Can carbon revenues help transform household energy markets?

SEI policy brief

Author(s): Lambe, F. ; Lee, C.M. ; Jürisoo, M.; Johnson, O.
Year: 2014

Carbon finance is emerging as an attractive option to help scale-up cookstove projects, but little research has been done on how well it meets these projects needs. This brief, based on SEI Project Report 2014-01, describes the findings of a scoping study in India and Kenya.

There is also a growing momentum to scale-up access to cleaner cookstoves and fuels, as an energy access issue as well as for public health and environmental benefits. Along with major national and international initiatives, there is a new wave of cookstove initiatives being implemented by private-sector actors. All these efforts require funding, and carbon finance is emerging as an attractive option to help scale-up cookstove projects, through the Clean Development Mechanism (CDM) and through voluntary markets, where demand for credits from cookstove projects has been rising rapidly.

Little research has been done on how cookstove projects are using carbon finance. To address this gap, SEI conducted a scoping study in India and Kenya to examine the growing role of carbon finance in cookstove projects, with a focus on how it might support market transformation. The authors conducted an in-depth review of the project design documents (PDDs) for 75 carbon-financed cookstove projects in India and Kenya. They also interviewed 49 stakeholders along the value chain, including cookstove project implementers (both carbon-financed and not), households, NGOs and cookstove and carbon market experts.

Among their key findings is that the affordability of stoves is a major concern for most project developers. Some projects use microfinance, bulk discounts and other mechanisms to help households buy stoves, but high-end price subsidies are the most common approach. This is a common use for carbon finance; others include after-sales support to households, research and development, establishment of distribution networks, and provision of finance to stove buyers.

The study also found that many project developers, especially smaller businesses and NGOs, also face financial barriers, including lack of access to credit for working capital, low profit margins, and high upfront capital costs. A majority of the carbon-financed project developers interviewed were relying solely on carbon revenues to cover project costs.

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