Kenya misses out on carbon trading billions

Kenyan companies are missing billions of shillings in new revenue because of lack of expertise to develop projects that help reduce carbon dioxide emissions and therefore earn from the global carbon trading market.

The global carbon trading market, which rewards projects that help reduce emission of carbon dioxide into the atmosphere, is now worth estimated Sh12.5 trillion ($170 billion), according to industry data provider, Carbin Point, but only a very small fraction of this money, estimated at two per cent, is coming to Africa.

Kenyan companies have opportunities to develop carbon emission reduction projects from their existing operations by, for example, reducing use of fossil fuel to run their machines and vehicles, reducing staff travel by using video conferencing, redesigning their buildings to use less electricity for lighting and air conditioning.

“We are not getting enough projects in Kenya. People are aware, but the proposals they present are poorly done,” said Tom Owino, of JP Morgan Climate Care, which helps corporate and non-profit organisations earn from the carbon market.

Proposals that are coming from Kenyan companies are requests for money to finance the intended projects with owners hoping to raise all the project money from the organisation which will buy the emission reductions.

This is not supposed to be the case, Mr Owino said, because the serious project proposals must have part or all of the financing requirements.

The proposal must also be accompanied by a good business plan that can raise the appetite of banks to finance the project.

Banks in Kenya are yet to start active financing of carbon trading projects partly because of lack of skills needed to evaluate financing risk of such projects.

Projects like the electricity co-generation project of Mumias Sugar Company, geothermal development by KenGen and even small ones like the 750 kilowatt hour hydro project by a women group in Kiambu, are cited as good examples where owners made initial investment and can stand alone as viable businesses even without money from carbon trading.

Mumias Sugar Company is eyeing Sh75 million annual revenue for the next 10 years from the sale of certified carbon emission to the Japan Finance Corporation because of reduced carbon emissions from its project of using sugar cane process waste —bagasse to generate 35MW of electricity.

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.

Jane Watiri of the Green Earth Trust, which is helping organisations design carbon market projects and guide them how to earn from those projects said there is a huge pool of investors ready to finance viable projects that make business sense.

“From our experience, financing a carbon trading project is not a problem. The only problem is getting a project that is viable on a project proposal that makes business sense,” said Ms Watiri.

Carbon financing experts said companies should design projects that can stand on their own as businesses and seek earnings from carbon market as extra income.

For example, redesigning the office to be more lit and, therefore, use less electricity will first benefit the company through reduced power bills and money from sale of the carbon market will become additional revenue.

The global carbon market involves sale of what are known as Carbon Emission Reduction (CER) units, with one unit being made up of one tonne of carbon dioxide that a project has succeeded in preventing from being released into the atmosphere.

One CER costs $10 or Sh760 based on Wednesday’s exchange rate. But this price changes depending on the players involved.

Lack of adequate skills to design viable carbon market projects is being attributed to failure by the government to set up a coordinating authority on climate change investment projects in Kenya that could play the role of promotion, awareness and capacity building.

Such an authority exists in South Africa, the leading African country in ownership of the number of carbon market projects.

Martin Takalani, a senior official of the South African authority under the Department of Energy said the country has 136 carbon market projects, of which 30 are already earning money. Kenya is second with 15 projects and it is not clear how many are earning from the carbon trading market.

National Environment Management Authority (Nema) is charged with the responsibility of being a focal point in coordinating carbon market projects, but the industry said the authority is not visible in the Kenya’s carbon market circles.