As of 2009, Nepal earned US$2.1 million through carbon trading by running several clean-energy projects. Two of Nepal’s globally acclaimed indigenous biogas projects that are being replicated worldwide have also obtained the Certified Emission Reduction (CER) certification.
Krishna Gyawali, Secretary at the Ministry of Environment, says, more projects are likely to receive CER soon, which means more rewards for the country.
Om Astha Rai caught up with Gyawali to talk about carbon trading, its status, and how the money is being utilized, and the hurdles that need to be crossed in Nepal.
How is Nepal earning money from carbon trading?
Let me first briefly sum up the background to carbon trading. In 1992, the United Nations Framework Convention on Climate Change (UNFCCC) fixed a certain parameter beyond which developed countries cannot emit greenhouse gas (GHG). Later, in 1996, the Kyoto Protocol, which is linked to the UNFCCC, set a binding target for the developed countries to reduce GHG emissions within a certain timeframe.
However, irrespective of how environment-friendly they make their industries, the developed countries cannot significantly reduce GHG emissions. In this context, by way of compensation, the developed countries need to pay money to the developing countries for reducing carbon emission. In short, if Nepal avoids emitting one ton of carbon through clean-energy projects, we are entitled to US$7. We’re running several clean-energy projects which fetch us money for reducing GHG emissions. This is how Nepal is making money through carbon trading.
Could you elaborate more on such future projects?
Four more biogas projects have already been registered with the Executive Board of Clean Development Mechanism (CDM), which is under the UNFCCC. However, they are yet to receive CER. Altogether 60,000 biogas plants have been set up under these four projects.
One micro hydro project has also been registered at the CDM Board. Once these five projects receive CER, we’ll be earning more money through carbon trading. In addition, three more projects – biogas, Improved Cooking Stove, and Improved Water Mill – are likely to be registered at the CDM Board.
How does the developed world provide money to Nepal for reducing GHG emissions?
At present, we’re receiving money from the World Bank (WB) and German Development Bank (KFW). The Nepal Government had signed an Emission Reduction Purchase Agreement (ERPA) with the WB in 2006. The current rate of US$7 for one ton of carbon is fixed in the ERPA. The money we receive is through the WB, which in turn receives the money from developed countries to pay the developing nations. Although it seems that we’re receiving money from the WB alone, the WB gets it from the developed countries. Therefore, the developed countries are paying us money through the WB. In case of the KFW, we have a bilateral agreement.
What is the process of selling carbon?
It’s a very lengthy and complex process. If a business firm decides to develop a CDM-friendly project and expresses commitment to reduce a certain amount of carbon, it has to acquire a Project Information Note (PIN) from a Designated National Authority (DNA). In Nepal’s case, the Ministry of Environment has been appointed as the DNA by the UNFCCC Secretariat.
After the DNA gives its nod, the firm has to submit a Project Design Document (PDD). The DNA reviews the PDD and sends it to the CDM Board. The Board refers the PDD to a certain Designated Operational Entity (DOE). The role of the DOE is very crucial in issuing CER. The DOE first validates and then verifies the PDD before issuing CER. Once the CER is issued, the firm acquires tradable status.
Where does the money earned through carbon trading go?
At least 80 per cent of the money is spent in developing future CDM-friendly projects. Two per cent of the money is allocated to the Environment Protection Fund (EPF) which runs micro CDM-friendly projects. The remaining 18 per cent of the money goes to the Climate and Carbon Unit (CCU) at the Alternative Energy Promotion Centre (AEPC) for management of all CDM-friendly projects.
Is the current rate of carbon trading satisfactory?
No. In fact, we’ve been asking for raising the current rate of US$7 for one ton of carbon in the last few years. We have already registered one micro hydro project with the CDM Board for CER. We’ve maintained that it should be at least US$10 for one ton of carbon in the case of micro hydro projects. We’re for raising the carbon trade rate in biogas projects, too. But, it’s negotiable. We need to sign a new ERPA in the near future.
Do you think Nepal’s community forestry will also fetch money through carbon trading?
The UN-Reducing Emission from Deforestation and Forest Degradation has allowed us to earn money through carbon trading by planting trees. However, the process for community forests to receive CER is even more complex. In the first place, it’s very complicated to assess the value of carbon reduced by community forests by planting trees. This is why none of Nepal’s community forests has received CER so far.
What are the challenges facing Nepal in carbon trading?
We’re facing four major challenges. Firstly, we lack a research-based baseline data. For instance, we say we have immense potential in hydropower. But how much potential do we have in it? We have no scientific data. Is this potential realizable? We can’t say. In order to address this problem, we are now developing a strategy.
Secondly, although we want to encourage private sector to involve itself in carbon trading in our policy documents, we lack clear guidelines about this. Thirdly, we have no DOE in Nepal. Since foreign firms come to Nepal as DOEs for validation and verification, they will take away much of our money. And we also lack technical experts in carbon trading.