Africa Prepped for Carbon Offsets Just as the Market Slumps

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Daily Graphic, Ghana

What it means when the price drops from $12 to $0.50

Back in 2010, Ghana had great hopes that the United Nations Clean Development Mechanism would kick-start the country’s development of renewable energy and greenhouse gas limiting technologies. In that year, the UN registered the country's flagship CDM project, aimed at reducing methane gas emissions from a waste dump outside of the capital city, Accra. The Accra Compost and Recyling Project’s sponsor, Zoomlion Ghana Limited, invested about $10 million into building the recycling and gas capture infrastructure. When they did so, the price for such carbon offsets was about $12/ton.

That meant they could count on selling tens of thousands of ‘offset’ tons of carbon that the project would ensure would never be emitted. This mechanism was borne out of the Kyoto Protocol, the agreement signed in 1997 that commits developed country signatories to abide by internationally binding emission reduction targets.The protocol recognised that developed countries were principally responsible for the current high levels of Green House Gas (GHG) emissions in the atmosphere as a result of more than 150 years of industrial activity. It therefore, placed a heavier burden on those nations under the principle of "common but differentiated responsibilities."

The Protocol permitted industries in developed nations to meet their emission targets by investing in emission reduction projects in developing countries, including Ghana. Such projects would earn certified emission reduction (CER) credits, each equivalent to one tonne of carbon dioxide (CO2).

 It took two years for the compost and recycling project in Ghana to make it through the UN’s bureaucracy and credits to become available on the market. In 2010, when the project first applied for approval, the price was $12/ton, and the owners, Zoomlion Ghana, set about obtaining $10 million in loans. They expected to pay them back through sales of their offset credits at that price. But by 2012, when the credits finally hit the market, the demand for offsets had plummeted as the carbon markets faced a glut of supply and dissolving demand in the face of the economic recession. The price dropped down to $.50/ton. At that price, according to Dr. George Rockson, the company’s head of Research, the 68,000 tons worth of carbon emission reductions the company was able did not cover the costs of the project.

"The significant fall of trading prices under the CDM is a major setback,” he said, explaining that the low prices meant serious delays in payback periods on the loan used to launch the project.

According to Rockson, the current situation also discourages others in the private sector from embarking on climate change adaptation and mitigation projects since the start-up capital is so high and the risks enormous.

Mr Ambrose Dery who follows the CDM project closely for the Ghanaian government, commented in the halls at the Paris negotiations, "Too many companies from all over the world got involved in CDM projects all too soon, and now there are (offset) projects which the developed countries no longer need."

Mr Dery, also explained that thus far Africa has lost out on the CDM program; most of the countries that engaged with the project early, back in 2008 and 2009, have benefitted. Globally, Asia and Pacific have benefitted from more than half of all total approved projects—and most of those are in China. That compares to 32 per cent for Africa (South Africa is the primary beneficiary thus far), and 17 per cent for Least Developed Countries.

 

The irony

Dr Rockson said that a priority for African leaders should be to ensure that the CDM, or its successor program, open and keep open channels for African green technology firms to obtain the funds for mitigation projects.

 The dip in carbon price is negatively impacting many other African countries, which are beginning to grasp the benefits of carbon finance and the technical infrastructure necessary to fulfill them. They’re ready now to push them forward, states a document distributed here at the Paris climate conference on the 'Progress and Potential of CDM reform and post-Paris market mechanisms for Africa.'.

 The continent is prepared to act, as a fact sheet from the African delegation points to the fact that 94% of African countries had established mechanisms to approve offset projects, and an overall total of 73 CDM projects have already been approved, representing a total commitment of USD 64. Thirty African countries have at least one CDM project already registered.