Carbon credit trade already worth $5b

Developing nations could earn as much as $100 billion annually by 2050 from selling carbon credits, according to an analysis released by the World Bank at the United Nations conference on climate change that ended in Nairobi last week. 

The carbon credit trade, the conference heard, has made about $5 billion over the past two years, a figure which could grow twenty-fold in the next 40 years as developing countries invest in renewable energy and sell their credits to developed countries.  

Trade in carbon credits is sanctioned by the Kyoto Protocol, which has already been signed voluntarily by more than 150 countries, which sets limits on greenhouse gas emissions by developed countries but allows them to meet their national targets by funding clean energy projects in poorer nations under the treaty’s Clean Development Mechanism (CDM).

Carbon credits are measured in units of certified emission reductions (CERs), where each CER is equivalent to one tonne of carbon dioxide not emitted into the atmosphere.

Last week, in one of the first ever carbon credit purchase agreement in the East African region, the World Bank’s Community Development Carbon Fund (CDCF) announced a deal with the Kenya Electricity Generating Company (Kengen) to purchase 900,000 tonnes of carbon credits from the company for an undisclosed amount. 

The carbon credits will be earned from Kengen’s use of clean geothermal energy, instead of polluting fossil fuels to generate electricity at its Olkaria II power plant. 

“Olkaria is the first geothermal project in Africa and this project is the first CDM geothermal energy project in the continent,” CDCF said in a statement announcing the partnership. “It is the first World Bank Carbon Fund purchase in Kenya.”

According to the World Bank-Kengen agreement, CDCF will buy the carbon credits up to 2014, when a new agreement is expected to be negotiated. The fund is also likely to enter into other agreements as other geothermal stations come online.

Significantly, however, the price of carbon credits has crashed to below 10 euros over the past few weeks, which means that the Kengen-World Bank deal is unlikely to be worth more than 9 million euros. 

Analysts say that the crash in prices was brought about by over-supply by Chinese and Indian companies, with the latter being thought to already be holding as many as 400 million credits. Earlier in the year, the price of carbon credits stood as high as 30 euros per credit.

Apart from Kengen, which generates more than 80 per cent of Kenya’s total electricity, the other Kenyan business that has entered into negotiations on selling carbon credits is Mumias Sugar, which is negotiating with Japanese businesses for the purchase of its clean energy credits.

Last week, in a mark of just how important the trade in carbon credits could be in the near future, the African Development Bank (AfDB) announced that it was exploring the possibility of creating a new facility to enable its businesses and countries across the continent to take advantage of the Kyoto Treaty’s CDM.  According to the bank, the proposed facility will be used to identify opportunities for reducing emissions, help countries to invest in projects that enable them to sell carbon credits, and to develop the legal framework in poor countries for conducting the trade.

According to the World Bank, African countries especially have not yet benefited as much as they should from the carbon trade, principally because prices on the continent are generally 20 per cent lower than the average global prices. The perception of high business risk associated with the continent has also lowered investor interest in the continent, with most of the deals concluded so far being in South Africa and Egypt.

In a related development, United Nation secretary-general Kofi Annan last Wednesday announced the launch of an initiative — the “Nairobi Framework”, to help poor countries exploit the CDM as well as access greater amounts of donor funding to invest in clean technologies. The initiative will complement a fund, now worth $3 million set up to help poor countries adopt to climate change. 

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