12. Unpacking the Black Box of Technology Distribution, Development Potential and Carbon Markets Benefits

There are numerous attempts in the academic and gray literature as to how one might approach evaluating the sustainable development impact of a household intervention. Household interventions which are subsidized by carbon finance are often called “charismatic carbon” “premium” or “pro-poor” projects (The Gold Standard 2010; Cohen 2011; Verles and Santini 2012) given that they directly address the development needs of the rural and urban poor and are therefore assumed to have higher sustainable development impact than projects which focus on reducing industrial gas or manufacturing emissions. While inconclusive on best practices, the academic literature provides the contours of how program design features may engage with intended outcomes (Bailis et al. 2009; Mobarak et al. 2012). This body of research has informed the policy-making community, most notably with the development of the Gold Standard certification scheme for best practices in carbon offset project design (The Gold Standard 2010) and the Global Alliance for Clean Cookstoves’ (GACC) recent presentation of a conceptual framework on how to measure and monitor sustainable development against project indicators (GACC 2014).

Most practical attempts to measure sustainable development impacts across the market landscape mirror or modify the Gold Standard’s sustainable development matrix, which identifies environmental, economic and social indicators and asks the project developer to rank the project’s impact using a scaled score chart from -2 to 2. Numerous academic and gray assessments of carbon projects utilize a portfolio analysis approach in which they conduct a textual analysis of the project’s benefits, extracting information from the sustainable development matrix (Olsen and Fenhann 2006; Sutter and Parreño 2007). A limitation across these assessments is an absence of information on the causal pathways that link the indicator of interest to a development outcome.

The GACC is currently working with the International Center for Research on Women to create conceptual frameworks that link project indicators with three development outcomes of interest: women’s empowerment; the pathway between technology adoption and social/economic wellbeing and finally, the pathway between project implementation and livelihood enhancement (Fig. 12.1). These conceptual frameworks are based upon the GEF’s Theory of Change, a policy design paradigm that makes transparent the assumed relationships between policy actions (indicators), policy impacts (components) and outcomes (goals).

An earlier GACC publication by Troncoso presents an adoption index and project impact index for comparing project effectiveness within a portfolio (Troncoso 2014). Troncoso’s approach simply identifies key variables for the outcome of interest and weights them according to relevance. Adapting Troncoso’s general method for creating an impact index derived from the GACC’s conceptual framework results in the creation of a new tool – a Livelihood Index (LI) – for valuing livelihood impacts from carbon-financed interventions.

Before delving further into the assumptions underlying and the application of the livelihood index, it is worth addressing why local economic impacts matter. The vast majority of studies on carbon markets and environment-development projects more generally focus on the user experience: how and why users adopt a new technology, whether or not they replace it, whether or not it is appropriate for their local settings, and how their livelihoods are enhanced in terms of social, environmental and economic outcomes. This body of literature is crucial for the discussion of carbon finance evaluation and effectiveness, as it addresses whether and how climate-compatible technologies can enhance the lives of target communities while supporting the global goal of climate change mitigation and adaptation. However, user-focused studies cannot address a primary assumption within the environmental markets policy narrative, namely, that market approaches support the development of local economies and are therefore more empowering than the traditional aid model.

The Livelihood Index is derived from the GACC’s conceptual framework on social impacts from cookstove projects, which are often carbon finance projects as well. It adapts GACC’s broad notion of “involvement in the value chain” on the far left of the diagram, and converts the listed categories of project involvement into “actors” whose jobs are assessed for evidence of an enhanced livelihood and social impact: Investors; SME owners and executives; selection and design of clean cooking technologies; production of clean cooking fuels/stoves; distribution of clean fuels/stoves; after sales service of clean stoves; borrowers (supply-side). These categories are adapted to the broader range of project types and the specific range or actors when carbon credit creation is involved: (1) Carbon credit buyers/investors; project developers (i.e. executives) and SMEs (when applicable); clean technology producers; clean technology distributors; after sales service agents; borrowers and users. In addition, we have added the third party validator and verifier to the supply chain, an actor whose role is specifically created by the carbon market to validate the quantifications associated with greenhouse gas emissions reductions. Within a carbon offset project, the project developer selects the clean cooking technology design, so this category has been eliminated. In all, the far left column of the GACC’s conceptual framework translates intuitively into carbon offset project’s value chain, determining the categories of actors that we assessed for evidence of access to and gains associated with utilizing the carbon market.

The second column of the GACC framework, “components of enhanced livelihoods” includes the following categories: employment; income, technical and business skills; business and social networks; knowledge of environmental health/benefits; expanded access to health and credit. The semi-structured interviews with actors in the first column touched upon all of these elements of an enhanced livelihood, and aspects of these interviews will be discussed in the case analysis. However, due to variability in the categories that were relevant for all actors in the value chain, the livelihood index we utilize here references those aspects of an enhanced livelihood that were pertinent in every single interview: steady and predictable employment; income for labor, enhanced opportunities engendered by skilled labour and enhanced opportunities engendered my managerial positions (i.e. positions with some degree of decision making power). The need for expanded access to capital and credit was not always a prerequisite for acquiring the new technology; in some cases, households were given the technology for free. The relationship between users, borrowers and the local impact of integrating them into the formal economy through enhanced credit options is significantly complex that it is the subject for another paper.

The third column articulates varying “outcomes of enhanced livelihoods:” quality employment and/or entrepreneurship opportunities; increased income; increased knowledge and skills; increased access to resources; and enhanced social capital through expanded social networks. Quality employment and entrepreneurship opportunities arguably encompasses other outcomes, such as increased skills and resources, increased networking opportunities and enhanced social capital and status. Another outcome worth further investigation would be increased employment choices. For example in addition to the outcomes identified within the GACC framework, avoided sacrifices where money was not the priority outcome were also positively mentioned; i.e. “employment with the carbon offset project enables me to work close to my village, and without this job I would be forced to live far away from my family.

Pressed further, this particular interviewee admitted that he could earn a better income in Vietnam, but the benefit of living with his family at home in Cambodia and engaging with the environment-development project far outweighed the potential increase in income. This type of benefit is not clearly captured in the conceptual framework or the livelihood index as it currently stands; further research is required to establish how and under what conditions carbon finance can engender or hinder livelihood choices where income is not the salient driving factor.

Thus, the livelihood index offers a rough proxy as to the impact of a carbon finance project on local incomes and livelihoods within the economy that surrounds the carbon finance intervention; while imperfect, the livelihood index can help to begin a conversation on the economic distribution of innovative environmental financing tools (Fig. 12.2).

Working from the conceptual framework, the formula for the index is as follows:

The score for “Skill” includes employment in terms of jobs created and employment in terms of jobs containing skilled and managerial opportunities, thus the variable is double-weighted given that its value encompasses half of the indicators of interest in the conceptual framework. Along the employment spectrum, unskilled work means that there was no training involved for the position and managerial work implies that the employee has a degree of decision making power within the enterprise. “Pay” relates to the type of employment, given that not all of the jobs are financially compensated. Along this continuum, “Volunteer” labor includes consistent work for the carbon finance project that is paid outside of the formal economy (i.e. through company swag or promises of future employment). Commissioned labor lies at the midpoint of the “PAY” valuation scale given that there is a predictable financial gain from work effort, but the risks of project failure are born by the employee. While there is indeed the possibility of high reward through commissioned work, of the 88 people interviewed who are directly involved with the field-level implementation of the projects under review, only one person cited “commissioned work” favorably. Payment structures varied among the three projects, but there was near consensus from workers that a salary was preferable to commissioned pay. The single respondent who positively described the commissioned payment structure had been hired just 2 months prior to the interview. “Salaried” work receives the highest score in the index.

Evidence of job satisfaction (SAT) is a qualitative assessment based on the open-ended interviews wherein the self-reported ability to save and/or self-reported personal benefits from doing the job are volunteered within the interview process. All interviewees were asked to nominate their favorite and least favorite aspects of their job: mention of looking for a new job ranked at zero, while apparently genuine and detailed feelings of pride in the work and specific reasons that the job was appreciated (i.e. job location and the ability to achieve work/life balance) garnered the full rating of 1. The LI’s maximum score is 4, while each variable has a scale between 0 and 1 (Table 12.1).

The LI’s main utility is in comparing – rather than determining in absolute terms – the ability of a project to distribute economic benefits across the value chain. The strength of the index is that it accounts for equality – a few elite members within the value chain have little influence on the LI if the majority of workers are undercompensated. A more nuanced livelihood index would better capture how expanded access to credit, business and social networks and knowledge relate to improved livelihoods; this rough index assumes that skilled jobs will include some degree of technical and business skill, and that managerial jobs will include some component of training, networking and increased opportunity. While there are surely examples where these assumptions prove faulty, the presence of skilled labor and managerial labor is not a likely hindrance to the outcomes of interest. Thus, this preliminary livelihood index offers insight into a project’s ability to improve local economic well-being by focusing on the necessary (though possibly insufficient) components of an enhanced livelihood.

The New Laos Stove (NLS) project was managed by the French NGO, “Groupe Energies Renouvelables, Environement et Solidarites” (Geres), Cambodia. The charcoal stove, designed for urban households but almost equally utilized in rural communities, has sold over a million units since 1998. Carbon finance from the voluntary market financed the rull range of the project’s operational costs from 2006 to 2013, when the carbon crediting period closed (Geres 2013).

NLS utilized a low cost technology of improved biomass cookstove, valued at approximately 5 USD per unit, which is produced in local centers in region of the country known for artisanal stove production. The project developers used an “intrinsic revenue model” (Verles 2015), whereby they fund technical workshops to teach local artisans to execute their design, and then recycle funds from carbon finance into expanding the program and monitoring the implementation. Within this model, carbon credits act as a temporary subsidy for the establishment of a long-term national industry and local supply chain (idem). Given the close alignment between project participation and livelihood incentives, the value chain and the project structure are impossible to distinguish.

Geres attributes their considerable success in technology distribution to the strategic use of already existing production and dissemination networks within Kampong Ch’nang province, the traditional ceramics region of Cambodia. Utilizing historic production channels also offered monetary benefits: distributors received the technology on good faith from the producers, pedaling their wares thousands of miles away from the home factory based on generations of trust. This social aspect of the distribution system enabled the administrators to avoid financing difficulties in disseminating the locally produced stoves nationwide. However the emissions reductions per household serviced are the low, while the breadth of the dissemination and local livelihood index score for local economic gain is the strongest in the set.

The relatively high Livelihood Index score is derived from Geres’ decision to train existing ceramics factories to produce their stove model, and they achieved the transition in production type through frontloading financial incentives for the producers during the training and in the first years of production. By feeding subsidies to the producers, and not to the consumers, Geres effectively transformed the cookstove producing region of Kampong Ch’nang into their improved stove model. Notably, the 35 stove factories that are registered NLS producers are all locally owned and managed, raising the LI due to the strong presence of managers, decision makers, and skilled labor positions engendered by the project. Another advantage to utilizing fully local production and distribution methods is that risk insurance, crediting, and norms for product guarantees were already in place due to the multi-generational history between the stove distributors and producers.

Hydrologic Ceramic Water Purifiers (CWP), has distributed over 150,000 locally produced clay waterfilters throughout rural Cambodia and is currently undergoing its first validation for the Gold Standard voluntary credit stream. The project initially received traditional donor aid from USAID in 2002 and partnered with the Red Cross to develop the CWP model; since switching to carbon finance the project is now views the Red Cross as a competitor (Hydrologic Social Enterprise 2012).

Hydrologic also utilizes an intrinsic revenue model, locating its single water filter factory outside of the national capital, also in Kampong Ch’nang. This location is not only strategic due to the localized expertise in clayware, but it is also a more residential area than the textile factories outside of Phnom Penh where the majority of the water filter factory workers previously worked.

The filters produce a greater emission reduction per unit and a significant health benefit in terms of reducing cholera and typhoid. Factory wages are similar to garment worker wages, yet laborers unanimously agreed that working at the Hydrologic factory was preferable to working at the garment district due to strategic positioning near their home (enabling mothers to remain close to their children and spend the long lunch hour with their family) and the work conditions themselves. However, unlike the NLS project where the majority of technology producers owned their own company, the workers at the CWP factory were frequently paid on commission leading to income uncertainty and distress, accounting for the lower LI score. Only one factory worker of the 15 interviewed reported using a CWP at home, which they had won at a company party. The remaining laborers interviewed said that the CWP was “too expensive” and three of the laborers interviewed mentioned that they had missed work due to “stomach and water problems.”

Hydrologic has created three distribution channels: direct sales; indirect sales; and wholesale to NGOs for charitable use/emergency aid campaigns. A sales coordinator manages inventory, communicates with headquarters and trains local villagers in sales. Sales agents are paid on commission with a 5-dollar monthly stipend for gasoline; the presence of a set gasoline reimbursement incentivizes the sales agents to stick close to home and pocket the gasoline cost savings. A problematic partnership with a microfinancing NGO also hinders sales: the microcredit organization has little incentive to travel long distances to disseminate the micro-technology widely, preferring instead to offer multiple loan types within a single village for ease of administrative follow up. The absence of a reliable financing partnership is likely to undermine the program’s resilience and long-term capacity.

An indirect sales channel (aka the retail channel) is somewhat simpler and the model of choice for urban areas –project managers sell the filters directly to market vendors at bulk rates. Given that urban vendors usually lack the capital to buy the filters upfront, sales supplies the vendors with filters and pays them on commission for each sale, approximately $1.50 per $23 unit. A cheaper version of the same filter (housed in a less attractive casing) is only offered to NGOs at $13 per unit. Perverse incentives exist for pharmacists who were originally targeted for retail given the health benefits associated with the technology. The pharmacists earned less money by avoiding cholera and typhoid cases than by charging the sick for treatment.

The principle difference between the NLS and the Hydrologic distribution system is that the NLS builds upon pre-existing local networks, whereas Hydrologic has built a distribution system from ground zero. An absence in social inroads, i.e. the presence of distributors who can deliver on good faith credit given their longstanding relationship with the stove producers, means that Hydrologic company must incentivize all aspects of the supply chain. In an attempt to reduce costs from salaried work, the project managers rely on commissions for the successful sale and delivery of the filter to deleterious effect for the lowest laborers on the rung: they assume risk for product failure and high turnover rates undermine the longevity of the project.

On the other hand, the project managers are Khmer nationals and receive an extraordinary amount of networking opportunities and skill enhancement by participating in the project, including international travel, exposure to the highly-specialized carbon finance project cycle, and entrée to international conferences on environment-development project design. The water filter project manager said that he is not fully satisfied with his job at Hydrologic, but that he had been able to amass adequate savings to launch his own company in the near future. Thus, while gains were less distributed in the Hydrologic model, managerial jobs offered high reward.

The National Biodigester Programme in Cambodia was initiated in 2002 by Dutch development agency SNV, and is now a joint collaboration with the Cambodian Ministry of Agriculture, Forestry and Fisheries. The program has installed nearly 18,000 plants to households throughout the country, 95 % of them are still in operation. Biogas plants are locally made by Khmer-run Biogas Companies; the project was certified to the Gold Standard voluntary stream in 2011. Dutch aid agency Hivos will buy all the credits (NBP 2012).

Of all the technologies, these are the most aspirational – graduating their users from biomass burning stoves to piped indoor gas burners with accompanying light fixtures for methane-fueled indoor lighting. The project manager has a policy that it will always partner with the local government, enabling it to utilize a similar technology dissemination structure as the NLS whereby inroads into the product distribution channels are already made. Government partners hail from local ministries of agriculture and livestock, and the government contribution is training through agricultural extension workers as to how the biodigesters might benefit a family that owns at least two cows. The technology is unaffordable for the very poor; the smallest biodigester costs $400 dollars and requires dung from the equivalent of two cows or four pigs in order to run. In order to ensure that poor farmers (albeit not the poorest of the population) can access the technology, the project managers have created a flat subsidy of $150 and have partnered with local banks wherein they assist in approving regular commercial loans. The default rate on the loans is an astonishing zero percent, reflecting the high savings associated with a biodigester’s ability to essentially eliminate fuel and manure costs, while contributing to indoor lighting needs.

In addition to partnering with the government, the project developers in the NBP utilize a local NGO that assists in the training of masons and technicians to install the biodigesters. This workforce is trained by the project manager, and is paid on commission – though commission is substantially higher ($90 per unit) than for the Hydrologic sales agents. By training and employing masons, technicians, and involving local agriculture extension services in their marketing strategy, the NBP has managed to achieve national coverage with a seemingly unaffordable product. However, since 2012 the subsidy is being phased out and uptake has drastically declined (Tables 12.2 and 12.3).