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Much ado about carbon credits

Much ado about carbon credits

May 31, 2013

The developed world has taken the lead in tackling the problem of carbon emissions and climate change, with the richest nations among the first to commit to reducing their emissions.

However, the developing world can also reap the rewards of reduced emissions through the trading of carbon credits.

It’s a hugely complex arrangement, but is simplified by Wikipedia as any tradable certificate representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas (GHG) equivalent to one tonne of carbon dioxide.

Even more simplistically, this means that organisations in developing nations can reduce their emissions for carbon credits, which can then be “sold” – or traded – to organisations in the developed world, which can offset them against their own emissions.

Since many first world companies have strict emission controls, and most third world countries don’t, this means that organisations in emerging markets could potentially raise large sums of money for their emission reduction projects.

However, it’s not that simple in reality – although the potential monetary rewards could be enormous, as well as ongoing.

Adam Simcock, CEO of Carbon Check, explains that carbon credits are regulated through the UN’s Clean Development Mechanism (CDM), which is used to offset the fines that European countries have created for themselves.

European countries, he explains, have committed to reduce their carbon emission, by 2012, to 6% below their 1990 levels – and if they don’t, they will get fined. The next target is a 20% reduction by 2020.

Although governments have made the commitments on behalf of their countries, it’s up to the private sector to actually implement the emission reductions.

At the same time, developing nations have an opportunity to develop using cleaner power, Simcock says.

“The problem is: clean power costs more than using fossil fuels, and emerging markets are not really in a position to spend more.”

This is where the CDM comes in: it encourages developing countries to use clean power and reduce carbon emissions by generating revenue that they can plough into these green investments.

Through the CDM, $6-billion of development has been created, with more than 6 000 projects registered so far in the developing world.

“Unfortunately, Africa has just not kept up,” he says. Just 120 of the 6 000 registered projects originate in Africa. The majority of these are in South Africa, with Nigeria and Kenya close behind.

The main problem is that the planning, documentation, administration and management that projects require in order to qualify for carbon credits can be prohibitive. And every step needs to be validated by a third party auditor.

As a designated operating entity (DOE) – one of only 40 in the world – Carbon Check is responsible for auditing African CDM projects.

“Projects have to be validated according to UN requirements, as well as on whether the project will work,” says Simcock. “Then we come back and verify that you did what you said you would – this happens every year as these projects are valid for a 10-year period.”

This means companies have to register their projects before implementation – and receive their validation – in order to claim carbon credits once the project is operational. And, at this stage, they need to demonstrate, year after year, that the project does in fact achieve the planned goals.

“We need to have evidence that companies did what they said they would,” Simcock explains. “You can’t just make something – you have to use it.”

Sadly, a number of companies have implemented projects with the aim of claiming carbon credits, but have failed to do the upfront paperwork and so they have missed out on the rewards they might have claimed.

“And of those that have applied for carbon credit status, very few have managed to negotiate the requisite hurdles to become registered.

Simcock points out that there are just over 100 projects in the pipeline at the moment, but as of last year only 22 had been registered. And of these, only eight managed to receive carbon credits.

“Just because a project is registered with the UN, this doesn’t mean the job is complete. Companies have still got to do what they plan.”

If the scope or nature of the project changes, Simcock warns that the original registration will no longer apply, and more months can pass while a company demonstrates why it made the change, and proves that the net result is the same.

With the poor track record of African companies applying for and receiving carbon credits, Simcock believes there should be different mechanisms to make rewards more accessible.

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