Scaling up clean cooking in urban Kenya with Bio-ethanol

Webinar April 2020

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Annually dirty cooking fuels kill more people than malaria and TB combined due to indoor air pollution

Dirty fuels for cooking contributes to deforestation and climate change - accounting for about 2% of global CO2 emissions, equivalent to Canada’s emissions or from annual air travel

Traditional biomass used for cooking and heating by 2.8 bn people accounts for more than half of all bioenergy used worldwide. Cooking with traditional biomass has multiple negative impacts on human health, particularly for women, children and youth…. …overharvesting of wood fuel, contributes to land degradation, losses in biodiversity and reduced ecosystem services. ….accounts for 1.9–2.3% of global GHG emissions, particularly in ‘hotspots’ in East Africa and South Asia. Scenarios to significantly reduce reliance on traditional biomass in developing countries present multiple co-benefits. Most mitigation scenarios include substantial deployment of bioenergy….. all 1.5°C pathways include bioenergy, requiring as much as 7 Mkm2 to be dedicated to the production of energy crops in 2050….. IPCC-SpecialReportonClimateChange&Land,2019

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The urban Kenyan cooking fuel market is estimated at USD 600m – 800m per annum, & remains dominated by dirty fuels

ThemajorityofKenyanscurrentlypayingforcookingfuelsliveinurbanKenya•  Most fuel used in rural areas is gathered not

purchased(e.g.,84%ofhouseholdsusefirewoodastheirprimaryfuel)

•  In urban areas, over 80% of households arealready purchasing cooking fuel and are primetargetsformodernfueluse

Withinmodernfueloptions,Bio-ethanolandLPGarethemostfeasibletoday;Bio-ethanolistheleastunderstood•  LPGiswell-understood,alreadypromotedbythe

Gov,andenjoysstrongconsumerrecognition•  Bio-ethanol is relatively unexplored and has

achievedlowerpenetrationthusfar•  Electricitywill become increasingly important to

theoverall cookingmix; however, fornow,onlyhigher income consumers can afford theexpensivebutefficientelectricstoves

PrimaryCookingFuelUsedinKenyanHouseholdsin2017(%ofpopulation)

5584

15

22

14

29

28

16

313 252

Kenya Rural

92

Urban

Otherfuels

CharcoalKeroseneLPG

Firewood

InurbanKenya,themajoritystillusecharcoalandkerosene;thisnumberismuchhigherwhenfuel‘stacking’isincluded

PrimaryCookingFuelUsedinKenyanHouseholdsin2017(households,millions)

Firewood -5.7

1.4

Charcoal

-0.2

-0.2Kerosene

LPG

Electricity 0.0 0.1

1.1-0.6

1.5

0.8

Kenyanurbanhouseholdsarenowreadyforrapiduptakeofclean,modernfuels

UrbanRural

Continued dependence on dirty cooking fuels poses serious health, environmental, and food insecurity risks for Kenya

•  Indoor air pollution: 728k Disability-Adjusted Life Years (DALYs) and 16.6kdeaths annually, 8-10% of early deaths in Kenya1, likely a substantialunderestimate of the full disease burden as many negative cooking healtheffects have not yet been quantified (e.g., burns, eye diseases, physicalinjuriesfromcarryingfirewood,etc.)

•  Lower respiratory tract disease is the third largest contributor of deaths inKenyawhilepneumoniaisamajorcauseofdeathtochildrenundertheageoffive,largelyduetoindoorairpollution1

•  Deforestationandforestdegradation:Kenyaloses10.3millionm3ofwoodfromitsforestseveryyearfromunsustainablecharcoalandwoodfueluse,amajorcontributortothe0.3%peryeardeforestationrate2

•  GHG emissions: Household fuel use in Kenya contributes 22-35 milliontonnes of CO2 eq each year,which is equivalent to30-40%of total KenyaGHGemissions2

•  Food insecurity: deforestation, resulting from the use of dirty fuels,exacerbates food insecurity and harms the agriculture sector. Kenya's fiveforestwater towers feed filtered rainwater to rivers and lakes and provideover75percentofthecountry'srenewablesurfacewaterresources3

Impactofusingbiomassfuelforcooking

Health

Environment

Foodinsecurity

Most ethanol is produced from sugarcane. Cassava can also be used as a feedstock

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V2.0 innovations mean that Bio-ethanol can be delivered at scale to the customer at a price up to ~40% less than the V1.0 approach

Source: KOKO networks, expert interviews.

SupplychainmarginsforBio-ethanol(%oftotalcost)

SectionIII:P

oten

tialofB

io-ethan

olfo

rcoo

kinginKen

ya

0.35 0.35

0.56

0.070.07

0.08

0.10

0.20

0.29

0.21

V1.0

0.05

1.48

V2.0

0.85

-43%TaxesRetailDistributionMarketerBulkstorage&transportLandedsupplycost

Bio-ethanolV2.0costsaresignificantlylowerthanthoseofBio-ethanolV1.0

•  Leveragingexistingdownstreaminfrastructurecancutdownbulkstorageandtransportcostsby~90%

•  Technology-enableddistributioncanreducecombineddistributionandretailcostsby~45%

•  Asidefromlandedsupplycost,taxesdrivetheretailpriceofBio-ethanolV2.0

Granting industrial Bio-ethanol imports a VAT-zero rating and eliminating associated tariffs could reduce Bio-ethanol retail prices

from $0.85 /L to $0.64/L

The cost at which Bio-ethanol can be sold to customers is inflated by high import taxes and VAT, which drive ~25% of the retail price

TaxesonBio-ethanolarehighrelativetothoseonotherfuelsin

Kenya

TaxesonBio-ethanolarehighinKenyarelativetoinother

countries

FUEL Effective duty Effective VAT

Charcoal N/A N/A

LPG 0% 0%

Kerosene 9%1 0%

Denatured technical Bio-ethanol

25% 16%

KenyandutyandVATratesforcookingfuels:

DutyandtaxburdenonimporteddenaturedBio-ethanol;subsetof21SSAnations,reflectingduties+taxes,%

26

20

28

10

21

28

37

43

4349

Kenya 41

43

40

43

3939

2828

3035

28

ImporttariffVAT

Granting Bio-ethanol a VAT-zero rating and eliminating tariffs would make it the cheapest cooking fuel option for Kenyans

(1)  Averagefueldiettakenfromsurveydata;averagesizeofhouseholdinNairobiassumedtobe3.2(2)  Recentpricespikeincharcoalpricereach$0.5/kgandcontinuetorise;thisisduetoabanonillegalloggingintroducedbythegovernmentin

additiontotheexpectedupswingduringthewetseason(3)  AssumesV2.0modelandusingimportedBio-ethanolSource:Renetech2017;TERI2016;KenyainstituteforPublicPolicyResearchandAnalysis2010;KOKONetworksconsumerresearch;DalbergAnalysis

Averageannualfuelexpenditurebyfueltypetomeet3,500MJfueldietofatypicalNairobihousehold1,USD/year

$0.64/L$1.70/kg$0.82/L $0.79/L$0.40/kgPrice

Bio-ethanolaftertaxreduction

233

Kerosene

226228

LPG

176224

Charcoal

Bio-ethanolaftertaxreduction

Bio-ethanol

MinimumStoveEfficiencyMaxStoveEfficiency

AverageStoveEfficiency

Recentcharcoalpricespike2

A transition of all kerosene / charcoal users in Nairobi to Bio-ethanol could result in ~2mn tonnes GHGs, 200K DALYs, and 1,500 deaths averted p.a.

AfulltransitionofkeroseneandcharcoaluserstoBio-ethanolinNairobialonewouldhelptowardsachievingtheSustainableDevelopmentGoals

~200,000DALYsand1,500deathsaverted34overathree

yearinterventionperiod

timesavingsfromcollection,cooking,andcleaningwill

accruetowomen

USD60mninannualconsumersavings4

Reductionof2mntonnesofCO2eqemissions1

Thisrepresents2-3%ofKenya’sannualGHGemissionsand10%ofKenya’s2030GHGreduction

goal2

Bio-ethanol presents potential opportunities for strengthening the Kenyan economy

Taxrevenue

• Reducingcharcoalusecouldenhancefoodsecurity• ~90%of charcoal for cooking is harvested fromnon-renewable forests, driving food insecuritythroughnegativeimpactsonwatercyclesandlanddegradation

Tradebalance

Jobs

Foodsecurity

• DomesticBio-ethanolindustrywilldeliverbetter-paying,formaljobsalongtheBio-ethanolvaluechain,fromfarmerstodistributors

• Depending on business models adopted, an industry serving 500,000 customers could create40-70Knewjobs,generatingUSD17-35mninincrementalincomes

• Inthefuture,domesticallyproducedBio-ethanolcouldreplaceimportedkerosene,improvingthetradebalance

• With enough investment into domestic production, Kenya could one day be a regional netexporterofBio-ethanol(vs.importsfromSudan,Mauritius,andPakistan)

• DomesticBio-ethanolproductionhasthepotentialtoincreasestaxrevenuesinthelong-runasformal,incometax-payingjobsarecreatedinthedomesticBio-ethanolindustry

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Next steps Expanding beyond Nairobi for urban clean cooking Project pipeline for domestic production of bioethanol

EthanolCookingFuel(ECF)Masterplan

CommissionedtoprovidearoadmapfortheestablishmentofanECFindustryinKenyaObjectiveto:•  Signaltoinvestorsinordertobuildconfidence•  ProvidesanevidencebasetoguidethedevelopmentofECFinfrastructureand

distributionsystems.•  RecommendpoliciesonhowtheGovernmentofKenyaandotherstakeholderscan

supporttheindustry.•  Providesscopeonthemacro-economicbenefits,jobsandforeigninvestment•  Potentialtodeliverontheobjectivesofkeynationalstrategiesifplannedand

implementedresponsibly

WhyaMasterplan?

Kenya’sBigFourAgenda(foodsecurity,affordablehousing,manufacturing,affordablehealthcareforall)Vision2030-aimstotransformKenyaintoanewlyindustrializing,middle-incomecountryprovidingahighqualityoflifetoallitscitizensby2030NationallyDeterminedContributionNationalClimateChangeActionPlan2018-2022(NCCAP)GlobalSustainableDevelopmentGoals.

Buildingasharedvisionforthesector

GovernmentMinistries:IndustrializationAgricultureEnergyEnvironmentCCDHealth

SouthSouthNorth

&Dalberg

Privatesector,NGOsKOKONetworksVivoGiraffeBioenergyClean Cooking Assoc Kwale Sugar, Muhoroni Kibos Sugar, Cassava Options GIZ, SNV, Practicl Action, Livelhoods, Praj

We convened two working groups

Key recommendations – demand & supply

Toboostdemand:•  Partnershipswithprivatesectoranddonor

communityforstovefinancing•  Awarenessraisinganddiscouraginguseofdirty

cookingfuels•  Taxandfiscalincentivesacrossthevaluechain•  VAT,ImportDuty,TaxRebates,Low-interestloansTosupportlocalproductionofECF:•  Creatingsupportivesmallholderfarmerecosystems•  Expandingfeedstockgrowingzones•  UnlockingclimatefinancetodevelopECFecosystem

NEXT STEPS

Official Government adoption of the Plan.

Conduct feasibility studies on setting up

ethanol plants

Create a working group to identify and resolve supply chain

challenges

Using social media to build awareness

https://www.youtube.com/watch?v=05adyqTUSd8

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