Carbon Finance for Waste Picker Organizations - Inclusive Cities

Carbon Finance for Waste Picker Organizations - Inclusive Cities

Carbon Finance forWaste Picker OrganizationsFeasibility and IssuesPhoto: G. CruzSome waste picker organizations are interested in earning income from the sale of carbon credits in order to improvetheir personal and collective circumstances. However, many issues affect how realistic pursuing this source of income isfor an organization.As part of its work with Inclusive Cities to support waste picker organizations, WIEGO asked consultant Ernest Achtell to lookinto the feasibility and requirements of accessing carbon finance through three sources – the UNFCCC Clean DevelopmentMechanism (CDM); Voluntary Carbon Markets (in particular the Gold Standard); and the Green Climate Fund wereexamined. The detailed study is being published as a Technical Brief by WIEGO (2013).How Recycling Creates Carbon CreditsLess fossil-fuel energy is required to manufacture products from recycled materials than from virgin materials. Thecarbon credits are equal to the difference between how much greenhouse gas is created from making the productfrom virgin materials and how much greenhouse gas is created when using recycled materials.Emissions from virgin materials – Emissions from recycled materials = Carbon creditsOne carbon credit is equal to one tonne of carbon dioxide (CO 2) (or another greenhouse gas equivalent to one tonneof CO 2) that a project prevents from entering the atmosphere.UNFCCC Clean DevelopmentMechanism (CDM)Under the Kyoto Protocol of the United Nations FrameworkConvention on Climate Change (UNFCCC), developedcountries have committed to reducing their emissions ofgreenhouse gases. They can meet part of this commitmentby buying carbon credits from projects in developingcountries. The buying and selling of carbon credits underthe UNFCCC is called the regulatory market.The UNFCCC’s Clean Development Mechanism (CDM) isa set of rules and standards that govern carbon credits(officially called Certified Emission Reduction credits,or CERs). The process of having a project registeredunder the CDM is very difficult and requires specializedtechnical skills.Developing and Registering a ProjectTo reach the goal of selling a carbon credit, an organizationmust first prepare a complex Project Design Document(PDD). This should contain full details of the scope,duration and impact of the project. A comprehensivemonitoring plan is required, along with all scientificcalculations of how the project reduces greenhouse gases.The PDD must go through an independent evaluation todetermine if it meets all the eligibility requirements of theCDM and that the project does reduce emissions. A letterof approval from the Designated National Authority—thebody given responsibility by the national government toauthorize and approve participation in CDM projects—isalso required.The process of developing, validating and registering aCDM project can take two or more years.Financial RealitiesTo pay off the high cost of development, any carbon creditrecycling program would have to operate on a large scaleand very efficiently. The market for carbon credits is quiteweak and the price has dropped (from a high toppingUS $20 to less than US $3 each). 1 New projects may notbe worthwhile. Before beginning, an organization should1European Union countries were the only significant carbon market, and that market has collapsed due to economic crises. However, new markets areemerging—for example in California, USA and Quebec, Canada—which may again increase demand for carbon credits.Carbon Finance for Waste Picker Organizations 1

assess whether a carbon credit project would actuallygenerate sufficient revenue to boost members’ incomesor to help meet collective goals such as improved facilitiesand better programmes.Carbon offset projects are usually developed by largecompanies with significant technical, legal and projectmanagement capacity, or the resources to hire suchexpertise. Very few informal workers’ organizations havethe existing structure, relationships with governments, andtechnical expertise, so an outside consulting firm would beneeded to develop (and potentially manage) the project.Hiring a specialized company to develop a PDD can costUS $50,000. Taking the PDD through the full processto registration will cost at least US $100,000–$250,000.After a project is validated, project participants also pay aregistration fee.Therefore, financial backing is crucial. Organizations wouldfirst need to invest in developing business proposals todemonstrate the financial viability of the project. Thenthey would have to either leverage existing relationships orinvest in building new relationships with donor agencies,venture capitalists, banks or “carbon aggregators” thatcould cover the project development and registration costs.Limiting FactorsAdditionality: CDM projects must demonstrate thatemissions are reduced more than what they would havebeen reduced without the specific project. In other words,the reductions to greenhouse gas emissions that alreadyoccur through the efforts of an organizations’ membersdo not count—they are the starting baseline. To earncarbon credits, a project must create reductions over andabove what the organization already does. This is called“additionality” and is validated using a technically complextool. Waste picker organizations would need to findadditional material (or material in new areas) to recycle, orto produce some new product from recycled material inorder to meet this requirement.of materials from solid wastes”) has been created andrefined by the CDM, 2 but (as of February 2013) has neverbeen successfully used. This could signal that it is notfinancially viable at present. Any waste picker organizationthat pursued carbon finance under this methodologywould be breaking new ground and would have to investheavily in learning.Supply risks: A project needs to be large and sustained toearn carbon credits, so a constant and predictable supplyof waste materials is necessary. Organizations wouldneed to be sure that supplies would not be disrupted (forexample through disputes around the ownership of waste,or the cancellation of municipal agreements by newlyelected officials).Record keeping requirements: Payment for emissionsreduction is based on the verified results of monitoringdata. Organizations must carefully collect and store thisdata. Some would need to invest in increasing theiradministrative capacity to ensure adequate record keeping.Voluntary Carbon MarketsThe voluntary carbon market operates outside theUNFCCC CDM and enables individuals, organizationsand governments to purchase carbon credits to offsetemissions. Because waste picker organizations bring asocial as well as environmental benefit, they may be ableto attract a higher price for their carbon credits on thevoluntary market. However, all projects must be certifiedby a voluntary standards organization. The most reputableof these is the Gold Standard, which does not sell carboncredits; rather, it ensures the quality and validity of projects.Competition for the same credits: The CDM allows a carboncredit to be counted only once. For example, a creditgenerated by making a product from recycled materialscan either be claimed by the manufacturing facility or bythe waste pickers who collected the recyclables. The CDMrequires that a contractual agreement exist between therecyclers and the manufacturer, guaranteeing that onlyone of them will claim the carbon credits. Thus, the wastepicker organization has to be a formal organization withlegal standing – and the manufacturing facility has to bewilling to give up the carbon credits. Legal advice wouldlikely be necessary.Uncharted territory: To be registered, a carbon offsetproject must use an approved CDM methodology fordesigning and monitoring the project. A plastics recyclingmethodology (called “AMS-III.AJ. Recovery and recyclingSorting recyclables, Asmare, Belo Horizonte, Brazil. Photo: L.Tuttle2GAIA has been a significant advocate of improving this methodology. See GAIA (2012), Problems with Clean Development Mechanism WasteMethodology AM0025.2 Carbon Finance for Waste Picker Organizations

Projects eligible for Gold Standard certification can focuson renewable energy supply; end-use energy efficiencyimprovement; or waste handling and disposal – definedas all waste handling activities that deliver an energyservice (for example, landfill gas) or a useable productwith sustainable development benefits (for example,composting).While Gold Standard certification brings the highest pricefor carbon credits, it is also technically rigorous. It offers noshortcuts to getting a carbon offset project started, sinceall certified projects must meet the UNFCCC rules for CDMprojects, and include a PDD using the same CDM template.Micro-scale activities generating less than 10,000 tonnesof CO2 reductions per year can use a simplified—thoughnot simple—PDD. Also, the rules regarding additionalityover the baseline may be relaxed in certain micro-scaleprojects, such as those located in a Least DevelopedCountry, a Small Island Country or a Land LockedDeveloping Country (per United Nations designations), inan identified underdeveloped zone of a country, or wherethe project can be proven to benefit poor communities.Fees are levied by the Gold Standard at different stagesof the project development process, and are generallydetermined by the size of the project and the numberof credits registered. The fees for (only) the internalverification and validation of a micro-scale project, forexample, are US $7,500.In addition to baseline and monitoring information, a “DoNo Harm Assessment” and an Environment and SocialImpact Assessment are required, as is a local stakeholderconsultation process. Even after a project is registered bythe Gold Standard, there are stringent ongoing monitoringrequirements. All reports must be verified, includingthrough site visits, before credits are issued.Once Gold Standard certified credits are issued, it is up tothe project organization to find a buyer for those credits.Ethical ConsiderationsCarbon offset trading is highly controversial. Some see itas transferring responsibility for greenhouse gas emissionsfrom those who should carry the responsibility for climatechange (the industrialized North) to developing countriesin the global South. There are arguments that carbontrading makes emission reductions less likely, and creates“perverse incentives” to produce more waste so morecarbon credits are generated—with negative impacts onthe environment and on people’s well-being. Put starkly,some say it is buying permission to pollute; others dismissit as just a new way for corporations to make money.Some waste and other organizations refuse to engage incarbon trading on principle. Others, however, see it notas a question of ethics but a question of economics—and argue that if it can be used to channel money to theworking poor, it is worth considering.Waste picker union KKPKP’s Recycling Point in Pune, India.Photo: J.LuckhamIt should be understood that in most cases, anorganization would have no control over who buys thecarbon credits generated by a project. The buyer couldbe a corporation that an organization finds objectionable.While corporate social responsibility relationships also raiseethical concerns, at least an organization can choose whoit deals with.The issues and ethics around carbon offset trading requirediscussion and debate at the membership level.Green Climate Fund (GCF)The Green Climate Fund (GCF) is a new fundingmechanism created under the UNFCCC that is intendedto transfer money from the developed to the developingworld to assist in dealing with climate change. The GCFwill support projects, programmes, policies and otheractivities that limit or reduce greenhouse gas emissions.The assumption is that the GCF may look for innovative,grassroots-led waste management solutions that aretailored to local conditions. However, the GCF is notyet operational and won’t be until at least 2015. It doesnot yet have funding in place to support projects, andmechanisms and guidelines have not yet been developed.It is assumed that the GCF will sidestep the cumbersomeregulations of international carbon financing agencies.However, it is too early to assess whether it will offer afeasible source of income for waste picker organizations.Waste picker organizations should stay engaged withthe process of developing the GCF (as GAIA and theGlobal Alliance of Waste Pickers have been for years).However, since there is still much uncertainty around thisfund, organizations should not pin their funding strategieson it, but should instead focus on existing sources ofavailable funding.Carbon Finance for Waste Picker Organizations 3

Other Funding Options& SolutionsWaste pickers play a key role in addressing global climatechange, and their organizations are seeking increasedincome and benefits for their members or improvementsto the workplace and working conditions. Given thesestraightforward needs—and the limited time and resourcesavailable—there may be simpler, less risky and more viablefunding options than carbon financing projects.Other sources of public or private climate change fundingmay be simpler to access and should be considered. Fora list of some of these, see Organizations should also explore whether they canaccess their country’s national climate change funds.Negotiating contracts with municipal authorities for thecollection and recycling of municipal solid waste hasproven advantageous for some waste picker organizations,which have become recognized and valued partners inmunicipal collection.Investing in innovation by transforming and adding value towaste-derived raw materials and moving up the value chainthrough development of enterprises from collection toprocessing (e.g., plastic to flake, cooking oil to bio-diesel,small to medium scale biogas) are possibilities. Here, too,initial funding is needed for feasibility studies, businessplan development, and seed capital until the waste pickerenterprise is in a position to manage commercial loans andequity investment.Corporate support is available from companies willingto invest in the combined social and environmentalbenefits of waste picker organizations. (Corporatesocial responsibility relationships, however, shouldbe approached carefully to avoid exploitation bythe corporation similar to that experienced throughmiddlemen.)Waste pickers from the Hulene Dump, cooperative RECICLA, Maputo,Mozambique. Photo courtesy of S.DiasInformation SourcesUNFCCC CDM: cdm.unfccc.intCDM Methodology Booklet (contains one-page descriptionsof different project methodologies): Standard Certification: www.cdmgoldstandard.orgGreen Climate Fund: international sources of climate more information and resources, please see WIEGO’sTechnical Brief on this subject at Cities project: Inclusive Cities focuses on support and capacity building for membership-based organizations (MBOs) of theworking poor in the urban informal economy. Through organizing, advocacy, and policy analysis, informal workers are making theirneeds heard within urban planning processes. Partners in the Inclusive Cities project include MBOs of the working poor and technicalsupport organiza tions committed to improving the situation of the working poor. For more information, and to access research andpublications on inclusive urban planning and capacity building tools for MBOs, visit: Carbon Finance for Waste Picker Organizations

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