Lack of finance hinder Kenya’s carbon trading effort
BY JACKSON OKOTH

The banking sector and players in the capital markets have been accused of not being up to speed with green funding. As a result, those intending to engage in this business are discourages from doing so.

“This is a key barrier to successful implementation of renewable clean development mechanism(CDM) projects whose initial capital outlay is much higher than the alternative oil-driven projects,” said Edward Njoroge, CEO Kenya Electricity Generating Company Limited(KENGEN).
He made these remarks during a recent capacity building workshop on development and trading of carbon credits, at Hilton Hotel Nairobi.

It is estimated that CDM transaction costs for project identification, design, validation, registration and monitoring & evaluation range as high as US$ 500,000 for a single project.

Kenya has been on the journey towards creation of a local carbon market. This follows the onset of a global carbon market which started way back in 1992.

“Today, as we schedule to attend COP17 in Durban South Africa later this month, it is instrumental to remember the COP3 held in Japan in 1997 when the Kyoto protocol was adopted,” said Njoroge.
It is at this milestone that the CDM was introduced. Kenya ratified the Kyoto protocol in February 2005 and is today among the 191 countries that have signed and ratified this protocol.
“ There have been key milestones with close to 7,000 CDM projects currently in the pipeline worldwide. Out of this, only 2.6per cent are from Africa. Kenya lags behind South Africa with only 21 projects, a paltry 0.3per cent of the global CDM market,” said Njoroge.

Carbon credit has now become a common link as a source of finance to an extent of even reducing public debt such as the case in Costa Rica. Carbon-backed loan schemes for financing green energy projects are now becoming a norm. Governments are setting up Green Energy Fund facilities with sole purpose of promoting investment in viable Renewable Energy projects at concessional rates.

“CDM activities are now being institutionalized with private sector in the forefront in supporting carbon markets. It is these opportunities that we need to pursue and ensure we tap the full potential that exist in the carbon market,” said Njoroge.

“Currently KenGen has taken the lead in initiating the CDM projects under the Kyoto protocol and six projects have already been cleared by the World Bank and more are planned,” said Job Kihumba, Chief Executive, Africa Carbon Exchange(ACX)

While opportunities are enormous particularly as a source for investment capital, some key challenges exist. These challenges are not unique to Kenya but also cut across Africa.
“ There is inadequate technical and managerial capacity to develop and implement CDM projects by potential project developers and consultants,” said Njoroge.
Further, it is a relatively long and complex CDM process from project inception up to registration. There is limited understanding of Emission Reduction Purchase Agreements (ERPA) and the whole process of negotiating and sale of Carbon Emission Reductions(CERs); There is also lack of favourable policies and regulations specific to CDM in supporting carbon investors.

“We need to create forums for CDM networking with relevant experts and financiers. A critical mass of CDM practitioners is required to accelerate project development,” said Njoroge.

The Africa Carbon Exchange (ACX), which is pioneering a carbon trading platform in Kenya, is seen as a way of opening new channels in accessing carbon funds for investment.
Kenya also need to put in place policies that reduce CDM processing, transactional time and developmental costs. Standardizing baselines would also potentially reduce transaction costs; enhance transparency and project registration predictability.

GLANCE BOX

• Carbon credits are a reality despite the pitfalls that still exist.

• KenGen, one of the players in the carbon credit market, has already about $225,000 from its first CDM project.

• This money is being ploughed back to the community by implementing social projects.


• KenGen has established a CDM Centre to provide carbon project development support, consultancy and collaboration with other project developers, financiers, development agencies and other institutions in the voluntary and compliance carbon markets.