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Offset Ban Will Boost Demand for Africa Carbon Projects, UN Says

The European Union’s ban on carbon credit imports linked to some industrial gases will boost demand for Clean Development Mechanism projects in Africa, a United Nations Framework Convention on Climate Change official said.

“The huge new demand as a result of removing industrial gas credits from the supply will increase the attractiveness of CDM in Africa,” David Abbass, public information officer for the UNFCCC, said in a Johannesburg speech yesterday. That means “Africa is of growing interest to carbon market investors.”

The EU ban targets energy and manufacturing companies’ use of United Nations-sponsored offsets linked to hydrofluorocarbon-23 and some nitrous oxide credits. Two-thirds of carbon credits issued under the CDM derive from industrial gas projects in China, India, South Korea and Brazil, according to the UNFCCC.

“The HFC-23 ban should realign focus on channelling efforts elsewhere,” Paul Curnow, a partner at Baker & McKenzie, said in a speech at the Carbon Markets & Climate Finance Africa conference yesterday.

The ban will result in a “dramatic loss of supply to the market,” Michael Rumberg, director of technical assurance for Noble Carbon Credits, said in Johannesburg yesterday. “The big question is what is going to replace these.”

Africa will hopefully be one of the beneficiaries, Lenny Hochschild, managing director of Evolution Markets Ltd., the world’s largest environmental brokerage company, said yesterday in Johannesburg. “If the supply starts to get generated from Africa, the demand will be there, certainly from Europe.”

CDMs in Africa

Currently only 25 CDM projects are registered in Africa, two-thirds of them in South Africa, the United Nations Development Program said. There is the potential for as many as 3,200 clean-energy projects in Africa, Abbass said, citing a 2008 World Bank study.

“I think there’s a lot of low-hanging fruit in terms of CDM in Africa. It’s just been lack of awareness and over concentration on Southeast Asia,” Robert Kelly, regional technical adviser for North Africa at the UNDP, said in an interview yesterday.

As the CDM market evolves and matures, opportunities naturally diminish in places like China and India, Kelly said. “Africa, both in compliance markets and voluntary markets, is going to see a real revival.”

Access Barrier

The key barrier for most CDM projects in Africa is access to finance to get the project started, Kelly said.

A lack of carbon financing knowledge at local financial institutions and the perception of high risks for overseas investors has prevented development, the Africa Carbon Credit Exchange, a Zambia-based trading platform and fund portfolio, said on its website.

“Getting the equity into Africa is difficult because people are reluctant to put money into Africa,” Lawrence Cole-Morgan, manager for structured finance for Standard Bank Group Ltd., said in a speech.

Targeted efforts will be required to stimulate credit supply, the Africa Carbon Credit Exchange said.

“CDM is an investment mechanism and factors such as macroeconomic stability are vital to catalyze investment,” Kelly said. African governments need to encourage private sector investment, entrepreneurial spirit and the wherewithal to capitalize on business opportunities, he said.

“Low-interest credit facilities, a rejuvenated banking sector and awareness in the local banking community that carbon credits are monetizable assets against which lending can be done, I think all of those would have real value,” he said.

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