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Can CDM finance energy access in Least Developed Countries? Evidence from Tanzania

Wood, Benjamin T., Sallu, Susannah M., Paavola, Jouni
Climate Policy 2016 v.16 no.4 pp. 456-473
carbon markets, developing countries, development projects, energy, funding, interviews, issues and policy, market prices, Tanzania
Policy documents and academic literature suggest that Clean Development Mechanism (CDM) finance could complement traditional ‘energy access’ (EA) funding in developing countries, including the Least Developed Countries (LDCs). Yet these propositions have not been empirically tested. This study helps fill this gap by examining constraints to CDM project passage through five stages of an idealized project development cycle (PDC) in Tanzania, and their implications for the ability of the CDM to contribute to financing energy access in LDCs. Twenty-five semi-structured interviews and documentary material were analysed using an analytical framework developed for systematic investigation of constraints. Institutional constraints such as the under-performance of Tanzania's Designated National Authority were the most often mentioned obstacles for project development. Yet non-institutional constraints such as limited energy sector mitigation potential, indigenous skill shortages, and low carbon market prices also hinder project development. Institutional constraints buttress, rather than supersede, pre-existing non-institutional constraints, and together they prevent energy projects from completing the PDC and accessing CDM finance. The number and severity of constraints suggest that the situation is unlikely to change rapidly, and that the CDM sustains and exacerbates existing global inequalities. Since traditional energy access funding is insufficient to address these inequalities, new funding and policy mechanisms are required. Policy relevance The CDM fails to fill the EA financing gap in Tanzania. This is also true for other LDCs where comparable project development challenges prevail. The CDM therefore appears to sustain uneven development patterns overlooking those most in need. Claims about its potential to enhance EA are misplaced, and the situation is unlikely to change rapidly. CDM and carbon market projects more widely will have limited ability to help financing EA in LDCs, even if the institutional setting within which they are implemented were reformed in the future. Yet traditional energy funding will be inadequate on its own. The debate over extending the CDM post-2017, when the second Kyoto Protocol commitment period expires, should be informed by honest appraisal of its merits and defects. Policy makers should revisit lessons provided by this article and wider research to help ensure that new EA mechanisms are not hampered by constraints and can benefit those most in need.