Nepal stares at the huge possibility of gaining from carbon-trading by focusing on Clean Development Mechanism (CDM)
After ratifying the Kyoto Protocol earlier this year, Nepal now stands chance of reaping benefits from the novel concept of "carbon-trading." As a non-annex 1 country, Nepal can sell its "carbon-credits" to Annex 1 countries and earn foreign exchange by pursuing Clean Development Mechanisms (CDM).
At a carbon fair organized in the capital last week, experts and officials discussed how they can work together to maximize the benefit potentials. Till now, there is a big gap in information as huge majority of people are still unaware how this system of CDM transaction works.
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The country and the community can, through the use of clean alternative energy, engage in carbon-trading. The provision for Clean Development Mechanism (CDM) transactions in the Kyoto Protocol will allow countries like Nepal – which reduce very negligible quantity of Green House Gases (GHG) – to sell their clean projects to western countries in form of carbon trading. The ratification of the protocol qualifies Nepal to participate in the CDM, which allows Annex I (highly polluting) countries flexibility in meeting their obligations through purchase of carbon credits from projects in non-Annex 1 countries like Nepal.
Through the CDM, an industrialized country invests in projects in developing countries and obtains credits for achieved emission reductions, called Certified Emission Reductions (CERs). The emission reduction credit is, in fact, a marketable commodity that a typical CDM project produces. The sale of the emission reduction credits to developed countries and companies with Emission Reduction (ER) targets can help generate additional revenue for a CDM project in the developing country.
Nepal has a large potential to develop CDM projects – any sector where use of unsustainable firewood or fossil fuels can be replaced with clean energy will qualify. Nepal’s biogas projects are considered to be the most advanced of the country’s CDM projects. Each biogas plants prevent around 5 ton of Carbon dioxide from being released to the air in one year. Each ton of carbon dioxide costs nearly US$ 5. In fact, the Nepal Biogas Support Program has already received a Letter of Intent from the Community Development Carbon Fund (CDCF) of the World Bank’s Carbon Finance unit for the purchase of 1 million tons of carbon dioxide (1 ton of CO2 abated is referred to as 1 ER) for around $ 4.5 million. It is estimated that the household biogas sector alone can generate over 50 million ERs in the next 20 years.
"Other potential CDM projects in Nepal include Improved Cook Stove (ICS); Electric Vehicles (EV); micro hydro; solar system; wind energy; methane capture from landfill sites; low emission brick kilns (VSBK); hydropower for replacement of fossil fuels and for export to India; and forestation," said Madan Koirala, scientific advisor, Ministry of Environment, Science and Technology (MoEST). In fact, during the carbon fair organized by MoEST, Winrock and ADB as per the PREGA project last week, a number of potential CDM projects and their estimated CERs as well as consequent cost benefits were presented. The CDM projects of ICS, VSBK, Solar lamps (tukki), EVs, and landfill gas were presented in detail during the fair.
As a second big step towards realizing this goal, the country has also formed what is known as Designated National Authority (DNA) to screen and approve CDM projects. The newly formed DNA structure includes National CDM Council, which is chaired by Secretary at the MoEST; and DNA Secretariat headed by joint secretary at the Environment Division of MoEST.
The Asian Development Bank (ADB) has also included Nepal as one of the 15 participating countries to implement the PREGA (Promotion of Renewable Energy, Energy Efficiency and Greenhouse Gas Abatement) Project, which will, among others, generate a pipeline of investment projects for consideration for financing through commercial, multilateral and bilateral sources, including specialized treaty-linked mechanisms such as the Global Environment facility (GEF) and CDM. In its second phase, PREGA is engaged in preparing pre-feasibility studies including two Project Design Documents for CDM projects. MoEST is the national project coordinator and Winrock International Nepal is acting as National Technical Expert for PREGA.