Cookstove carbon credits come of age with expected supply boom

Quantum Commodity Intelligence - Energy-efficient cookstoves are set to become one of the largest suppliers of carbon offsets to the voluntary market over the next few years, data from registries and interviews with industry executives showed Thursday.

Carbon credits have been generated for years from improved cookstoves (ICS) distributed in the developing world, largely in Africa and South Asia.

ICS projects often work in the same way: carbon developers buy energy-efficient devices and distribute them for free or at low cost to local populations, and then earn money back from the sale of carbon credits associated with lower wood or fossil fuel use.

Cooking is a key source of deforestation in many developing countries, and the industry says it has started to have a measurable impact in the areas where it operates. A key co-benefit for households is lower indoor air pollution.

But, until now, projects have been small and contributed much less carbon abatement than large-scale renewables and avoided deforestation projects.

This is set to change radically from next year, when a range of large projects commissioned recently start issuing credits, said industry sources.

ICS represent around 60% of the new projects listed by Gold Standard over the last three months, a higher share than 50% or so for historic listings.

The Swiss standard, the biggest proponent of the technology historically, now faces more competition from Verra, which will see its annual ICS credit supply more than double in 2022 to 15.4 million metric tonnes (mt).

ICS projects currently represent 26% of future carbon offset supply in the Verra registry, up from just 3% historically, putting it below forestry projects but well above other technologies, an analysis of the data shows.

Faster breakeven

For developers, the main attraction of ICS projects is their quick payback relative to other technologies.

The highest costs occur at the beginning of the project when the developer buys the devices, but there are few outgoings after that.

"The retun on investment is quick and the technology easily scalable: the more cookstoves you distribute, the more credits you generate," said one carbon broker.

"Another benefit is that projects immediately start to generate credits. In eight months, you can go from investment to first return."

"In two or three years, investors can break even, depending on the size of the project. We've seen enormous demand in recent months," said a source at cookstoves manufacturer.

This compares favourably with, for instance, forestry projects that can take between 5 and 10 years to generate credits and are complex to pull off.

Bigger scale

The latest projects coming through the Verra pipeline are some of the largest ever filed for the technology.

In the last few months, Australian developer C-Quest Capital filed nine ICS projects with annual emissions reductions of 1 million mt or more in separate African countries.

The largest projects, in Kenya, Gambia, Burundi, Malawi, Tanzania and Uganda involve the distribution of batches of as many as 500,000 cookstoves.

Another developer, UpEnergy, based in Angola, is working on four projects in the DRC, Tanzania, Nigeria and Uganda with annual emissions reductions of between 1.1 million mt and 2.5 million mt, data from Verra also shows.

The question is whether the increase in ICS supplies expected to take place will pressure credit prices, which have weathered the recent market downturn very well.

Recent ICS credit vintages from Africa currently sell at between $9-$10/tCO2e, according to market sources, while credits from India often trade at a $0.50 to $1 discount to Africa.

Project implementation is said to be easier in Asia as wood foraging is largely unregulated, while in Africa, developers face more work to convince households, which rely to a larger extent on wood chips from the retail sector, to adopt a new device.

In addition, sources said the co-benefits of African credits are higher, as households tend to cook more indoors than in India.

Quantum assessed VCS Clean cookstoves 2016+ 20kt credits at $9.30/tCO2e on Wednesday, down $0.15 on the day.