Is Ethiopia Ready for Carbon Trading?

In recent years, the term ‘green economy’ – economic activity that is environmentally conscious – has generated buzz among policy makers. For sub-Saharan African countries like Ethiopia, the potential of developing their economies in an environmentally friendly manner is especially pertinent. This is because millions in the region rely on agriculture; a sector recurrently affected by climate change. These countries are preparing to engage in carbon trading, a system in which developed countries pay developing countries that develop forestry to absorb carbon and engage in development practices that reduce specific amounts of carbon. Ethiopia is now preparing for the trading too. This is a useful technique for the country to acquire development finance. Advocates of this process say that the country could gain hundreds of millions of dollars through the trading. EBR’s Meseret Mamo spoke with key stakeholders to learn more about the complex issue and offers this report.

Over the last decade, an increasing number of developing nations such as Ethiopia have declared ‘green growth’, which is a development path that seeks to reduce harming the environment, as the only way of achieving sustainable economic growth. Yet, the question of how to marry environmental concerns with development aspirations remains contentious between developed and developing nations.
The stakes are even higher for Ethiopia, a country that has been vocal about building a climate-resilient green economy. This is because the transition from conventional economic development to an environment-friendly economy is expensive, since many of its solutions are costly.
Government data demonstrates that developing a green economy will not be a cheap and easy endeavour. As revealed in the Climate Resilient Green Economy Strategy document, which was introduced by the Ethiopian government in 2011, an average of USD10 billion will be needed annually, of which 50Pct will have to be in hard currency in order to build a climate-resilient economy by 2025 – the year Ethiopia is set to achieve middle-income status. However, according to a report published by the International Institute for Environmental Development in April 2014, Ethiopia received only USD43.31 million (or 0.46Pct of the total) from the Organisation for Economic Co-operation and Development countries to help it achieve goals set in the document.
It is this slow response from developed nations that prompted African countries to call for the establishment of a USD100 billion Green Climate Fund, which will be an independent entity to be managed by the World Bank to assist developing countries in adaptation and mitigation practices to counter climate change.
The late Prime Minister Meles Zenawi was vocal about the need to establish and make available the fund at a UN climate conference held in Copenhagen, Denmark in 2011. “We are already severely affected by climate change, as a result of which the lives of millions of Africans are at stake, as the extraordinary drought in the Horn of Africa shows,” he said while addressing world leaders during the conference. “Establishing the Fund and its governance mechanism would be a major step forward. But such progress will have little meaning unless we proceed to funding the Fund.”
More broadly, finance towards building climate resilient green economies comes in the form of investments for adaptation and mitigation. Yet, close to 94Pct of these investments targets at mitigation. Like for many African countries, this has an adverse impact on Ethiopia, a country that does not have high carbon emissions to mitigate.
In fact, of all the continents of the world, Africa has contributed the smallest amount of the carbon emissions that contribute to climate change. The continent emits 4Pct of emissions globally. Ethiopia’s contribution to global emissions, since the country is in the initial stages of industrialisation, has been negligible. Even after several years of rapid economic growth, it only contributed 0.03Pct to global emissions in 2010.
This means Ethiopia can benefit from carbon emission trading, which allows countries that have more emissions of carbon to keep the limit of carbon emission specified to them as per the Kyoto Protocol by purchasing rights from counties like Ethiopia that can develop forestry to absorb carbon and engage in development practices that can reduce carbon emission.
Ever since the late Prime Minister spearheaded the idea of building a climate resilient green economy in 2011, the idea has received strong political support among policy makers. However, only a handful of projects have been implemented so far. The United Nations, under the Reducing Emissions from Deforestation and Degradation (REDD +) programme, is administrating one such project. The programme works in 52 countries with 338 projects that aim to create financial value for the carbon stored in forested areas. Under this programme, 8 million hectares of land in the Oromia Region are in the preparation phase.
“If we manage to finalise the work on time, it means the project in the Oromia Region took two-and-a-half years, which is the shortest time in the history of REDD + projects globally,” says Yitebitu Moges (PhD), National REDD + Secretariat coordinator at the Ministry of Environment, Forest and Climate Change (MoEFCC). The REDD + has established regional project secretariat offices in the Tigray, Amhara and Southern regions to replicate what has been done in Oromia. These projects are now in the early preparatory stages. Aided by the national REDD + Secretariat, the regions are expected to develop bankable projects for funding. The regions are supposed to finalise a readiness preparation proposal at the end of June 2016. It is only then that the projects can get investment funding for natural regeneration activities from the World Bank. The amount of carbon to be absorbed will then enable the country to receive carbon credit funding from the World Bank.
So far, Ethiopia has received USD13.6 million for the preparation project in Oromia from the World Bank. The fund is also used to do preliminary works in the three regions. Upon venturing into the trading stages, Ethiopia will get an additional USD50 million from the Bank’s Carbon Credit Fund. Based on the implementation, the Norwegian government has also promised to provide USD100 million for the period 2016-2020 through a bilateral agreement.
Yitebitu says the Oromia pilot project is something the national REDD + Secretariat is proud of; “It covers all the forests in the Oromia Region and is the biggest as well as the first project implemented at a state level in the world,” he explains.
Although the Secretariat does not know the exact amount of money the national REDD + projects will bring to the country, the Coordinator believes that the potential will depend on how much the country will work to reduce emission and sequester carbon from the atmosphere. However, he is confident that the benefit can match what the country earns through the export of coffee.
The REDD + initiated project is not the only emissions trading programme implemented in Ethiopia. Located in the Wolayta Zone of the Southern Region, 420 km south of Addis Ababa, the Humbo Assisted Natural Regeneration Project is managed by World Vision. Established on 2,728 hectares of land, the project has won global recognition as Africa’s first carbon credits for reforestation. The area has 880,000 tonnes of carbon dioxide stock, which is equivalent to USD13.2 million over 30 years.
Although there is great potential for carbon trading in Ethiopia, there are few initiatives towards carbon mitigation. Available data, however, indicates that Ethiopia has potential to mitigate climate change. Its total forest carbon stock is estimated at 2.7 billion, according to a report published by the Ministry in January 2014.
The country has also 13 protected areas for biodiversity and wild life conservation, which cover 3.7 million hectares of land. Of the total, six preserved areas, with a combined total of 1.2 million hectares of area, have a forest carbon stock of nearly 60 million metric tonnes. It is also undergoing large afforestation and reforestation development. The huge clean hydropower projects Ethiopia is developing, which will benefit neighbouring countries, also makes the country well positioned for carbon trading in the future.
Despite this, Tewolde Berhan Gebre Egziabher (PhD), known globally for his works to safeguard biodiversity and the traditional rights of farmers and communities, says carbon trading is weak globally. “This might change after the 2015 UN Climate Change Conference that will be held in Paris in December 2015.”
Yitebitu cites another problem for the difficulty the country faces in taking advantage of its resources. “The process of getting certification for a certain project that works in carbon emission reduction is so detailed and complicated. And because of the shortage of skilled manpower and technical capacity, Ethiopia [can] not unleash its [full] potential easily,” he argues. “Solving these [structural] problems will help to [acquire] financing for infrastructural projects that will be free of emissions.”
Indeed, climate-resilient and green economy investments also have specific financing needs. To this end, Ethiopia aims to expand electricity generation from renewable sources and leapfrogging to modern and energy-efficient technologies in the transport, industrial and construction sectors.
However, Tewolde Berhan, now serving the MoEFCC as an advisor, argues that carbon trading is not the only reason for Ethiopia to develop a green economy. “Ethiopia’s economy and the well being of its people are closely linked to agriculture and the use of natural resources,” he argues. “The country’s current energy mix under the green economy path greatly reduces its vulnerability to climate change.”
His concerns about climate change’s costly effects on the economy are substantiated by research. A report published by the government in 2011 states that, in the worst-case scenario, Ethiopia would achieve only half of the potential of its GDP in 25 years because of the adverse impacts of climate change.
Experts and scholars, however, say the green economy path is not a magic cure for global warming and the world economy. In a 2013 report, Martin Khor, executive director of South Centre, an intergovernmental organisation of developing nations, argues that for these countries, adopting the principles of green economy will not be free of risks or costs. One of the concerns is the huge investment green developmental projects need, which is beyond the capacity of developing nations like Ethiopia.
Tewolde Berhan has a different view on the matter. “Uncertainty about the exact nature of future climate change must not [interrupt countries] from acting now to minimise future damage,” he explains. “Effective adaptation to climate change by investing in green projects like the Grand Ethiopian Renaissance Dame (GERD) will improve the use of natural resource assets.”
Finance is not the only challenge countries may face for building a climate resilient economy. Experts fear that the concept of a green economy may hinder foreign direct investment, since many companies prefer to invest in countries that have less conservative environmental policies.
Nevertheless, Tewodros Tadesse (PhD), a lecturer in Mekelle University’s Department of Natural Resource Economics and Management, says this will be for the benefit of foreign companies too. “Many countries ask [these days] whether commodities they are importing are produced fulfilling the economic, environmental and social objectives of a green economy,” he explains. “So from this point of view, going green will be inevitable in the future.”
Despite the arguments regarding the economic merits of developing a green economy, most researchers agree that climate change is caused by human activity and has created major problems throughout the world. Reports suggest that Africa will be affected enormously and adversely, although it has contributed the least to the environmental damage.
Ethiopia is no exception. Like the rest of Africa, it has become warmer year after year, demonstrating to some that climate change is a clear and present danger to the country. As a result, stakeholders say doing little or nothing can hold back the economic progress the country has been enjoying for more than a decade now– or even worse, reverse the economic gains already made. EBR