Sharing the carbon revenues: mainstreaming carbon and credit markets for renewable energy technologies in Nepal​

Nearly 3 billion people, almost one-third of the world population, lack access to clean energy for cooking and/or lighting. As per the objectives set by the UN Sustainable Development Goals, governments and international agencies are providing financial and technical assistance to enhance clean and renewable energy access. Such assistance can involve decentralised solutions such as biogas plants and solar home systems, primarily in rural and remote locations. These technologies not only provide access to clean energy, but also reduce carbon emissions. These reductions can be verified and certified as credits, and traded in carbon markets or through separate bilateral agreements. Carbon credits from developing countries are primarily bought to offset emissions in industrialised countries. This trade results in money flowing to developing countries as carbon revenues, and is expected to continue and increase with the implementation of the Paris Agreement beyond 2020. However, in many cases, the current supply-chain operations for carbon credits have overlooked the rights of clean technology users for the carbon revenues, during registration, issuance and use of the carbon revenues.
There has been a growing understanding of the need for commercial finance to meet the scale of energy access objectives. This is primarily true in contexts where the continued use of public funding has resulted in inefficient market development, especially in the developing countries. This is because of the lack of technology and financing innovations such as the use of feed-in-tariffs and renewable portfolio standards, which encourages innovative ways of financing clean and renewable energy promotion. In most developing countries, direct subsidy supports are used for extending energy access in rural areas, for which path dependencies which lead to technology lock-ins are considered problematic, resulting in substantial welfare losses. Further, existing investment patterns show that the investments have been more for electricity and lighting technologies, rather than cooking solutions, which are most relevant for women and children. Within the climate-change context, this investment pattern is skewed since cooking solutions have a larger impact on limiting greenhouse gas emissions. Therefore, innovative mechanisms to scale-up commercial investments are required to meet the goal of energy access equitably.
The research tested the potential of distributing carbon revenues as environmental incomes to consumers, within the broader context of climate finance, in conjunction with access to appropriate credit at the local level, to enhance both equity and efficiency. The test was carried out with respect to biogas plants which is a mature clean cooking technology used extensively in the rural areas of developing countries including Nepal, and which is a technology contributing to emissions reductions trading, within the Clean Development Mechanism and other voluntary standards. The study area was the South Western region of Nepal with good potential for market expansion of the biogas plants. Stated preference discrete choice contingent valuation and choice experiment methods were used to estimate consumers’ willingness to pay through implied and explicit measures of credit availability along with carbon revenues. The findings indicated that consumers are willing to pay for biogas plants, at full market prices, using available credit products from banks and other financial institutions, and this willingness to pay improves when the carbon revenues are distributed to the households. The findings help to support the emphasis put on results-based financing as a substitute for upfront subsidy payments, which could lead to improved efficiency and equity in the practise of climate financing.