Carbon finance has a key role to play in the development of a global market for clean cookstoves and fuels as it can change the funding dynamic for cookstove projects from one that has traditionally focused on donor aid to one that attracts investment from the private sector. Clean cookstoves can conservatively save one metric ton of carbon dioxide (CO2) emissions per year, and many models can save two to four times that amount. These amounts vary according to the type of fuel used, product efficiency, the lifetime of the appliance, the renewable fraction of local biomass resources, and final user practices (see “GHG Emissions from Cookstoves“). These emission reductions can be certified and sold through global carbon markets, generating significant revenue for the stove businesses and providing options for keeping prices low for the consumer.
In addition to providing a commercial pathway to generate revenues to scale clean cookstove deployment, carbon finance incentivizes monitoring, as well as increased usage and adoption, since carbon credits are generated through the sustained use of improved technologies. The potential income stream from the sale of carbon credits also creates incentives to develop more efficient, durable, and consumer accepted technologies that will remain in operation for as long as possible.
You can use the Project Screening Tool to assess whether your clean cooking project could benefit from carbon finance.
Carbon finance offers some important benefits that support the Alliance’s market-based approach. These benefits are:
Long time horizons – Carbon finance projects can last from ten to twenty-one years, whereas donor funding typically spans three to five years. The duration of the project is the ‘carbon crediting period’, and may vary according to particular standards and project type. For energy projects, the duration can be a fixed period of 10 years or a total of 21 years (7 years, twice renewable). For PoA, the crediting period can be as long as 28 years.
The length of the funding horizon has implications for project design, because a project developer has to plan within the allotted funding period. Carbon finance enables project developers to plan longer-term initiatives and develop projects that can promote positive societal change of the type that is not possible within shorter time horizons.
Encourage commercial focus and scale – In contrast to donor systems (in which financial support is known from the beginning of the project), the amount of funding under the carbon credit scheme is defined by the quantity of emission reductions achieved and the ability to sell the resulting carbon credits.
For stove projects, carbon finance favors commercialized production with the ability to grow continuously and yield higher levels of emission reductions. Consequently, a higher income potential is possible.
Carbon finance can also encourage scaling up, because it requires important upfront investment to pay for the various steps in the project cycle. Therefore, projects are incentivized to generate sufficient credits to pay these costs and generate a return on the investment.
Funds results – Carbon finance projects have to be regularly verified in order to receive credits. Under verification, a project might produce fewer credits than expected, or fail verification altogether. This results in a reduction or loss of carbon revenue, and therefore reduction or loss of funding for a project that is not delivering as promised.
This process functions as a powerful driver to maintain the monitoring and quality of the project, and guard against underperforming. The maintenance of high standards of proof has a number of positive benefits. First, it ensures accurate record-keeping and introduces efficiency and professionalism in a sector that is often quite informal and can suffer from structural inefficiency.
While many donors require monitoring the positive impacts of the project, there is often no real pressure behind the activity because the funds have already been allocated to the project and utilized. However, under carbon financing, monitoring and reporting activities are a prerequisite to the release of funding. Second, consumers benefit from a rigorous product selection (cookstoves with proven efficiency) and continuous maintenance services for their cookstoves.
- World Bank: Household Cookstoves, Environment, Health, and Climate Change: A New Look at an Old Problem
- Who Adopts Improved Fuels and Cookstoves? A Systematic Review (Lewis and Pattanayak, 2012)