South Africa plans to cash in on carbon

London, 1 November: South Africa has lagged other developing countries in gaining a foothold in the growing carbon market, but a government-backed company launched in London this week is hoping to redress the balance.

The company, CEF Carbon Markets, will act as a developer of greenhouse gas (GHG) emission reduction projects, provide project finance and market the resulting carbon credits, according to Deven Pillay, a former group advisor on climate change and energy efficiency at BP, who will lead the firm’s London office.

The African continent hosts a small share, less than 3%, of the world’s Clean Development Mechanism (CDM) projects, which some have blamed on a lack of expertise in the region. The CDM was developed as part of the Kyoto Protocol as means of providing finance to projects, that reduce GHG emissions in developing countries. The projects generate certified emission reductions (CERs), each equivalent to a tonne of carbon dioxide, which can be bought by industrialised nations to meet their obligations to cut GHG emissions under Kyoto. The market was worth almost $5 billion in 2006, according to the World Bank.

“CEF Carbon is keen to ensure that South Africa is better placed in this market and also to contribute towards the goals of mitigating climate change,” said the firm, a division of Central Energy Fund, a South African state-owned energy company.

Pillay said the business will take equity stakes in projects developed by CEF and others, and act as adviser to other project developers. He said there was a lack of understanding and awareness of CDM in Africa that CEF Carbon could help address.

As a government-backed entity, it can also bring financial certainty to carbon project deals. “The fact that CEF is investing in these projects means that counterparty risk is greatly reduced,” Pillay said.

CEF Carbon is looking to build a diverse portfolio of projects in renewable energy, landfill gas capture, energy efficiency, waste-to-energy and biofuels, which will generate CERs or verified emissions reductions for the voluntary market.

Pillay said the current pipeline of projects will produce around 5 million tonnes of carbon dioxide emission reductions each year. He expected this pipeline to grow, but declined to reveal any targets.