Danish energy giant, Dong Energy, and the Danish Embassy in South Africa on Wednesday signed an agreement that would see the embassy assist the company to enter the Clean Development Mechanism (CDM) market in South Africa.

The embassy would help Dong to identify projects in South Africa where it could get involved. Already on the horizon were possible CDM projects with mining companies, as well as in the low-cost housing market, working with municipalities, private sector housing project developers, as well as the Department of Housing.

Dong Energy head of carbon dioxide funds and purchases Cilla Harpsøe Clausen explained that realistically the company would like to start investigating three or four CDM projects to be involved in. Projects often take up to two years to be developed.

“I encourage South African developers of CDM projects and others within the sector to contact the Embassy of Denmark in Pretoria should they have projects in the pipeline, which could be considered under the Clean Development Mechanism,” said Denmark Ambassador to South Africa Dan Frederiksen at the signing ceremony.

“We have quite ambitious reduction targets, and we are buying quite a lot of credits. We are buying about 12-million credits in the first period [up to 2012], and I think we have a target of about 10-million credits post-2012,” said Harpsøe Clausen.

Once a potential project and partners were identified, with help from the Danish Royal Embassy, Dong would pay for the project development. This was a lengthy and complicated process, and final project design and documentation would need to be accepted by the United Nations Framework Convention for Climate Change. This process can cost up to €120 000.

Harpsøe Clausen noted that Dong was a compliance buyer (rather than a market trader) of carbon credits in Denmark, as the company has a strict reduction target forming part of Denmark’s 21% reduction target under the Kyoto protocol.

Dong Energy also buys post 2012 credits as it strongly believed that the international community would achieve a climate change agreement in Copenhagen later this year. It was a risk, as no legally binding targets were actually set beyond 2012 at this stage, although most stakeholders were confident that reduction targets would extend past 2012.

South Africa was the fifth country where Dong Energy chose to have direct relations, and the company has existing CDM projects in China, Chile, Mexico and Vietnam.

South Africa has been criticised for being slow on the uptake with CDM and not taking advantage of the benefits that the mechanism offers. South Africa has only 11 CDM projects up and running. In fact, the entire African continent was host to a mere 29 CDM projects. This compared with 1 091 in Asia and the Pacific, and 412 in Latin America and the Caribbean.

The CDM is a mechanism whereby Annex-I countries (developed world Kyoto Protocol signatories) can buy carbon credits to meet their own mandatory emission reduction obligations, through specific projects in developing countries.

The idea is that if companies and countries cannot cut their emissions enough, they can assist in cutting emissions elsewhere in the developing world. This way the company or government concerned reaches their targets, and the developing country hosting the project benefits from emission reduction, skills transfer, and a possible extra revenue stream from selling credits.

South Africa is a good place to host projects because it is a huge emitter of greenhouse gases in Africa, meaning there is significant emission reduction potential. South Africa also has a need to produce more electricity, and doing this with renewable technologies, such as wind power where Dong has certain expertise, holds emission reduction potential.