In mid-March 2019, the WorldBank signed an Emissions Reduction Purchase Agreement with Kenya’sTea Development Agency Power Company Ltd. This is part of its expansion ofsupport to African farmers in adapting to the impacts of climate change. It willdirectly help 350,000 smallholder tea farmers and 39 factories by providingpower from new hydropower plants. The key innovation is that the plants willgenerate revenue credits—payments for the certified reduction in emissions ofcarbon dioxide that they create in servicing the energy needs of communitiesand farms. These credits make the capital investment required more “bankable” andreduce debt service costs. In other bank projects built on this blueprint, theywill subsidize farmers’ and families’ purchase of energy-efficient biogasstoves. The ERPAcredits are internationally marketable as a carbon tax offset.
The main features of theinnovation blueprint are:
- Exploitthe scale of the World Bank and its access to global financial markets toprovide a pool of initial capital plus guarantees for other parties.
- Targetenergy in fighting the impacts of climate change and reducingthe poverty increasingly related to it: Africa has an abundance of hydropotential. (Hydropower has been controversial for its environmental damage and disruptionof communities. These seem to be less of a problem given new technology,collaborations and project management.)
- Createfinancial incentives for emission reduction: emission credits add a newdimension to the We lend, or grant/You spend and repay development model. Inthis case, the farmer earns something.
- Expandcollaborations beyonddirect financing: Large-scale development projects demand many parties;involvement, from funding through to building to operating. The lead times are5-20 years.
The World Bank is underwritingthe initial loans to KDTA,a private sector partner with the bank’s private International Finance Company.IFC leverages investment from wealthy individuals, development agencies andbusinesses. The UK Department of Energy and Energy is contributing technical resourcesand expertise. The French government is funding KDTA to improve tea factoryaccess to alternative energy sources. Inaddition to the hydropower project, IFC is investing in development of aMombasa warehouse and supporting KDTA initiatives in wood sourcing, soiltesting and financial literacy education for farmers.
The World Bank is also thetrustee for the Carbon Initiative forDevelopment (Ci-Dev), which was was set up in 2016 to improve livingconditions and energy supply through “result-based financing.” It is in effecta trust fund.
Ci-Dev illustrates the mostcomplex and original feature of the KDTA agreement. Without Ci-Dev, this is alarge traditional loan and grant package. Ci-Dev pays the borrower forreductions in carbon emission. Its first project in East Africa was withSimGas, a private Dutch maker of low-costplastic-molded biodigesters that it installed in a state-of-the-artfacility in Tanzania to provide energy to rural households in Kenya andneighboring countries.
The biodigesters convert manureinto cooking oil and a rich bio flurry that can be used as a fertilizer. It eliminatesdependence on wood fuel, frees up the time of the women and children who mustlocate and collect the wood and lowers carbon emissions. The financial value ofthat reduction is converted into a “results-based” payment to SimGas.
The logic of the bank-KDTAassociation is the same: catalyze the generation of benefits through incentivesthat are derived from implementation, operation, diffusion and productivity.
The initiative is one of manythat the World Bank is spearheading. Less than a decade ago, its total budgetfor loans to remediate climate change was $2.4 billion (2011). It nearly doubledin 2012 to $4.6 billion. The latestdoubling in a year was announced at the end of 2018: to $200 billionglobally for 2021-2025.
The Kenya tea project was partof the announcement of the Bank’sscaling up its support for climate adaptation and mitigation to$22.5 billion a year for 2021-2025, another doubling over the previous fiveyears.
SOURCES: World Bank, KTDA, CleanTechnico, Carbon Tax Center, Vigor News, Good News Network, Hydro Review,Smithsonian Magazine, Bloomberg, India NDTV, Ci-Dev
Kenya press: The Exchange, Nation