South Africa Looks to Cash in on Carbon Market
Date: 01-Nov-07
Country: UK
Author: Michael Szabo
The state-owned Central Energy Fund will encourage investment in South African projects to cut emissions of greenhouse gases blamed for global warming.
"It's an integrated carbon offering, so we will look at identifying carbon projects, developing carbon projects and trying to monetise the credits that come out of these carbon projects," said Deven Pillay, head of CEF Carbon Markets.
"It is the first South African-driven initiative of this kind, maybe in all of Africa," Pillay told Reuters on Wednesday.
Under the UN-backed Kyoto Protocol's clean development mechanism (CDM), companies from rich nations invest in clean energy projects in developing countries and receive CER credits, each equivalent to the reduction of one tonne of carbon dioxide (CO2), which can be used to offset their own emissions.
The World Bank estimates that market, dominated by projects in developing countries, was worth around US$5.5 billion in 2006.
The CEF has a CDM portfolio worth an estimated five million credits annually from projects involved in areas like landfill gas, wind and solar energy. CERs currently trade at around 17.50 euro (US$25.30).
One hindrance for African projects has been the administration costs of up to US$200,000 per CDM project plus a delay of a year or more to get official UN registration.
The CEF initiative could help encourage more projects in Africa, which is badly lagging Asia and Latin America in carbon trading.
"We're interested, as dealing with a state entity obviously makes things easier," one CDM project originator told Reuters.
"Having a government guarantee CER delivery is one less risk factor you have to deal with."
Of 47 Sub-Saharan countries, only four have projects registered under the CDM, none of which has yet to receive CERs.
South Africa leads the pack with 10 registered projects, while Nigeria, Tanzania and Uganda have one each.
In contrast, Asia hosts over 500 registered CDM projects, the majority in China and India, while Latin America is home to around 300.
African projects represent less than two percent of the 827 projects registered globally, and are expected to generate reductions of around 3.8 million tonnes annually, a fraction of the 172 million tonnes anticipated from all registered projects to date.
CEF is initially focusing on, but not limiting itself to, the CDM market in South Africa, but it plans to expand both into the voluntary credit (VER) market and to neighbouring countries, Pillay said.