6th Policy Dialogue Meeting: Financing Mechanisms: Role of Clean Development Mechanism

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6th Policy Dialogue MeetingFinancing
Mechanisms Role of Clean Development Mechanism

• By Kibuga Kariithi,
• Chief Executive
• Nairobi Stock Exchange

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Kyoto Protocol

• The Kyoto protocol Objective
• Assist developed and developing countries reduce
  green house gases (GHG) that cause climate
  change.
• There are 3 market based mechanisms under the
  Kyoto Protocol
• Joint Implementation (JI)
• Carbon Emission Trading (CET) and
• Clean Development Mechanism (CDM).

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Clean Development MechanismObjectives

• demonstrable reduction in GHG.

• new business opportunities for developed and
  developing country companies

• A stream of Certified Emission Reductions
  (CERs), that can be used by Northern companies to
  redeem against national obligations, and can be
  traded on the open market.

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CDM Approval
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Clean Development mechanism

• List Kshs. 10.0 billion CIS specializing in
  Energy and Infrastructure projects

• Northern industrial company and local company
  approach the fund with a project that also
  qualifies under CDM.

• Northern industrial company trades the CERs.
• Local firm obtains access to newer, innovative
  and more efficient technology that improves their
  bottom line.
• Fund Investors get a return on their investment
  whilst contributing to environmental protection.

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Potential Business Opportunities in Kenya

• Energy sector
• An abundance of renewable energy resources
• water/hydropower
• micro-hydro
• Biomass
• Solar
• geothermal.

• Agricultural and Agro-Processing sector
• Use of crop residues
• coffee husks
• Bagasse
• rice husks.

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Potential Business Opportunities in Kenya

• Industrial sector
• Largest industrial sector in the East africa
  region, offering opportunities for Northern
  investment at lower costs with lower GHG
  emissions through fuel substitution in industries.

• Forestry sector
• The forestry sector, particularly in the field of
  timber, fuel wood (biomass) offers many
  opportunities.

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CDM Projects Cogeneration

• Bagasse is a renewable resource, produced by all
  sugar factories.

• Mumias has the potential to produce gt20 MW to
  feed into Kenya's national electricity grid,
  enough to supply Kisumu/Kakamega.

• BUT
• the Electric Power Act 1997 only allows factories
  to generate. They cannot bypass KPLC.
• KPLC determines the price of power, not the
  market.

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Fuel switch from fossil fuels to sustainable
biomass

• CDM would facilitate fuel switching by investing
  in new solid fuel boilers utilising sustainably
  grown wood on dedicated plantations.

• Over 40 KTDA managed small-scale tea factories
  use furnace oil to power boilers for tea
  processing.

• Tea factories will benefit by reducing their
  production costs and trading in Carbon credits.
• important transfer of technology and know how.

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Small, mini and micro-hydro projects

• commercially exploitable hydropower potential
  2300 MW.
• Small, Mini, Micro and Pico hydro potential
  3000 MW.

• Diesel generators produce over 300 MW of power.

• Operating micro-hydro units are the Sosian and
  Mesco power stations (KenGen), African Highlands,
  ITDG in Chuka others.
• Mini-hydro units are the Sagana, Gogo, Wanjii,
  and Ndula Power stations, owned by KenGen.

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Carbon Sink Hole

• 1.0 million acre reafforestation and conservation
  schemes using Conservation bonds listed on the
  NSE.

• Corporate Industrial sponsors can apply for CDM
  Funds, thus enhancing their return on their
  initial investment.

• Tourism receipts are used to pay bond holders.

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Capital Intensive Projects

• South African Power Grid
• No distribution network connecting the energy
  rich south to sub Saharan Africa,

• The Songea Gas Project
• Through the use of LPG, Has potential to
  drastically alter the energy picture in East
  Africa.

• Geothermal Energy
• Unexploited potential of 2000 MW.
• Very high initial investment, vs. clean,
  sustainable/renewable energy source.

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Conclusions

• There is great scope for this region to attract
  CDM investment comparative advantage
• These costs can be reduced further through

• Their relatively low costs of abatement on
  investment.

• Enabling policies creating a positive investment
• climate.
• Utilizing the capital markets to attract local
• and foreign investors.