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Carbon Credits for Dispensers: Financing Clean Water For Millions

Carbon insights post

Evidence Action’s Dispensers for Safe Water program currently provides access to sustainable safe drinking water services to about two million people. This reach will extend to four million by the end of this year and 25 million by 2018. Scaling up this program, which is proven to be highly effective, takes new and innovative financing approaches. We are committed to providing sustainable services. For instance, we don’t just install chlorine dispensers and leave it to communities to figure out how to keep them stocked. Instead, we support on-going restocking by either our staff or by partners.

We also do not recover costs directly via user fees in our Dispensers for Safe Water program. There is rigorous evidence in the rural water sector, and in preventative health more generally, that charging user fees screens out many people as people are not willing to pay for very much at all for these services and there are many competing demands in families for scarce resources.

Even at an anticipated low cost of $0.50 per person per year at scale, we needed to put in place the necessary financing to ensure that dispensers can be maintained and refilled with chlorine over the long-term.

Traditional donor financing usually comes in the form of time-limited project-specific grants that are disbursed with the expectation of project completion or project sustainability at the end of the grant period. In reality, the end of donor financing often leads to a search for more short-term donor financing or – when donor financing dries up, the demise of project activities.

One option that helps us achieve our dual commitments to sustainable services and zero user fees is revenue from carbon crediting. The Clean Development Mechanism of the Kyoto Protocol, which commits countries to emissions targets as a means of climate change control, allows Evidence Action to translate the use of chlorine dispensers into tradable carbon credits.

This is because chlorine dispensers only generate a small amount of carbon emissions. It sounds a bit complicated, and there are a lot of hoops to jump through, but we are pleased to say that we have been credited formally with emissions reductions in Kenya and made our first sale of about 10% of these, working closely with South Pole Carbon and the international certification body The Gold Standard Foundation.

Here is how carbon financing for dispensers works and our take on the role of this financing tool. First, we want to emphasize that we access carbon finance because of our commitment to sustainable and safe water services for the poor. The rules of carbon financing are the result of a complex political process long before we even emerged as an organization, and reflect the difficulty of trade-offs between environmental protection and economic development.

Kyoto and the Clean Development Mechanism

Under the Kyoto Protocol, signed in 1997, participating industrialized countries were obliged to reduce their carbon emissions from their established baseline by at least 5% from 1990 levels between 2008 and 2012. The Protocol has since been extended to 2020. Operationalizing the Kyoto Protocol, and now thinking about what comes next is a balancing act between economic growth and development, and environmental goals. Developed country governments have been concerned about the economic costs of meeting these targets; developing country governments have stressed the imperative of development over mitigating the effects of a problem largely created by industrialized countries.

One element of Kyoto that was intended to create an incentive for developing country governments to participate, and to reduce the overall costs of meeting emissions reductions targets, is the Clean Development Mechanism (CDM). The CDM was meant to support development in those countries least responsible for climate change, even while they may be profoundly affected by it. Essentially, under the rules of the CDM, if a project is undertaken in a developing country that reduces emissions below a business as usual trajectory (and only financially viable because of carbon financing), the emissions reductions can be credited against the cap that industrialized countries that sign Kyoto have agreed to. Thus, a European firm can meet its targets not only by a trade with another European firm, but also by purchasing “offsets” from a project in China or Uganda.

How do economists generally approach carbon markets and the CDM? On the one hand, reducing emissions where it is cheap to do so, often in developing countries, is efficient and desirable. On the other hand, the ‘business as usual’ emissions trajectory, and whether a project is truly “additional” to what would have been done anyway is unknowable. There seems to be room to game the system. How all this trades off with the value of getting more countries to ratify the Protocol is not something that is easy to assess.

Introduction of the CDM did indeed drive investment as a result of the new potential market for carbon offsets. However, this investment was overwhelmingly concentrated in China and India prior to 2011. Few CDM projects were undertaken in Africa initially mostly because there were relatively few emissions flows to be mitigated in the poorest countries. Whatever the implications of this situation for the stock of carbon in the atmosphere, it was in tension with the goal of the CDM to generate new investment to support sustainable development in the least developed countries and facilitate leapfrogging to cleaner technologies in these places.

Later rounds of reform to the CDM rules addressed the equity concerns about the location of projects by introducing the concept of “suppressed demand” and minimum livelihood standards, as well as baseline emissions rates for projects that were not a snapshot in time, but more explicitly a trajectory that was expected to change as broader economic changes took place. In practice, these changes meant that a project did not need to demonstrate that it would reduce emissions relative to the present state if the present state was so lacking as to fail to meet basic human needs. Instead, if it could show that it would provide a service level higher than the one at the outset and sufficient to meet basic needs at lower emissions intensity than the most readily available means of meeting that livelihood standard, then the difference between the theoretical basic needs level of emissions and project level emissions would be called an emissions reduction for the purposes of calculating salable credits.

It’s not hard to understand where the controversy comes in. In the framework of suppressed demand, CDM projects do not need to demonstrate that they reduce current emissions. The emphasis is much more on avoiding future emissions, which are hard to predict, and creating incentives for technology leapfrogging, which is hard to value because “additionality” is so hard to assess.

On the other hand, trading off these considerations with the benefits of redirecting resources from China and India toward Africa, and keeping a large coalition on board with Kyoto, is a political matter, not solely an economic one. The challenges of measuring emissions reductions are not exclusive to developing countries, and neither are trade-offs that loosen rules for some parties more than others. Stavins and Aldy describe such compromises and complexities in the Nordic markets as well, for example, where there is clear public support for addressing climate change.

Before turning to dispensers, and how they link to the CDM, one last note: The size of the CDM emissions market is tiny relative to global annual emissions. CDM carbon credits equal about 1% of annual global carbon emissions. CDM resources could be far more valuable for development than they are for climate change.

Carbon credits for dispensers

Dispensers are financed via carbon credits by taking advantage of the rules of the CDM and the concept of suppressed demand. The Gold Standard, which certifies emissions reductions, and rule-making bodies associated with CDM governance, have agreed that water projects in least developed countries which improve water safety in contexts in which the alternative means of reducing contamination is boiling, and which can demonstrate that they would not have developed were it not for carbon finance, are eligible for carbon credits.

Using the “suppressed demand” approach, drinking water that has not been boiled or otherwise treated is a service level that is below minimum livelihood standard. The relevant comparison for determining whether carbon credits can be earned is the comparison between the carbon intensity of boiling, the current feasible means of reaching minimum standards, and the carbon intensity of the new technology.

Because treatment with chlorine is less carbon intensive than burning firewood, for instance, to boil water, credits are earned. We conservatively monitor our programs according to the rules and requirements established by the CDM and Gold Standard, and use independent auditors to double-check and verify objective measures of dispenser usage and carbon credits claimed for dispensers.

Thus, to be clear, we do not claim that all users of dispensers previously boiled their water or switch from boiling to using the dispensers after they are installed. In western Kenya, where the most dispensers are currently, boiling is uncommon, precisely because it is expensive to purchase biomass to burn to do it. We do not claim to know that boiling rates will increase as incomes rise; this is a reasonable hypothesis, but other technologies could also be used to meet or exceed minimum standards (such as piped systems). We don’t currently compare the carbon intensity of dispensers to piped systems, which would change both water quality and water quantity, and we certainly don’t make claims about the relative desirability of dispensers and piped systems.

We do make claims about the desirability of dispensers relative to the status quo level of water safety; sustained adoption rates at dispensers of 40-50 percent suggest that people find this technology far preferable to boiling or to purchasing chlorine for home use.

The political considerations that went into the creation of the CDM may raise questions about which reasonable people may arrive at different conclusions. We access carbon financing for dispensers because this is part of a business model that allows us to meet our goals of sustainable on-going service delivery without user fees. And ultimately, safer and cleaner water for millions of people.


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