Kenya hopes to Grow Money on Trees
Kenya’s stunning landscapes make it a hugely popular tourism destination, but until now, Kenya’s forests have been under-utilised, under-appreciated and consequently under-valued. This is set to change, however, due to two developments that have the potential to create considerable synergies: The creation of the new Kenya Forest Service (KFS) and the emerging carbon market.
The Government of Kenya has embarked on major reforms in the country’s forestry sector. As part of these reforms, the KFS was established to succeed the former Forest Department (FD) with effect from February 2007. KFS has an expanded mandate to manage the nation’s forest estate and provide high quality forestry related products and services.
The initiative is part of efforts to implement the Kyoto Protocol, which commits particularly rich countries to reduce their green house gas emissions by 5.2 percent from their 1990 levels between 2008 and 2012 when the protocol expires, but also to create incentives for the expanded use of clean energy.
The timing could not have been better given the emergence of the carbon trading market: Countries that create carbon emissions buy certified emission reductions (CERs), i.e. issued credits that can be bought and sold on the official carbon trading market, from developing countries to offset their emissions. Carbon offsets can come from many sources, but are dominated by three types of projects:
Forestry sequestration, i.e. the avoidance of deforestation or the planting of new forests (36%),
Renewable energy, i.e. generating power with clean renewable sources, e.g. wind and solar (33%); and
Industrial gases, i.e. containing and storing industrial gases created by industry so they are not released into the atmosphere (30%).
Deforestation in tropical countries is often driven by the economic reality that forests are worth more dead than alive. But the emerging markets for carbon credits could radically alter that equation. A study conducted by the World Agroforestry Centre found that ventures that prompted deforestation, such as clearance for agricultural purposes, charcoal burning, wood fuel etc. rarely generated more than USD5 for every ton of Co2 equivalent they released and frequently returned less than USD1. Meanwhile, European buyers are currently paying about USD35 for an offset tied to a one-ton reduction in Co2 emissions.
Even though the Kyoto Protocol stopped short of recognising forest protection as a source of CERs, a parallel voluntary market has sprung up. Voluntary offset trading stems from a variety of sources – people trying to offset their carbon footprints, businesses seeking to reduce their greenhouse gas emissions, or major events trying to be carbon neutral, such as the Olympics, the Super Bowl etc. To date, avoidance of deforestation is still confined to the voluntary market, which is still a small part of all carbon trading and buying, with a value of USD331m in 2007 as opposed to the Kyoto Protocol’s CDM and EU’s emission trading scheme worth USD64bn. But the voluntary markets grew more rapidly in the preceding year, tripling in value from USD91m in 2006, whereas the CER market only doubled in value. This trend is set to continue as the voluntary offset market is expanding at an astounding rate and, though still in its infancy, is one of the fastest growing markets on the planet. Any doubts about the importance of the voluntary carbon market should have been removed by Merrill Lynch’s announcement in early 2008 of a new carbon offset service to assist businesses to reduce emissions through voluntary offsets: Merrill Lynch’s managing director has valued the market at over USD70bn.