What is the role of carbon finance in ensuring a sustainable clean cooking sector?

Clean cooking solutions have a pivotal role in combating global health and environmental challenges. Universal access to clean, fuel-efficient cooking by 2030 is a key indicator under Sustainable Development Goal 7 (SDG 7), but 2.3 billion people globally still lack access to this crucial asset. The simple daily task of cooking is responsible for nearly 4 million deaths annually due to illnesses associated with smoke. It also produces 1 Gt, or 2%, of global annual carbon emissions, half of human-made black carbon emissions, and 16% of ambient air pollution.

Despite its wide-ranging benefits not only for the climate but also reducing deforestation, human health and the wellbeing of communities, there is a significant funding gap to reach universal access to clean cooking. According to the International Energy Agency, one billion dollars is needed in funding every year by 2030 to reach universal access to clean cooking, while only a fraction of this is currently going into clean cooking projects.

Meanwhile, the clean cooking sector is facing scrutiny over the effectiveness of carbon finance as a funding mechanism. The publication in January this year of the paper “Pervasive over-crediting from cookstove offset methodologies” by Annelise Gill-Wiehl and her co-authors has reignited the debate around cookstove projects and caused a stall in demand for carbon credits from clean cooking projects.

How can we ensure that carbon finance is a catalyst for clean cooking solutions that truly benefit the environment and public health? This blog shares insights from our recent webinar in which we discussed challenges and solutions for the clean cooking sector with industry experts.

First, it’s important to understand the role of carbon finance in clean cooking. According to project developers, access to carbon markets can scale projects on an unprecedented scale.

Elisa Derby from Clean Cooking Alliance highlights that carbon markets help finance a dramatically underfunded sector that is often not able to pull in traditional funding. “Clean cooking projects may not generate significant profits, but they do create huge dividends in the form of societal and environmental benefits, and in some cases improved health, which can save governments lots of money.”

Clean cooking projects also target low-income communities, who may not be readily able to access credit. High quality stoves are expensive and would be outside the reach of the communities that need them the most without carbon finance. “Carbon finance is the only viable funding mechanism to get stoves to low-income families at large scale,” argues Molly Brown from BURN, a project developer in clean cooking. “Before carbon funding we reached thousands of homes yearly, but since access to carbon markets we have been able to scale up to reaching millions of homes a year in just 3 years.”

The Monitoring, Reporting and Verification (MRV) requirements that are present in carbon finance, but not necessarily in other funding mechanisms, make sure that projects are conducted according to best practice. Furthermore, carbon credits can incentivize project developers to ensure community satisfaction and end user engagement to ensure customers keep using the cookstoves, as otherwise funding will peter out.

Meanwhile, Thomas Schroder from EDF Trading speaks to the demand side of clean cooking carbon credits. “Cookstove projects have a community aspect, providing benefits to health and local jobs in addition to reducing deforestation and emissions.”

Renewed debate over the use of carbon finance in the sector has pushed project developers and buyers alike to revisit their approach. In January 2024, the journal Nature Sustainability published a paper on over-crediting from cookstove projects. While project developers have been working to address many of the identified challenges over the years, the paper has accelerated discussion on the topic and has had a negative impact on demand for carbon credits in the sector.

The paper studied 5 common methodologies for cookstove projects, with a sample covering 40% of the overall market. Through weighing different factors across methodology-stove combinations, the authors get to an estimate that clean cooking projects are over-crediting their climate impacts by 9.2 times. However, Annelise Gill-Wiehl from University of California, Berkeley, author of the paper, finds that the paper’s most important contribution is not pointing out the over-crediting figure, despite that having gained the most media attention.

“The biggest takeaway in my view is that we highlight the methodology which is least over-credited and best suited to meet the health requirements of the World Health Organization.” The paper also maps out a way forward for buyers and project developers to re-establish trust in clean cooking projects.

The Project Developer Forum (PD Forum) has issued a response to the paper, highlighting what in their view have been issues with the paper’s methodology. For example, they don’t agree with comparing carbon projects to non-carbon projects or to old academic literature, as done in the study.

“There’s a step change in scale and professionalism in project implementation, MRV and transparency of data between carbon projects and non-carbon projects in clean cooking,” says Nick Marshall from TASC, representing the PD Forum.

In the PD Forum’s view, the fact that stoves get used more in carbon projects is not over-crediting, but due to improved performance. “The study neglects to take into account the improvements that entering the carbon market itself has made to cookstove projects. For example, usage rates are much higher in carbon projects that have every incentive to choose the best stove designs and to encourage those stoves to be used, because otherwise the finance will dry up.”

Annelise counters this critique pointing out that the literature covers projects in similar contexts, and obtaining high rates of adoption and usage is difficult as the literature has shown. She claims the best available evidence was used and highlights that the authors outline their methodological choices in detail in the study’s supplemental materials.

Another point of contention has been the fraction of non-renewable biomass, or fNRB. Gajanana Hedge from the UNFCCC Secretariat explains the development of this key parameter has been a long process starting in the mid-2000s. “The fNRB is based on the fact that you will reduce forest cover if you harvest faster than the normal growth rates of trees.”

On the topic of fNRB, the PD Forum argues that baseline fuel consumption is higher than suggested by the Nature Sustainability study, leading to artificially low fNRB values. Nick also highlights the need for accuracy: “The study relies on selecting default conservative values, but these do not always accurately represent reality.” Annelise explains that the values they used are based on literature and account for additional parameters such as biomass regrowth. The science of fNRB is still debated, with new statistical modeling available in the next couple of months. This shows the continuous, ongoing improvement taken by the sector in the last decades.

In terms of the market, Thomas from EDF Trading shares that after an initial dip, demand is picking up again. Many buyers in the sector conduct their own due diligence to ensure the quality of the credits they buy. “There is a need to improve methods while they are already being used. Scientific debate is necessary, but we shouldn’t let that stop us from supporting progress and building momentum in this sector.”

Actors in the space are hoping that the increased scrutiny in the clean cooking space will lead to a race to the top, with buyers gravitating to high quality credits. This will also incur a premium, as it is not possible to implement a high-quality project with the lowest prices on the market. According to Molly from BURN, we can already see a drive to quality and research-based projects in the aftermath of the study. In addition, multiple initiatives are coming up to ensure the quality of clean cooking projects.

For example, the Clean Cooking Alliance is working with its Clean Cooking and Climate Consortium (4C) partners to develop a methodology for all cooking transition types, both metered and non-metered. This methodology is based on the latest science and best practice and aims to enable consistency across standard bodies like the Paris Agreement Article 6.4 Supervisory Body and voluntary carbon market registries.

“We are also developing an online carbon data platform for free, accurate and standardized cookstove carbon data input, available to project developers to reduce costs as well as to ensure integrity,” shares Elisa from Clean Cooking Alliance. “Furthermore, we are leading the development of principles for responsible carbon finance in clean cooking, the interim principles of which are already available.”

Technology can play a role in increasing the accuracy of monitoring in clean cooking projects as well. BURN is one of the first to use the new Gold Standard methodology for metered stoves.

“This includes using sensors and SIM-cards to track the live usage rate of induction stoves. BURN is also testing digital monitoring for improved biomass stoves,” shares Molly. Digital solutions like these can enable opportunities for pay-as-you-cook financing as well as a closer feedback loop with customers in case usage rates dip.

While some of the criticism the sector has faced is not new, the debate can help accelerate improvements to ensure the integrity and accuracy of carbon finance in clean cooking solutions. New methodologies and technology being developed now can help the sector regain trust and move forward, hopefully creating a race to the top in terms of project quality.