In the course of the pilot, the Center and partners will: a) facilitate Ethiopia's entry into the global carbon-trading market; b) right the balance between the dual functions of the Clean Development Mechanism (CDM) of the Kyoto Protocol, and link Ethiopia's planned expansion in renewable-energy production to the CDM system; and c) identify the steps, instruments, verification, and other procedures that can remove obstacles to market access for the world's poorest countries and share those findings with other developing countries' governments. Phase two of the commitment will entail replicating the program in other least developed countries.
To achieve these objectives, the pilot will be divided into three six-month stages. During the initial six months, the Center will work with its partners and other market experts to complete a market analysis of Ethiopia's carbon assets. In the second period, the Center will undertake an evaluation of the office of the Designated National Authority (DNA) within the Ethiopian Environmental Protection Authority. The DNA is a government entity mandated under the Clean Development Mechanism to coordinate emissions offset projects in a host country, and will be the center of operations for this work. The evaluation will compare the existing DNA in Ethiopia with those in other countries that have been both successful and unsuccessful in attracting investment. Finally, beginning in the fall of 2007, the Center and partners will devise a work plan for the Government of Ethiopia to help strengthen the capacity of the DNA to send a clear signal to the markets that the country is taking steps - on policy and governance - to reduce risk in carbon offset investments.
In just two and a half years, carbon-emissions markets around the globe have expanded rapidly, with aggregate trades expected to exceed billion in 2006. As world leaders become increasingly aware of the detrimental impact of climate change and the need for emissions regulations, these markets will grow.
Market instruments, principally the Clean Development Mechanism, have also expanded rapidly. CDM was designed to achieve twin objectives: to ease the transfer of clean energy technology for sustainable development, and to reduce and offset emissions in developing countries. Utilization so far, however, has been largely limited to major emerging economies, especially the industry-heavy China, India, Brazil, and Mexico, where low-cost reductions are abundant. The world's poorest countries - which incidentally are also the ones most vulnerable to the effects of climate change in part because they tend to be in regions prone to natural disasters, drought, and disease - have been left on the sidelines.
There is an opening for change, in part because of innovative financing vehicles at the World Bank and other risk-reduction instruments, like the recently announced CDM risk-mitigation insurance established by Swiss Re. Additionally, as investment opportunities in major emerging economies are tapped, investors are increasingly looking to new markets.
Least developed countries that take steps now to mitigate investment risks stand to harness an important revenue stream and gain valuable opportunities for technical assistance and investments in low-carbon energy production and their energy infrastructures.
For these countries, barriers to entering the carbon-emissions market have been three-fold: one, a lack of capacity on the part of host countries to assemble portfolios and attract investors; two, the above-average risk of investing in unstable political and economic conditions; and three, the complexity and uncertainty associated with CDM rules and procedures. Through this commitment, the Center and its partners will seek to mitigate these factors and reintegrate development objectives into the CDM.
Drawing on its substantial understanding of the challenges to sustainable development in least developed countries and in Africa in particular, and on its longstanding connections in the region, the Center possesses the experience, contacts, and resources necessary to drive this effort. Partnering organization Natsource brings to the commitment extensive experience as a leading global provider of asset management, transaction, and advisory and research services in emissions and renewable energy markets. Partnering law firm, Alston & Bird, brings to the commitment transactional, technology, and policy expertise in the renewable-energy sector, particularly CDM projects, and will provide strategic counsel to participants.
The project is seeking 1) financial contributions, private investors interested in exploring CDM-based energy investments in Africa; and 2) corporate or other sponsors for major event with African energy ministers.