Net Zero Transition: Cookstove projects

Adam: Hello, welcome to our podcast series on carbon markets. In this episode, we're going to be talking about cookstoves projects. This activity has grown to become a significant part of the supply side of the voluntary carbon market. But as with some other so-called avoidance strategies such as avoided deforestation, it has been the subject of media scrutiny in recent months. I'm delighted to be joined by Molly Brown from BURN and Dan Fisher from Abatable. Let’s start with the first fundamental question. Why is clean cooking a problem?

Molly: So the problem with cooking is that, globally, we have 2.4 billion people who lack access to clean cooking. What that means is 2.5 billion people cook every day on a campfire. And we know that cooking at a barbecue or a fire is fun once or twice a year - when you're camping. It's not very much fun when you're lighting a fire inside your house every day. It's time-consuming, it burns a lot of fuel, and it creates a lot of smoke. And what we know now is that cooking causes huge problems for people's health, as well as causing huge problems for deforestation. And we know that globally the emission of cooking worldwide is about the same as the aviation industry.

Adam: How did the history of cookstoves programs really come about?

Molly: There have been grant-funded international development programs to improve access to cleaner cooking since the mid-1970s, but it was only in around 2008 that clean cooking methodologies became part of the Clean Development Mechanism, which was the carbon market's 1.0. What we've seen over the last 50 years, is great improvements in technology from kind of basic mud stoves through to what's now available to families through companies like BURN, which is highly engineered stainless-steel stoves, and more excitingly, kind of cleaner fuel technologies like electric cooking rolling out across Africa.

Adam: What is a cookstoves project, and how does it work? What's the principle behind them?

Molly: It's a simple idea, really. If you can provide a family with a cleaner, improved stove, then you can help reduce their wood or charcoal consumption. And essentially, the way the carbon credits are generated is as a function of the reduced carbon dioxide that's emitted from burning less wood. What we also see is that efficiencies in stove design can lead to hotter, more complete combustion, which is cleaner and reduces indoor air pollution.

Adam: What's the typical timeline for a cookstoves project?

Molly: It will depend a bit on your financing and whether that's already in place. But typically, we would conduct a pretty robust feasibility study before we enter a new market or a new region to work out exactly the baseline fuel characteristics of families, willingness to pay, acceptability of the stove to a local context, etc. And then we would start distributing stoves, and that can take however long it takes, depending on the number of stoves and the funding available. But the gap between me giving you a stove and issuing a credit for the stove is typically about a year and a half because we need to rack up about a year of your usage first and then conduct a robust monitoring campaign. And then there's the to and for with the auditors and the registry before the project will issue any credits.

Adam: As far as the broader carbon market is concerned, how important are cookstoves to that market, and how can you describe their market share of that supply?

Daniel: Cookstoves are very important to the carbon market. They play a pretty vital role for multiple reasons. I think one of which is their ability to address the near-term supply constraints as well as contribute significantly to the overall issuances. To go into that, over the last about two years, cookstoves have accounted for around 13% to 14% of market issuances, highlighting their substantial impact. We've heard from Molly how quickly you can get carbon credit coming from a distributed cookstove. So, when you look at the market and you look at some of the issues that most people can kind of anticipate over the next couple of years, high-quality supply is going to be one of them. Can it match that demand that's going to be on its way? Well, a lot of projects will struggle. I think a huge input into the carbon markets that cookstoves have is addressing this near-term supply constraint. And I think the opportunity, as Molly has said, there's still around 2.4 billion people still cooking with these old stoves. That's not good, but it also provides huge opportunities as well for investors. By incentivizing these investments into these clean cooking technologies, you're helping people, both companies and the planet, meet emission reduction targets while simultaneously enhancing the livelihoods of vulnerable populations. This dual benefit makes cookstoves a pretty crucial component of the carbon market, bridging that gap between the environmental sustainability, social development, but also that investment side of things. They do also enhance market liquidity. They diversify the range of available carbon offset projects that are in the market. They also attract a broader base of investors interested in supporting sustainable development initiatives. Not all investors have the same level of risk appetite, or they have IRR or ROI limitations. Adding cookstoves and having them in the carbon market basically just gives more opportunities for people to invest in the market as a sort of a mechanism. It also obviously stimulates trading activity and more efficient price discovery, sort of really fostering a more robust and dynamic marketplace for carbon offsets, which is essentially what we want.

Adam: Can you bring to life the co-benefits associated with these projects?

Molly: What's exciting about clean cooking is that it can really transform a family. We have women who are previously spending hours and hours lighting a campfire inside their house. Now they're cooking on something which is faster, cleaner, and much more efficient for them. So, gender co-benefits are one of the main ones. We can save women up to an hour a day in cooking time. And, for women and girls who collect firewood, we can save them time there. So, we have people saying that instead of having to collect wood every morning, they're going one day in three. That time can obviously be reinvested in education, leisure, employment, whatever they like. The next big one is health benefits. If there's less smoke in your house, then you suffer less from respiratory problems and eye problems. It's particularly important for children. The other one that's big is SDG 1 zero poverty. With reduced fuel consumption, we can help families save quite a lot of money, around two dollars a week, which is quite significant if you're living on only one dollar a day. And then there's a whole bunch of other benefits around employment, education, training. If you're reducing the consumption of firewood, then you're reducing deforestation. So, there's a life-on-land benefit there too in terms of trees and biodiversity.

Adam: What about the breakdown of current projects in terms of location and supply, and how might that change going forward? Where will the growth come from?

Daniel: I'd say, Africa and Asia are really where we're looking. Specifically, if you look at the breakdown of active projects, cookstove projects, they are really split between Eastern Africa and South Asia. So that covers the top, maybe eight or nine different countries, the top ones being Rwanda, Uganda, India, Malawi, going into sort of Bangladesh and Kenya. These are the sort of countries with the most active projects. I think what we will probably continue to see is an increase in active projects within these regions but also spreading across Africa, as you know developers start to be able to increase the sort of the financing they have, which means they can have expansion efforts. It makes sense to go to just the neighboring countries as opposed to neighboring continents. So, I think we can probably see a diversification of countries within Africa and Asia, but specifically South Asia, I suspect.

Adam: What are the different types of cookstoves that we have? Can you kind of give us the breakdown on how we subdivide cookstoves?

Daniel: So cookstoves encompass various types, each with distinct characteristics and implications for sustainability and feedstock, etc. They also range and they're on a spectrum of sort of low tech, low manufacturing costs, not as efficient and not as sort of slightly more polluting. That spectrum goes all the way from one end to the next. And so, it's important to look at the local conditions, the sustainability goals, and make sure that the cookstove being used is applicable for the communities or the region that needs it. The general breakdown is you have the traditional cookstoves often fueled by biomass such as wood or dung, ubiquitous with many regions, slightly more inefficient than sort of maybe some electric, for example. Then you've got the basic chimney, improved cookstoves. They simply offer an upgrade by adding a chimney to sort of vent the smoke outside, obviously then enhancing the indoor air quality. You've got the basic portable improved cookstoves, again, increasing the efficiency and portability, making them suitable for the more diverse settings. The intermediate improved cookstoves offer even further efficiency gains may include features sort of like insulated combustion chambers, for example. And then you've have sort of the more modern cooking solutions. This could look like gas, LPG, induction stoves, and then, finally, renewable cooking solutions like electric or solar cookers, which, of course, provide the cleanest option. But their usability hinges on consistent access to electricity or ample sunlight. So, it's just to mention that the choice of cookstoves, the feedstock it requires, it needs careful consideration of the local conditions and sustainability goals. Who are you trying to market and serve and improve the livelihoods of?

Adam: Molly could you elaborate on how you as BURN see the role for electric cooking going forward?

Molly: We're really excited about electric cooking, partly because it represents a real leap forward in terms of technology that carbon finance can bring to families. It's truly the greenest form of cooking, particularly in parts of East Africa where the grid is so renewable that if you can go to cooking with electricity, really, we're on the lowest form of cooking available. There's zero indoor air pollution from an electric stove. Also, there's a big market size. I think a lot of people assume that there's no grid connectivity here in Africa, but there's 600 million households that are connected to the grid. And if we can switch those people across to cooking with electricity from cooking with charcoal, there's considerable savings in the kind of unsustainable deforestation that charcoal markets promote and switch people across to spending. Their weekly fuel budget can, instead of going on deforestation, divert people's weekly fuel budgets to grid electric, which generates revenue for the national utilities who provide grid infrastructure. It's a win-win for governments and for families.

Adam: What does quality look like for a cookstove project?

Molly: The quality of a cookstove project starts with the quality of the stove itself. There's a whole family of stove types and stove qualities that exist in the world of cookstoves. We believe families deserve access to the very best stoves, and we've spent about 10 years more now honing engineering to really make sure that the thermal efficiency is top tier, tier 5, that stoves burn as clean as they can and that they're usable. What we see is that drives not only a bigger differential between the baseline and project fuel consumption, but also families have higher usage rates if they enjoy using a stove and it's a technology that really works. Our stoves last about seven years in the field, which is great. We do very targeted distribution, so we make sure that families who receive our stoves really match the characteristics we've identified so that carbon subsidies go to people who really need them but also that our baseline survey is valid and matches kind of the characteristics of project households. Then we do in-household monitoring. So that looks like kitchen performance tests in a sample of houses. And with our electric stoves now, we have IoT sensors in every stove, so we get live digital monitoring of the family's usage rates. And finally, and this you won't find in any methodologies, we believe in local value creation, so we manufacture everything here in Africa. We've got two of these in Kenya, and we just built a new factory in Nigeria. We really believe that creating value on the continent is extremely important.

Adam: Coming now to the buyers of these carbon credits, what do they typically look for when they when they're looking at cookstoves credits?

Daniel: There have been some sort of shocks to the market, but also in more recent months cookstoves, and these are a few markers that suggest the cookstove industry is undergoing a somewhat transitional phase. Some projects that had higher risk of over-crediting were sort of somewhat exposed. The retirements of cookstove credits as well as the prices suffered accordingly, went down almost 30% from mid-September, and this had implications within the market. However, we're seeing on some of the data we look at that there are new initiatives coming to the market with promise to provide sort of direction to developers and buyers on how to look at the emission reduction models and how to deploy quality improved cookstoves. It's also hugely beneficial having developers like BURN who are leading the way, carrying the torch on that front. We suspect projects that adhere to sort of the more metered and measured methodologies are likely to obtain CCB eligibility and probably comply with emerging article six criteria, being a bit cagey around those because it's hard to say with any kind of certainty yet, but we suspect that's what's going to happen. So, buyers are looking for this. They're looking for certainty and they're looking into the future because having these labels will be able to give them that sort of comfort that what they're buying is looking good and into the future, they can continue to use it. But also, projects that adopt sort of new FNRB values or updated FNRB values are going to be likely perceived as high quality and may fetch a price premium in the future. That's what we anticipate from buyers. Also, as buyers, investors and those coming into the market are maturing, their knowledge base is maturing, and they have a lot more reference points than they did five to ten years ago. The due diligence questions are getting slightly more thorough, which is fantastic, and as they should. I think the MRV will give buyers confidence, showing the benefits are real, auditing that and making sure that it's reliable. So anybody using the latest tech is better for the buyer. Molly gave a great example of using the internet of things, that they can track the usage rates and they can monitor as they go. This is a great example of what buyers are going to look for because with scrutiny in the market and with people writing articles and doing all this, buyers want to be able to say, "Look, I bought this. This is what it provides. These are the benefits." Having real data, up-to-date data, is going to give that huge amount of comfort to them. We believe that the value of an improved cookstove goes way beyond the climatic benefit. It's multi-dimensional, and like all projects, they should be evaluated on a project-by-project basis. To pull all that together, we anticipate sort of the meted measures methodologies that are aligning with new requirements like core carbon principles, for example, or looking at sort of the ICVVCM and the criteria they put out. Methodologies that align with those are likely to be what buyers continue to look for.

Adam: Is there a typical profile for the types of corporates that you see wanting to engage in this market, or is it relatively broadly spread?

Daniel: Nowadays it's broadly spread, which is great. These are the usual industries that everybody knows are our key players in the market. Energy companies are huge players in the market. Financial institutions are large players. I think now especially with net zero targets creeping up on everybody, 2030, 2040, 2050, a lot of people have set these targets, and they've set internal targets. They've set sustainability targets. And I think people are realizing that to reach these targets and meet these targets, they're going to need to use high-quality carbon. We continue to push, and everybody in the market who's doing it well would agree that the mitigation hierarchy needs to be followed, reduce your emissions as much as you possibly can internally, and then inevitably, there will be some leftover footprint, and engage in the carbon market and high-integrity projects. More and more companies and corporates will be getting to that point where they realize they've done what they can and they need to turn to the voluntary carbon market to help them reach their goals, whether that be net zero or internal sustainability. I think the corporate spread is growing, and I think that's fantastic use for the market.

Adam: Molly, can you give us a description of what is the typical profile, if there is one of the investors in these projects?

Molly: We have different types of investors. As a company, we've benefited from more kinds of standard investment in the business. We raised a $10 million green bond last year to fund capex expansion in our new factory in Nigeria. But in the carbon projects, some investors we have just want a kind of standard ROI. We have some investors who are investing for a share of the credits that they then plan to either retire themselves or sell on. And we're also talking to a lot of development finance institutions for some kind of blended finance, more patient carbon finance, and potentially thinking about how we can set up a carbon revolving fund, whether any carbon revenue can go back into resubsidizing more stoves. So, there's different profiles of investors from our side, all of whom the return is secured by the future sale of carbon credits. It all ties together with the profile of people that Daniel was just describing.

Adam: Now turning to some of the details about MRV, bearing in mind some of the controversy, how is that done? Can you explain what that is and how MRV is done in cookstoves projects?

Molly: MRV stands for monitoring, reporting, and verification. It's the process, the annual process where we check that the projects had the impact that we thought they had or measure what impact they have. For cookstove projects, the key variable there is the amount of fuel saved. We measure that through in-person kitchen performance tests. We come to your house and do a four-day monitoring campaign. We literally weigh all the wood that you cook with during the week. If you do that with enough households, you get a robust sample and can accurately say, before the project existed, families were using this number of tons of wood, now they're using this number of tons of wood. Therefore, we can establish what the amount of wood saved is. We also do some digital monitoring now with the electric cookstoves, where we generate live kilowatt-hour data from the stoves themselves.

Adam: What is FNRB, what has been the controversy around it and what are the changes that we're currently seeing?

Molly: FNRB stands for the fraction of non-renewable biomass, i.e. how much of the wood you have burned for cooking would naturally be regenerated by the landscape. So, if you cut down trees for cooking, trees keep growing and absorb carbon as they grow. In theory, if you only harvest a very small amount of wood from a very big forest, cooking with wood could be a sustainable activity. What we know is that the pressure on forests, particularly in certain parts of sub-Saharan Africa, is very heavy. And with charcoal, you have large swathes of forests that are cut down to turn into charcoal, we know that the kilns that are used to make charcoal are very unsustainable with bad wood-to-charcoal conversion factors. The issue with FNRB is that it's very difficult to calculate. A lot of the data just really isn't there. There's been a new study done which came out in around October that attempts to calculate FNRB for sub-Saharan Africa. They've taken global data inputs, so a global baseline of assumption of wood burned per capita for cooking, and they've taken some global data sets for forestry. The contention is whether that data accurately reflects the status on the ground. The academics who did that study are currently doing another run of the numbers, so those are hopefully going to be out in the next month or so, maybe by May 2024. And we'll see what those look like. But really, there's a conceptual problem with FNRB, which is that it assumes that every kilo of wood burned is the same proportion renewable versus non-renewable. Whereas, actually, we would contend that if you can reduce someone's consumption from three times to one ton, actually all of the reduction should be from the unsustainable portion of wood that you've harvested and that actually the aim of carbon projects maybe should be to bring the wood consumption more into equilibrium with the amount that the landscape is able to regenerate. Maybe there's a need for rethinking FNRB rather than just tweaking the numbers.

Adam: On the last point on FNRB, how is a buyer thinking about this with the environment that we've had in the media recently?

Daniel: It's a tricky one. It’s quite a contentious, but also somewhat dangerous topic to throw around. FNRB is a linear parameter such that half in NRP value would you pretty much result in half emissions generated for a project. Given that the cookstoves are priced relatively low these days, I think some of today's projects wouldn't survive if they just cut it all in half without that increase in price and revenues by a similar magnitude. So, to just kind of give these sorts of blanket statements and to kind of point at the entire market or subsection of the market and say it's wrong is quite dangerous. It’s not black and white. The most important thing to do is sort of the whole education around what is FNRB, what does it mean to projects, what does it mean from a contextual perspective? And then from a buyer perspective, education, we need to tell them what it means. Show them that developers are using the most up-to-date science available. They're using the most up-to-date methodologies available. I think the best way we can help buyers have confidence is to say, "When we work with high-quality developers, they want to be using the best data available. They want to be using the best science available. And they will. They will, you know, continue to update, and monitor, and change when it's feasible." So give buyers that confidence. And in some instances, putting it into contracts and saying, "You know, contractually, when it's feasible and when it makes sense, a carbon cookstove project will move over to a new FNRB value." Molly mentioned they're using global baselines and global data sets, but FNRB is regionally specific. So, what buyers should look out for is, when it's possible, is it regional or even sub-regional value? That's going to be the most accurate way of working out how accurate this is and how suitable it is for the project itself. And it's difficult to use a global data set for a local project, right? So I think there's a lot to be done about this. A lot of education and clarity to be given. I think they're still at a point where people know how to talk about NFR and RB but don't necessarily know what it means or what the answers mean. So, more clarity and education around that point is super important.

Adam: What do you think the next 12 months looks like for cookstoves projects and the carbon credits being traded in the market?

Molly: Hopefully we'll have better FNRB consensus on how we should apply the methodologies and better numbers. I think we should have a newer methodology from the four C's, consensus on what good looks like and inspire a greater ambition. Hopefully by the end of the year, we will start to have greater clarity on Article 6 and what's happening on the level in terms of 6.2 and 6.4 to unlock new compliance markets.

Daniel: Also to take a one step back a little bit, the demand for voluntary carbon credits has reached a record quarter one this year with about 52.9 million tons up by a fifth year on year. That was kind of driven by several new corporate buyers and the ones that are ramping up their activity from the major registries that we saw last week. Q1 volumes were up 20% on the year and hit the second-highest figure in history. What that tells us is the voluntary carbon market isn't going anywhere. With all this work being done, integrity is increasing. The quality is getting higher and if you look at a lot of those new companies that have entered the voluntary carbon market that have really pushed up those numbers, a lot of them are looking at cookstove projects. A lot of them are engaging in these projects. That’s ultimately getting climate finance to those places that really need it, and that will continue, I think. This is just Q1. I think that will continue throughout the year. I hope we’ll see climate finance heading to those projects and developers that need it so they can expand their efforts and reach even more families that are in desperate need of some sort of clean cooking activities.

Adam: Thank you both. Thank you to everybody for listening.

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