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22 October 2009
The United Nations Environment Programme (UNEP) and Standard Bank have launched the Africa Carbon Asset Development (ACAD) facility, a public-private partnership between UNEP and African banks that aims to stimulate the growth of Africa’s carbon market through investor outreach and seed capital.
The innovative initiative is supported by the German Government’s International Climate Initiative.
“ACAD addresses a longstanding need,” says Johan van den Berg, CEO of CDM Africa Climate Solutions and Chair of the South African CDM Industry Association. “This programme squarely focuses on fully engaging Africa’s financial sector in developing the regional carbon market. I believe it will not only improve the understanding of the potential of Africa’s carbon market but also help project developers and African financial institutions fulfil it.”
Geoff Sinclair, Head of Carbon Sales and Trading at Standard Bank, says: “Standard Bank believes that it has a duty and an interest to build the carbon market in Africa. We are committed to growing carbon literacy amongst bank managers and credit officers not only in our own organisation, but in other banks across the continent. The ACAD facility with UNEP is an example of how we are pioneering green financing in Africa through the deployment of local, market specific solutions and partnerships.”
While the number of successful African transactions is still small, the potential is enormous.
“Africa has a wealth of projects that can access carbon financing yielding real commercial and social returns,” says Glenn Hodes, Senior Energy Economist at UNEP Risoe. “ Yet despite the explosive growth of the carbon market worldwide, Africa has not yet substantially benefited nor tapped its full potential. Its share of the UN regulated carbon credit market has held steady at around 3%. Still, even without any additional stimulus, the 112 projects currently in process would create 85 million carbon credits worth over US$1.2 billion by 2012.”
Major factors that stand in the way of narrowing the carbon gap include high transactions costs, bank and project developers’ unfamiliarity with carbon projects and lack of expertise. Consequently, there are few project success stories to use as role models. These factors have stalled a number of otherwise viable projects, or left them in a position where they are developing too slowly to attract mainstream investors. Hodes believes that the ACAD Facility will play a critical role in providing ‘jump-start’ finance for good projects languishing in stasis through lack of interim funding for early stage transaction costs.
“Think of ACAD as the ‘jumper-cable’ financing solution for Africa’s nascent carbon market,” says Hodes.
“By offering small grants to reduce costs and providing technical assistance to local developers, we aim to ensure the success of at least 10 highly replicable projects in Africa by the end of 2010. We are thrilled to have Standard Bank on board demonstrating its faith in, and understanding of, the enormous market potential in Africa.”
A focus on replicable and sustainable demonstration projects is a cornerstone of ACAD’s strategy. Financial institutions and the investment community look toward concrete success stories of the benefits that carbon finance can bring. By supporting a pool of projects that are innovative and easy to replicate elsewhere, ACAD aims to mobilise greater investment and stimulate similar ventures in Africa, thereby decreasing project development costs.
ACAD offers three separate and complementary support lines:
- Transaction Cost Sharing
Targeted grants will be matched with those of financial institutions to ensure that projects not immediately commercially viable can complete critical steps necessary for project validation and approval.
- Technical Assistance to Project Developers
Project clinics and one-on-one technical assistance will help developers tackle key issues that occur throughout the advanced stages of the carbon project development cycle.
- Outreach and Training for Financial Institutions
ACAD will partner with, and train local financial sector players on how to tap into carbon finance opportunities For example, some 30 participants from financial institutions across Africa took part in ACAD’s first training event on 21 October 2009 at the UNEP FI Global Roundtable. A number of other regional investor outreach and mobilization activities are planned for 2010.
Clean development mechanism projects could offer wide ranging economic, environmental and social benefits to Africa, including new revenue generation, energy access, employment and technology transfer. But, unlike other regions, Africa has barely tapped its potential to finance its development through climate change instruments and the booming international carbon trade that McKinsey and Co have forecast to reach $30 trillion by 2030.
About UNEP and UNEP Risoe Center
UNEP is the United Nations system’s designated entity for addressing environmental issues at the global and regional level. In the area of climate change, UNEP’s approach aims at reducing barriers to market development and easing the costs and risks of entry of new actors in both the public and private sector. The UNEP Risoe Center is leading UNEP activities related to carbon finance and the Clean Development Mechanism (CDM).
URC has played a pivotal role in facilitating the participation of developing countries in the emerging carbon market, focusing on support for capacity building, and piloting new approaches. It conducts analysis to strengthen emerging sectors in CDM, and implements country-level and regional activities aimed at enhancing a more equitable regional distribution of carbon project activities.
For further information visit www.unep.org and www.uneprisoe.org.
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