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Voluntary carbon markets offer hope for climate challenge

By Ed King

The world’s voluntary carbon markets are in good shape despite continued fears over the future of European and United Nations emission trading regimes.

That’s the view of Jamal Gore from carbon management consultants Carbon Clear, who told RTCC demand from businesses for verified emission reduction credits has remained healthy over the past 12 months.

“I think there are two carbon markets – a compliance market where governments set the target and prices fluctuate to meet those. That market is facing serious challenges right now. Credit prices are pennies, especially in the EU,” he said.

“The one where we operate is the voluntary market, and there prices have trended down but it is still doing significantly better than the compliance market. In part that is because companies that have made a commitment to go carbon neutral and offset their emissions are for the most part not backing away.

“Demand is pretty steady – prices are trending down because there are more interesting projects coming onto the market.”

Compliance schemes are aimed at energy intensive emitters, including power generators, oil refineries and producers of cement, glass and ceramics and paper.

Voluntary markets are used by businesses who wish to manage their carbon footprint. Investors include multinationals like Marks & Spencer and Sky. They buy ‘credits’ in projects ranging from renewable energy, reforestation and energy efficiency schemes. Currently 5% of FTSE 100 companies are rated as carbon neutral.

Land that is worth $200-500 as pasture could be worth far more if left as forest and used to offset carbon emissions in the industrial world

The EU emissions trading scheme and UN’s Clean Development Mechanism (CDM) are both suffering from a glut of credits and low demand, leading the value of the market to fall 35% to €62bn in 2012.

In contrast, on Wednesday Disney purchased 437,000 carbon credits worth US $3.5 million generated by rainforest conservation in Peru. The $7-8 price for a tonne of carbon dioxide is significantly higher than credits under the CDM, which are currently retailing at $0.42 per tonne in the secondary market.

A 2012 analysis of the voluntary sector by Ecosystem Marketplace and Bloomberg New Energy Finance concluded transactions had increased to US$ 576 million, its highest level since before the financial crisis hit in 2008.

These investments covered 95 million metric tons of carbon dioxide equivalent (mtCo2e), approximately a sixth of the UK’s total emissions.

Gore says as the supply of potential offsetting projects increases, companies watching their expenditure are becoming more “risk averse” and picky over projects.

In particular he says they want ‘issued credits’ where the emission reduction has been measured and verified by a standards body.

Carbon Clear’s latest project involves delivering 10,000 cookstoves to the Sudanese city of El Fasher, which the company calculates will save over 400,000 tonnes of greenhouse gas emissions over a 10 year period.

The stoves are powered by liquid petroleum gas (LPG), a cheaper alternative to the charcoal and firewood which contribute to thousands of deaths a year due to smoke inhalation. Carbon Clear’s partners Practical Action also hope the stoves will ensure El Fasher’s surrounding forests recover from years of exploitation.

Carbon Clear’s cookstove offsetting scheme in Sudan aims to have the dual benefits of offsetting emissions and improving the quality of life for people in North Darfur (Pic: Practical Action)

It’s the first project of its type to be launched in Sudan, requiring a significant investment both in terms of time and finance from both parties.

Africa has largely missed out on innovative carbon financing, which has focused on heavy emitters such as coal power plants and energy intensive industry, favouring countries such as India and China.

Gore believes this is slowly starting to change, crediting the Gold Standard certification scheme established in 2003 by WWF.

To qualify for approval projects must demonstrate they reduce greenhouse gas emissions and offer clear sustainable development benefits.

In the past decade the likes of DHL, Swiss Post, Nokia and Virgin Atlantic have chosen it as their ‘Standard of choice’, together with the United Nations.

“The first tranche of carbon credit projects looked at large emission sources, power plants and industrial activities – those aren’t in Africa for the most part except for perhaps South Africa,” Gore said.

“As a result I think all the emphasis on fighting climate change and carbon finance was going to bypass Africa. One of the innovations with the Gold Standard was to come up with approaches and methodologies that could quantify emission reductions from decentralised energy use”

“It is that kind of innovation that has made carbon finance more available to countries in Africa and South East Asia, and when you add it up, the emissions from all those cookstoves or kerosene lanterns are a significant fraction of the total emissions from Africa”

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