Contacts: In Washington, DC: Anita Gordon 202-473-1799 Agordon@worldbank.org Kristyn Schrader 202-458-2736 Kschrader@worldbank.org Nairobi, November 16, 2006¾A report on the state of the carbon market that focuses on Africa, shows that the continent that will be hardest hit by climate change is also the continent that has benefited least from the carbon market. In the first nine months of 2006, the carbon market grew to nearly $22 billion, more than doubling in value over the almost $11 billion recorded in 2005. Almost $3 billion of that was from the project-based market. But although Africa doubled its share of the project-based market, that still only represents 5.1% of the total. All of that is reported in the State of the Carbon Market Report—a Focus on Africa presented today at the United Nations Climate Change Conference in Nairobi, Kenya. The report prepared by the World Bank follows from an annual carbon market report by the World Bank and the International Emissions Trading Association (IETA) highlighting the trends of the global market for carbon emission reductions. The World Bank data shows that Africa’s numbers account for a very small share of the overall carbon market and occur even though the investment climate across many African countries has improved over the past several years. Carbon finance provides an opportunity for industrialized country companies and governments to meet their greenhouse gas emission reductions commitments through emissions trading, or in exchange for investments that reduce greenhouse gas emissions in transition economies and developing countries. That is made possible by flexible mechanisms of the Kyoto Protocol, in the case of developing countries, the Clean Development Mechanism (CDM) which brings clean energy technologies and hard currency to developing countries from the sale of carbon emission reductions. Despite notable gains over the past year, African projects still represent a low fraction of the entire CDM pipeline. As of the end of October 2006, 19 projects from Sub-Saharan Africa were in the CDM project pipeline, out of a total of 1274 projects for all developing countries. The World Bank itself has concluded seven deals in Sub-Saharan Africa. “Much of what we are seeing can be easily explained,” said Karan Capoor of the Africa region of the World Bank and co-author of the report with Philippe Ambrosi also of the World Bank. “Many African countries have thin energy and industrial sectors with limited opportunities to reduce carbon emissions, certainly relative to countries such as China and India.” But Capoor added “African countries could greatly benefit from the carbon market if the rules of the Kyoto Protocol and other regimes would allow credits from the forestry and agriculture sectors—these are the most important sectors for African economies and poor people’s livelihoods. Areas that could bring major opportunities for Africa to participate in the carbon market are either not eligible under the Kyoto Protocol and other carbon reduction regimes, or are difficult to access.” Carbon sequestration from avoided deforestation and from agriculture––potentially important areas for climate mitigation and important in many African economies––has been systematically excluded from the Clean Development Mechanism (CDM). At the same time, CDM-eligible assets from afforestation and reforestation are excluded from entry into the large European Union-Emissions Trading Scheme (EU ETS), substantially limiting their market value and potential share in the multi-billion dollar global carbon market. The Africa share of the CDM market is lower than the share of African countries to developing nations in Foreign Direct Investment (FDI) over the past few years, which has been around 10%. (World Development Indicators 2006). However the report points out that there is potential for CDM in Africa and opportunities for development. African countries have led the way in finding innovative ways to sequester carbon through afforestation and reforestation activities that also deliver strong local community, environmental and economic benefits. For example in Kenya, the Green Belt Movement Project—for which an emissions reductions agreement was signed this week—is a small-scale CDM project that will reforest about 1,800 hectares of indigenous species within the Mount Kenya and Aberdares regions of Kenya. The activities included in the project are expected to sequester around 0.375 million tons of carbon dioxide equivalent by 2017. The report goes on to say that the CDM can only be relevant in many parts of Africa if it encourages more clean energy choices, including the ability and the ease of use of the CDM as a tool to bring more clean generation to the grid, e.g. regional hydroelectric and/or gas projects; encourages distributed and off-grid energy access; and promotes cleaner and modern biomass resources. The Ken Gen Geothermal project signed this week in Nairobi, Kenya, is a prototype of the kind of CDM projects that could blossom across Africa. Under this agreement, the World Bank Community Development Carbon Fund (CDCF) will purchase emission reductions at Olkaria II Geothermal Expansion project estimated at 900,000 tons of carbon dioxide equivalent through 2014. KenGen is expanding the Olkaria project to generate an additional 35 megawatts which will be injected into the grid in the next two years. By utilizing the geothermal resources of Olkaria to generate electricity, the project will displace electricity produced by fossil-fuel powered plants in the electricity grid equivalent to 150,000 tons of carbon dioxide per year.
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