South Africa looks to cash in on carbon market

LONDON Wed Oct 31, 2007 5:31pm GMT

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LONDON (Reuters) - South Africa has set up a carbon finance arm in London to follow the lead of countries like China, India and Brazil in the potentially lucrative global carbon market.

The state-owned Central Energy Fund will encourage investment in South African projects to cut emissions of greenhouse gases blamed for global warming.

"It's an integrated carbon offering, so we will look at identifying carbon projects, developing carbon projects and trying to monetize the credits that come out of these carbon projects," said Deven Pillay, head of CEF Carbon Markets.

"It is the first South African-driven initiative of this kind, maybe in all of Africa," Pillay told Reuters on Wednesday.

Under the U.N.-backed Kyoto Protocol's clean development mechanism (CDM), companies from rich nations invest in clean energy projects in developing countries and receive CER credits, each equivalent to the reduction of one ton of carbon dioxide (CO2), which can be used to offset their own emissions.

The World Bank estimates that market, dominated by projects in developing countries, was worth around $5.5 billion in 2006.

The CEF has a CDM portfolio worth an estimated five million credits annually from projects involved in areas like landfill gas, wind and solar energy. CERs currently trade at around 17.50 euro ($25.30). Click on

One hindrance for African projects has been the administration costs of up to $200,000 per CDM project plus a delay of a year or more to get official U.N. registration.

The CEF initiative could help encourage more projects in Africa, which is badly lagging Asia and Latin America in carbon trading.

"We're interested, as dealing with a state entity obviously makes things easier," one CDM project originator told Reuters.

"Having a government guarantee CER delivery is one less risk factor you have to deal with."

Of 47 Sub-Saharan countries, only four have projects registered under the CDM, none of which has yet to receive CERs.

South Africa leads the pack with 10 registered projects, while Nigeria, Tanzania and Uganda have one each.

In contrast, Asia hosts over 500 registered CDM projects, the majority in China and India, while Latin America is home to around 300.

African projects represent less than two percent of the 827 projects registered globally, and are expected to generate reductions of around 3.8 million metric tons annually, a fraction of the 172 million metric tons anticipated from all registered projects to date.

CEF is initially focusing on, but not limiting itself to, the CDM market in South Africa, but it plans to expand both into the voluntary credit (VER) market and to neighboring countries, Pillay said.

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