which is low), but future expected consumption levels. Development projects, including those that provide or extend basic services to the poor, can claim more carbon credits and generate greater carbon finance revenue. The result: more viable projects under the CDM, greater access to basic services, and cleaner technology and development pathways.

The well-attended session at the Africa Carbon Forum (ACF) was organised by Groupe Energies Renouvelables, Environnement et Solidarités (GERES) in partnership with CDC Climat to improve understanding of supressed demand.The panel featured William Battye (GERES), Steve Thorne (SouthSouthNorth, CDKN’s representative organisation in Africa), Guido Schmidt Traub (CDC Climat), Meinrad Burer (Gold Standard), Courtney Blodgett (Manna Energy Foundation) and Monika Rammet (Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)).

Guido, the session’s moderator, started off discussions by saying there’s a need to account for the lack of development in poorer regions by using SD. The key message from presenters William Battye and Steve Thorne was that the UNFCCC should recognise SD at a policy level to further formalise the use of the concept, for the CDM to fulfil its aims as a sustainable development mechanism. The presenters and session participants also emphasised the importance of establishing and agreeing Minimum Service Levels (MSL) to serve as baselines from which to calculate emissions reductions. (Minimum Service Levels are defined by the UNFCCC as the level of service required to meet basic human needs for housing, energy, water supply, sanitation etc.). Standardising baselines rather than determining them for each individual project would save project developers time and money, harmonise approaches and ensure the consistent treatment of supressed demand. Steve Thorne argued that project transaction costs – all the costs in the CDM cycle including project design, registration, and monitoring and verification – are often too high.

Making carbon projects viable

Courtney Blodgett provided examples from Rwanda and Kenya to demonstrate the benefits of applying SD in carbon projects.

The Rwanda project used UV water purification to replace the practice of boiling water for purification. If SD was applied in this project, it would’ve received 60 000 credits to sell through the CDM and earn revenue for the project and cover costs. But because SD wasn’t operational, the project only received 3 000 credits. The revenue received for these credits won’t even cover monitoring costs, meaning the project isn’t financially viable. The project is only obtaining credits for 5% of the water being treated.

The Kenyan project involved water filtration for one million households. The project applied for Gold Standard credits (high quality credit for projects with strong sustainable development aspects) in the voluntary carbon market (the market where credits can be sold to buyers wishing to reduce their emissions voluntarily). The Gold Standard does accept SD as a legitimate concept and is busy with a project funded by the German Federal Ministry of Environment, Nature Conservation and Nuclear Safety (BMU) to develop methodologies for SD. The Kenyan project is receiving 2 000 000 credits per year, which accounts for 60% of the water treated.

These case examples clearly show the benefits of the supressed demand approach. All in all, the ACF round table was a good overview session on SD. However, future engagements should include case studies of accounting for SD, more information on current debates at the UNFCCC to mainstream SD into policy and more detail on the way forward.

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