An audience at this week’s Lighting Africa meeting in Senegal learned that hopes for garnering carbon credits in the near- to mid-term have been dashed by a double-whammy of collapsing carbon prices and programmatic requirements from the CDM that continue to be stifling. A representative of the CDM, two off-grid lighting manufacturers, and yours truly served on a panel to discuss the current situation.

The manufacturers – representing some of the highest-quality off-grid lighting products and greatest success in the market – shared their stories of attempting to utilize carbon finance. At the moment they see virtually no business case for participating in the carbon market. Certified Emissions Reductions worth more than 10 Euros a year or so ago are today wavering around 1 Euro. CDM has developed a method specifically for off-grid lighting systems. However, both companies were quite candid in that, while the original guidance received by CDM (c. 2010) for revamping their early system contained many highly promising recommendations, the ultimate implementation remains vexed with several problems.

Companies had hoped for the ability to choose between a simplified pathway with deemed baselines and savings (and correspondingly discounted carbon valuations) and more rigorous approaches, but find the way the program has been implemented to have not adequately embraced the principal of reducing transaction costs. They see both of the current compliance options as unduly onerous. They would probably be quick to embrace upstream accounting and reporting (e.g. at point of importation or wholesale distribution) with appropriate discounting for uncertainties in the ultimate disposition of the products.

According to the other panelists, a key issue is having to track hundreds of thousands or even millions of centrally manufactured products down long supply chains to their ultimate point of use. Required details about purchasers (names, addresses, use of kerosene in each and every participating household, etc.) are costly at best and virtually impossible to gather in many supply chains, thus further reducing the potential realm in which carbon finance can be applied. In order to comply with certain requirements, companies have actually been forced to print serial numbers on each product, where their internal needs had previously been met with batch numbers. Requirement to count lanterns in each house, together with general risks of future rejection or discounting of asserted emissions create additional perceived risks for project developers.

Manufacturers find that it costs around $100,000 in consulting fees (plus internal staff time) to initially set up and submit a project proposal. This is followed up with a $30,000-$50,000 additional cost on a per-country to obtain cooperation and approvals. One company has been waiting 18 months for approval in Uganda. Currently, these costs (not to mention large hassle factor) far exceed the value of potential carbon offsets, which has clearly put a chill on industry interest in participating in the market at all. Companies are concluding that they can make better use of these funds by investing in other aspects of their business.

Familiar complaints were also aired about the slow pace of updating the CDM methods, especially in the fast-moving market and technology landscape.  That said, several updates have been made to this particular method in a relatively short time frame.

The CDM seems to recognize these issues, at least to a degree, and remains receptive to simplify their system. All panelists recognized the necessary tension between simplicity and credibility of offset accounting, and that the CDM still has much work to do to create a level playing field for small-scale technologies such as off-grid lighting systems. Although somewhat encouraging that there are currently 14 projects in the pipeline, it is highly unlikely that any other entities will bother to apply without significant changes to the methodology.

The CDM strongly encourages all stakeholders to register their comments and suggestions. All comments are carefully considered.

These concerns notwithstanding, the Lumina Project presented an assessment of two market segments that are particularly promising. These are poultry production and nighttime fishing, both of which utilize highly energy-intensive kerosene lanterns together with long operating hours. A single fishing boat can represent the lighting fuel use of 100 homes, as would a 1000-square-meter chicken production site. Many of the barriers and risks are lower here, such as cost of reaching customer, relative ease of verifying savings, additionality, leakage, completeness of fuel substitution. An example is that a location like Lake Victoria is an ideal target, with more than fishermen working on the water each night. The problem is that the lake borders on many countries and country approvals would probably be essential (but at extraordinary cost).

Also on the bright side, some off-grid lighting companies are in it for the long run, having successfully put in place standardized 28-year projects that may eventually benefit from future increases in carbon prices as well as more realistic program requirements from the CDM. Let’s hope they are ultimately able to justify actually executing their plans.

If you’ve designed or are participating in one of these programs, please comment and share your experience.