NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

On my first trip for my new job with Ashoka, in October 2007, I found myself standing over an open pit of liquefied cow dung in Uttaranchal, in Northern India. The pit was runoff from a household biogas installation promoted by Grassroots, a pan-Himalayan development foundation run by Ashoka Fellow Kalyan Paul. The farmer’s garden we were visiting smelled like flowers, and his two-year old daughter played among the vegetables while we talked.

I haven’t been much of an environmentalist for the past 10 years. Yet last week I had the opportunity to speak with April Allderdice, (most recently founder of MicroEnergy Credits, and Tuesday I am looking forward to meeting Neville Williams, (founder of Solar Electric Light Fund, among other things). Why the interest?

If you follow this space, you’ve probably read countless stories of solar, biogas, and wind enterprises bringing clean energy, with associated health, dignity, and other benefits, to the BoP. Underlying this movement is a seemingly simple international framework known as the Clean Development Mechanism (CDM). It has the power to enable clean energy enterprises from the Himalayas on down, but it’s under siege.

“The tide is turning now,” April explains. MFIs are getting ready to take on new products, including financing purchases of clean energy systems that are otherwise out of reach for most BoP households. CDM reduces the cost of these systems by enabling clean energy enterprises to sell credits based on the certified emissions reduction (CER). So when the Cuyamapa community installs a micro-hydro plant instead of burning kerosene or diesel, the difference in emissions can be sold to international buyers, which helps them meet their emissions reduction goals. The credits add up. For biogas projects such as Grassroots’, CDM could offset 30% of the project cost. People are getting creative. Waste Concern, in Bangladesh, is using CDM to make its urban composting plants financially self-sustaining. Dutch investors (1, 2, 3) are already on board, and other municipalities are looking closely at this model that makes waste management in slums affordable.

Nothing this good in theory ever works perfectly, and the CDM has been subject to its share of criticism. Transaction costs to get certified are high, making small projects unviable. Economic uncertainty has brought down the price of CDM credits by almost 50% in the past year. Stories of air conditioning plants in China building with old technology, in order to get credit for improving, leave a bad taste.

More than that, political uncertainty is blocking the entrepreneurs who have figured out how to bring clean energy to the poor. It is less than a year before the Copenhagen Climate Conference to revise the Kyoto Protocol, and clean energy entrepreneurs face a big question mark. Will we agree to bring down transaction costs, while verifying the quality of emissions reductions? The global carbon market rose 84% last year, according to research group New Carbon Finance. Let’s hope it keeps going in that direction, so Grassroots gets a chance to spread its lovely biogas installations throughout the Himalayas. Anything less would be a dangerous setback for an inspiring and promising tool to fight poverty and create a low-carbon future.