Meet Mr Carbon

Kevin Davie
16 September 2007 11:59
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Government has gone into the carbon trading business. The state-owned Central Energy Fund (CEF) has set up its own carbon trading operation.

Headquartered in London, the operation is intended to ensure that South Africa maximises the benefits for the country from the rapidly growing trade in carbon credits.

Carbon credit projects already in the pipeline stand to earn the country about R900-million, but Deven Pillay, head of the soon-to-be launched entity, CEF Carbon Markets, says that the country could earn billions in revenues from carbon trading opportunities as this nascent market accelerates in the face of the worldwide movement to combat climate change.

South Africa in particular and the continent as a whole has been slow to exploit opportunities in carbon trading. There are now more than 2 000 projects worldwide that are in the United Nations’ clean development mechanism (CDM) pipeline, including 646 in India and 530 in China. The total value of approved CDM projects worldwide is $760-million.

Yet sub-Saharan Africa has just 28 projects compared to Latin America’s 557. South Africa only has 19 projects in the CDM pipeline compared to Brazil’s 225.

Carbon trading is an outcome of the Kyoto Protocol, which required developed countries that are signatories to reduce their greenhouse gas emissions. They can do this in part through investing in projects in the developing world where clean technologies have been shown to reduce emissions.

This has led to the development of an active carbon trading market. Trade is in the form of carbon credits or the amount of carbon saved through the use of more efficient, cleaner technologies.

Trade in carbon credits topped R200-billion in 2006, according to The Economist, which describes carbon trading: “The carbon market is truly innovative. Although it works like any commodity market, what is being bought and sold does not exist.

“The trade is actually not in carbon, but in not-carbon: in certificates establishing that so many tons of carbon dioxide (or the equivalent in other greenhouse gases) have not been emitted by the seller and may therefore be emitted by the buyer.”

The CEF’s carbon strategy is multi-pronged, according to Pillay. It intends trading the carbon saved on a set of its own energy-saving projects and will use its own in-house expertise at CEF Carbon for this purpose.

While the CEF of old did little more than house the country’s Strategic Fuel Fund and was notorious for paying inflated premiums to middlemen, such as Marino Chiavelli, Marc Rich and John Duess, in the oil markets, the new CEF houses a set of resources designed to diversify the country’s energy inputs, drive increases in energy efficiency, invest in new technologies such as solar and promote alternatives such as biofuels as part of a general move to a more rational energy strategy.

CEF Carbon intends acting as a one-stop shop to other South African entities that are looking to trade their emission reductions on the international carbon market. The market, being largely driven by regulation, is complex and requires specialist knowledge and resources. It can also be costly; compliance costs can be as high as $200 000 a project.

Complexity and costs mean that a centralised, expert resource has a major role to play in tapping this revenue stream, says Pillay.

While the total revenue benefits that are likely to result are hard to quantify it is clear that carbon-related revenues could rank in time as an important source of foreign flows to the country, perhaps more or less equivalent to that of current foreign direct investment flows.

Pillay sees the rest of the continent as an important market for CEF Carbon. “Just 3% of current projects internationally come from Africa,” he says.

South Africa may be a new entrant to this rapidly growing market, but Pillay sees the potential for the country to make an important and leading contribution.

“We have the technology and creativity to be a market leader,” he says.

CEF Carbon’s key aim will be to develop CDM projects across Africa, the focus being on sustainable renewable projects, to capitalise on existing technology options already in use, to offer both local and international legal expertise and to ensure that maximum value is captured for what is called CERs, certified emissions reductions.

Carbon trading has its supporters and is seen by some as likely to develop into the world’s largest market as emission reduction increasingly is used to combat climate.

But detractors argue that rich companies should not be able to buy their way out of meeting their obligations to reducing global warming.

Pillay, who has five years’ experience in the international carbon trading markets, says Kyoto both requires emission reductions and allows for the trading of carbon credits. It is a win-win for both developed and developing world as emissions are cut and funds flow to aid development.

Carbon bunnies
Like me, Deven Pillay hails from Durban, and when I suggest we meet over lunch for bunny chows, he says “that is quite an offer”.

The bunny spot I have in mind is more or less at the entrance to the CEF’s headquarters on Jan Smuts Avenue in Rosebank.

Pillay is academically trained as an engineer, but has been gravitating through business development to climate change and management during his career.

With working experience at both Shell and Eskom in South Africa, his home base has been out of the country for some years now working for both Shell and BP in Australia and the United Kingdom.

His recent jobs include group adviser on climate change to BP (UK) and global business manager for carbon management for Shell (UK).

As is the case with many South Africans who are not used to Johannesburg, Pillay is amazed at the city’s traffic.

Not as bad as London, I say confidently, only to be told that London traffic with the numerous anti-congestion initiatives, has improved considerably.

We both order chicken bunnies. There’s a lot to talk about. The bunnies are good. Very good. We agree we’ll be back to talk more climate change over bunny chows. -- Kevin Davie