The Carbon Economy

I am very happy that the attention about the Kyoto Box now has turned from cardboard to carbon credits. It is a very interesting topic that I at least have used years in understanding, and I am still not an expert. It is hard to get into because the terminology is set by technocrats wanting to ensure a rich market for their consulting services.

The reason why we named our company Kyoto Energy is because of the key role the Kyoto Protocol will play in lowering the cost of our products for our target market which is the developing countries. In fact, carbon credits - generated by saving CO2 emissions and paid for by the polluting countries of the west - is the only form of subsidy these countries have. (Forget the World Bank, they still support 6 times more fossil-based energy projects than renewable energy projects in the developing world).

During the first years of carbon trading (2005-2008), China and India have been getting the lions share of the credits generated. Sub-Saharan Africa only sold 2.5% of the total carbon volume. This is because initially, it has only been feasible to get carbon credits for industrial scale projects, and as we know there is not that much industry in Sub-Saharan Africa.

But now, the appropriate measures have been put in place to start having small-scale carbon credits, called Programmatic CDM (also called PoA - Programme of Activities). It allows many smaller devices to be used and combined into projects, with multiple countries in the same project as well. This mechanism was amended only last summer to the Kyoto Protocol based on protests from African countries at the Nairobi Climate Conference that the CDM system was not working for them.

The first project for Programmatic CDM has been energy saving lightbulbs in India. Kyoto Energy is taking it to yet another level, with a multi-technology, multi-country rollout targeting households in many of the poorest countries in the world. Turns out, even if 30 Africans emit as much as one single American, they still do emit - probably about 5-6 tonnes of CO2 per family per year. Our aim is to get this down to below 1. To do that, we employ a packaging approach, where we have four different devices working in concert to remove almost all use of fossil fuels (LPG, kerosene) and non-sustainable firewood and charcoal (All countries in Africa except Rwanda have deforestation, and for these firewood is NOT a renewable energy resource.).

The Kyoto Family kit consists of the Kyoto Box, the Kyoto Turbo (a smokeless biowaste stove that is used for frying, or when it is raining or at night). These two components work together to make cooking fully sustainble - and cooking is 90% of the energy use in rural developing countries. Then there is the Kyoto Bag, which is great for heating water for hygiene with a nice shower built-in, and finally the Kyoto Flash which solves the whole lighting problem which today renders most families completely inactive after dark, or they have to pay a lot of money to buy kerosene - which is also very dangerous, used mostly in open, homemade lanterns. The Flash does not generate much carbon credits, (electricity generation has less CO2 emissions than thermal generation) but the other components more than carry their weight meaning we can get the price down significantly and hopefully the Family kit will be free.

Here is the math: Let us say that each family saves 2 tonnes per year by using Kyoto Family. Each ton of CERs (CDM credits) is worth about 10 euro right now. That is 20 euro per year per family. The cost of the Kyoto Family kit is 40 euro - which means if the family uses the kit for 2 years, it should be free. Kyoto Energy makes forward contracts with carbon buyers so that we can pay for the kits up front. On the family side, we are introducing “Usage Agreements”, which means that a family can receive the kit for free but they have to promise to use the kit or return it. Everything is based on voluntary participation, and those who can will help by reporting their energy use through mobile phones and internet.

There has been a lot of discussion in the US - finally - about joining the rest of the world in “cap and trade”. We believe that the Kyoto Family kit is a good example of how carbon credits actually work - better than aid or anyting else tried so far - to reduce poverty, reduce environmental devastation in the developing world and enable the enactment of the Millennium Development Goals (MDGs). This is green capitalism at its finest.

Kyoto Family is also unique because it is not only an Abatement solution (helping reduce CO2 emissions), but it is also an Adaptation solution - which is the second important part of the Kyoto Protocol, meant to help those already suffering from climate change. And the only ones really suffering from climate change so far are the people around the equator, where rain seasons are much more unpredictable than before, making the rain dependent agriculture 80% of the population depend on a lottery. Amazingly, there is still no direct compensation for Adaption efforts - some funds are promised and are in the pipeline, but some experts say we are still 2 years away from payouts. With Kyoto Family we are already prepared for this event, in fact that could allow us to expand the Family kit to also include irrigation pumps, rainwater catchment systems and so on.

In addition to carbon cap and trade, we believe the future will bring other “polluter pays, cleaner receives” mechanisms - credits for for instance water, plastic, soot, curable diseases and so on. We are ready for all of them although they may be years away.There may still be a lot of debate this year whether some developing countries (BRIC countries especially) have to have their own emissions targets like the west. As these countries progress, they will no longer be developing countries and they will have to pay the same way the west (except the US so far) are paying. What is sure, is that the price of carbon will have to go up (it is a commodities market, but international agreements influence the price greatly) in order to finance more expensive clean up technologies. Fortunately, the poor already have in place the necessary agreements and tools to make this happen - today. Despite the traditional doom and gloom surrounding Africa, they have a much easier job at becoming carbon neutral than any other continent as Africans are so incredibly frugal regarding their energy use.

A final note - deforestation is actually not a part of the Kyoto Protocol yet (amazingly) and in the meantime projects that save trees only get the emissions factor from fossil fuels. These are usually twice as efficient as woodfuels, meaning that the poor who are switching from wood to solar energy only get about half the carbon credits they are supposed to. We hope that in Copenhagen deforestation (”non-sustainable firewood”) becomes a part of Kyoto II so that the poor can get properly paid for their carbon saving efforts and thus even better Family kits that could include electric transportation of people and goods, information technology and so on. Be sure that Kyoto Energy is already planning such eventualities.

The good news for African carbon credits so far is that they carry much higher positive humanitarian and wildlife effects. While methane recovery projects from Chinese coalmines in a strange way benefits emissions - and coal mine owners - the African credits are high on poverty alleviation, disease control, education benefits and so on, so most compliance buyers are very interested in these credits as they give way more “bang for the buck”. There are ways to measure this, such as Social Carbon which is a Brazilian method that is now going worldwide. Gold Standard credits is another way to ensure the carbon money goes into renewable energy. Kyoto Energy aims to comply with both, and we believe in the future that such projects will command higher selling prices in the market (now they are mostly boosting demand from the region).

Receiving the FT Climate Prize has given us a lot of exposure and funds to prove that our plan is workable. Like Babe Ruth, we are pointing out of the ballpark. This weekend alone, we have received requests from 20 countries (before the weekend we were aiming for 10) to participate in the initial pilot trials. We are now busy doing our carbon deals, and hope that the US will join the rest of the world in cap and trade. Obama is more than welcome to buy his White House offsets from his own grandmother here in Kenya!