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Trading methane for housing

Kai-Uwe Barani Schmidt's picture

Three global leaders coming together to deal with climate change was the headline grabbing moment for the recent C40 summit in Sao Paulo (read A tale of three men and 40 cities). Away from the cameras and sound bites was a field trip to Heliopolis, one of Sao Paulo’s biggest slums to drive home the messages that were being discussed in the conference.

As our bus convoy reached the construction site of Heliopolis, we saw round buildings resembling refinery towers. These were brand new apartment buildings for hundreds of Sao Paulo residents who currently live in the Heliopolis slum without proper access to basic services.

And while the round design of the buildings was eye-catching, the real catch is the way this project is being financed: A good portion of the finance comes from carbon finance credits that the city gets through a waste recycling project called Bandeirantes Landfill Gas to Energy Project (BLFGE) in which the methane of biomass waste (which accounts for 60% of Brazilian waste) is converted into energy. This way of generating energy qualifies for carbon credits.

In its first bid in the carbon credit market, Bandeirantes raised more than €12 million for roughly 800,000 carbon credits negotiated at €16.20 per equivalent ton of carbon. It was the first time carbon credits were negotiated in the market through an auction at the Brazilian Mercantile & Futures Exchange (BM&F), another innovation generated through the global carbon finance market. The project has since come back to auction similar amounts of CERs several times.

The city’s housing department re-injected this revenue into projects for the city. One of them is this housing project to improve the lives of urban slum dwellers in Heliopolis. The families will have to pay 10% of the monthly family income as rent.

Over the past two years, the World Bank Institute, the Bank’s capacity development arm has helped the city explore how their waste management plans, and in particular a recycling project for favelas, could attract carbon finance under the UN’s Clean Development Mechanism (CDM). The support ranged from e-learning courses on climate finance to hands-on support through a local implementation partner and other technical expertise.

These are just two projects out of thousands which integrate carbon finance into larger development goals. In this case, they will provide better living conditions for the slum dwellers, work opportunities and additional revenues for the community.

Leaving the site, I had mixed feelings: Happiness for what lies ahead for so many families and sadness that the international community cannot provide the long term market signals required for such mechanisms to work to their full potential. With all its imperfections, the CDM instrument was on its way to become an important driver for redirecting private and public sector investment in support of climate action. The latest State and Trends of the Carbon Market report which has been released at the Carbon Expo 2011 last week in Barcelona sadly shows how the international negotiation impasse over a longer term mitigation agreement can slow down a success story. Let’s not forget that the international community was able to advance this `theoretical and controversial concept of environmental economics’ as it was called at the time, into a multibillion dollar private sector global market which delivers local and global benefits. And all of this in a relatively short period of only 10 years (1995 to 2005) – compared to international trade negotiations that took much longer.

But my mood remains optimistic. I still believe that examples like the ones in Sao Paulo will continue to show that integrating climate/carbon finance with development makes sense. Valuing carbon and thereby creating an additional revenue generating stream can be done as long as there is a sustained demand for emission reductions. Hopefully this revenue will continue to contribute to development goals.