Case Study Details - Playbook of Solutions - Carbon Credit Finance Scheme

Description

Carbon credit finance schemes integrate the earning and monetization of carbon credits into an eligible project's revenue stream, thereby increasing its revenue. A carbon credit represents a unit generated through activities that reduce or remove greenhouse gas emissions, with each credit equating to 1 metric ton of CO2 equivalent (tCO2e). These credits can result from either avoidance (e.g., capturing methane emissions from landfills) or removal (e.g., afforestation). Carbon credits are issued by various mechanisms (e.g., international treaties, local programs, independent standards). They are traded in markets to meet voluntary or regulatory emission reduction commitments.

Benefits

Carbon credit financing provides a mechanism for supporting clean energy projects in emerging economies by generating additional revenue through the sale of carbon credits, attracting investment, enhancing project viability, supporting climate goals, and contributing to sustainable development. This financial approach helps overcome funding barriers and accelerates the deployment of renewable energy solutions. On top of improving project viability, these schemes support global commitments to reduce emissions.

Case Study

A Carbon Credit Finance Scheme to support enhancements of a geothermal project in Kenya

Completed in 2010, the Olkaria II Unit 3 Geothermal Project in Kenya added a 35 MW generator to an existing geothermal plant. The project, owned by Kenya Electricity Generating Company Limited (KenGen), contributed around 276 GWh annually to the national grid. Registered under the UNFCCC's Clean Development Mechanism (CDM) the same year, it issued around 480,000 carbon credits purchased by the World Bank’s Community Development Carbon Fund.

Carbon credits significantly improved the economic viability of the project. The carbon credit finance scheme helped mitigate the high initial capital costs and risks associated with geothermal projects, making the project more attractive to investors. The additional revenue supported various community development initiatives and infrastructure improvements, such as water storage, educational facilities, and road upgrades. Moreover, it helped alleviate the financial constraints on expanding renewable energy capacity in Kenya, ensuring a stable supply of clean energy while reducing dependence on fossil fuels.

Additional Sources