The UK government has announced a Carbon Market Finance (CMF) initiative that will provide £50m from 2013 to 2025 to increase carbon finance flow to Least Developed Countries (LDCs) – with a focus on Africa.
The CMF initiative expects to purchase 5.4 million CERs by paying premium prices for each emission reduction till 2025. While currently, CER prices are well below the Euro 0.60/t level, the new initiative will pay GBP 5.3/t for biogas credits, GBP 8.2/t for solar credits and GBP 5.6/t for hydro credits.
While the direct benefits of this initiative programme represents value for money even in the absence of carbon market recovery for the government, according to its analysis, the potential for this funding rests on market recovery around 2020 said the government.
The CMF program has laid out three key milestones and will review the funding program in 2016, 2019 and 2022. In particular, in early 2016, if an international agreement on emissions reductions has not been agreed and if the carbon market shows no sign of recovery, the UK will discontinue all work under the program or cut out the CDM component of the initiative.
UK Energy and Climate Change Secretary Edward Davey said, “The UK will be working as part of the EU, to gain momentum for a deal with a push for 50% reduction in European emissions. But we will need to see similar ambitions and commitment from other developed and emerging partners before we can sign”.
Mr Davey also announced that the UK will join the United States in agreeing to end support for public financing of new coal-fired power plants overseas, except in rare circumstances in which the poorest countries have no feasible alternative.
By 2016, the program estimates that £17m in funding would have been committed to the program, at least £11 million of which would be to implement initial demonstration projects delivering direct results.
The government has announced that they will use result based finance or RBF to purchase emission reductions credits from projects that install low carbon energy with community and household level results. However, the UK government anticipates that there will be some CER delivery failures on individual projects and time delays will mean that the overall programme will deliver results at a later date than expected. Therefore, the UK expects most Emission Reduction Purchase Agreements will not be signed until 2020, resulting in 24% of the associated emission reductions being delivered after 2025. Thus only 4.1 million CERs will be delivered by 2025.
The new programme has announced that any CERs that are purchased will be cancelled, and will not be used for compliance purposes by the UK or by others.
In Africa CDM projects will be selected from Uganda, Rwanda, Zambia, Malawi, Tanzania, Ethiopia, DRC and Sierra Leone. In Asia, Nepal or Bangladesh will be selected for this program.