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Thursday, December 18, 2014
Cam McGrath* - IPS/IFEJ
- Initiatives to reduce Egypt’s greenhouse gas emissions could get a big push if world leaders and environment officials meeting in Copenhagen for climate talks that start Monday agree to maintain or enhance the carbon trading framework. “Companies seem to be waiting to see what happens in Copenhagen before proceeding,” says Amr Abdel Aziz, president of Integral Environmental Solutions, an environmental consultancy.
The Clean Development Mechanism (CDM) of the 1997 Kyoto Protocol allows governments and companies in developed nations to offset stringent greenhouse gas (GHG) emission cuts at home by investing in GHG reduction projects in developing countries. Projects approved by the United Nations CDM Executive Board receive one carbon emissions reduction credit (CER) for every ton of carbon dioxide equivalent reduced. The CERs can be sold or traded internationally as carbon credits.
The CDM has encouraged clean technology investment in developing countries, yet its future is uncertain beyond 2012. The European Union, which is responsible for 80 percent of CER purchases, is dissatisfied with the volume of cheap and low-quality CERs coming from China and some other developing countries. It wants to phase out the project-based mechanism in “advanced” developing countries in favour of a sector-based approach that would target the major polluting industries.
Developing nations, meanwhile, are seeking robust emissions reduction targets for industrialised nations that could expand CDM opportunities. They also want to increase international financing, and reduce the time and cost of registering projects.
The outcome will depend on the “debates, discussions and fights expected to take place between developed and developing countries,” says Rafik Georgy, CDM Advisor for Egypt’s New and Renewable Energy Authority (NREA). He thinks the odds are in favour of a consensus to extend the CDM beyond 2012, but there is a possibility that a binding decision could be deferred for up to a year.
Egypt is a bit player in the 130 billion dollar global carbon trading market with just five registered CDM projects worth a total of 2.5 million CERs per year, according to El-Sayed Sabry, head of the Climate Change Unit at the Egyptian Environmental Affairs Agency (EEAA). Another 10 projects are in various stages of validation, and 40 projects are under preparation. “All together, these 55 projects could result in a reduction of 8.5 million tons of carbon dioxide equivalent per year.”
Industry insiders say the number of project proposals could multiply if a consensus is reached in Copenhagen to extend or enhance the CDM. Financiers want to be certain that their investments in emissions reduction projects will generate profits.
“Projects like these have a long lead time,” explains Richard Szudy, president of IDEA Egypt, a Canadian-backed firm with a CDM project to convert brick factories to run on cleaner fuel. “It’s typically four to five years from the initial investment before the first income is possible…and the income generating period is seven, ten or even 14 years. If there will not be a carbon market beyond 2012 then there will not be enough time to recoup investments and make profits.”
While Egyptian negotiators are expected to push for faster and less costly UN registration procedures, Szudy says the country needs to reform its own bureaucratic validation process. CDM projects must receive approvals from various local authorities as well as a third-party validator before their file can be submitted for registration. Capricious local authorities can “tie things up for years.”
“There is a shortage of certified companies to (carry out) project validation,” Szudy told IPS. “The waiting list to get a project validated is currently 18 to 24 months. That level of time and uncertainty plays havoc on the confidence of investors.”
A further disincentive is the high cost of registration, which runs from 50,000 to 300,000 dollars, according to one EEAA official. If negotiators succeed in reducing this upfront cost, it could encourage more investment in Egypt’s CDM projects.
Financing is another stumbling block, say analysts. Private and public lenders may be reluctant to supply capital for projects in developing countries, or only on highly unfavourable terms. As a result, developing countries are seeking new measures to facilitate and coordinate project financing, including a proposed UN-managed climate fund to finance CDM activities.
Egypt recently put forward 350 million dollars worth of proposals for financing under the Clean Technology Fund (CTF), a 5 billion dollar World Bank fund for projects which deploy technologies that “cut emissions, increase efficiency and save energy” in developing countries.
It is hoped that that the fund will offset financing channels dried up by the global financial crisis. Kilian Baelz, acting director of the Regional Centre for Renewable Energy and Energy Efficiency (RCREEE), believes it is important that it does.
“The financial crisis will eventually go away, the climate crisis will not, it will persist,” he says.
(*This story is part of a series of features on sustainable development by IPS – Inter Press Service, and IFEJ – the International Federation of Environmental Journalists.)