Carbon credit certificates can be an interesting tool for WASH businesses; they provide additional revenue streams, help attract investment and increase the visibility of WASH businesses as meaningful actors in the fight against climate change. But while there are huge opportunities, there are also some challenges and the road to certification can be bumpy. We talked with Reto Wey from Toilets for All who has been following the development of the WASH carbon credit market for some time now. He tells us about the opportunities and challenges he sees in this sector and what WASH businesses can do to successfully enter the carbon market.
Reto, you have closely followed the developments of carbon credits in the WASH sector, can you explain what got you interested in the topic and why you see so much potential in this approach?
I first came across the topic of carbon credits in WASH a little over 3 years ago. I was talking to some water entrepreneurs and they told me about the importance of carbon credits and how these credits create additional revenue streams in their businesses. These entrepreneurs were mainly working in the household water filter segment where the first carbon credits were already issued in 2007! My expertise revolves more around sanitation and I thought about the potential of this approach for the sanitation sector. By then, I was already well aware that the most commonly used sanitation solutions – pit latrines, most often in combination with septic tanks – produce substantial greenhouse gas emissions (GHG, mainly methane and nitrous oxide). I immediately saw a huge potential in carbon credits being issued for new, climate positive sanitation solutions and bringing money for results to the sector. But I had no idea how complex the sector is, how antiquated (and mostly manual) the processes still are, how lengthy and costly getting a carbon certification still is…
What makes the sanitation sector so complex when it comes to carbon credits?
Sanitation cannot be solved with a single simple intervention, like a water filter to clean water or a more efficient cook stove or installing a solar panel. There is an entire chain to be considered: you have to collect the fecal sludge, then transport it, treat it and give it a final use. You can create a beautiful ceramic toilet and give it to a household, but that doesn’t mean you have solved anything. If you don’t also connect it to an effective containment and treatment setup, you might just have created nothing else than a nice new pot for your flowers to grow in…something I have seen more than once.
In sanitation, it’s often difficult to make correct estimations of the potential carbon emissions reductions of your product or initiative, along the entire sanitation chain. And without proper calculations of the GHG-difference between the current situation (baseline) and the improved situation, you cannot issue carbon credits. There are so many variables and different options, especially on the treatment side, that it can quickly become overwhelming. In addition, data on sanitation is often quite limited, especially data on the current sanitation situation in a given area and the current GHG-emissions of a given solution in the field. Also, most existing standard GHG-emission data for different sanitation solutions is measured in lab conditions and is therefore severely underestimating the real emissions. Lastly, many existing standards on the treatment side do not consider human waste in their calculation guidelines.
At what stage, would you say, is the sanitation carbon credit market right now and what is still missing?
No doubt, interest in the topic has grown substantially since I first came across the idea of issuing carbon credits for sanitation. With different partners, under the leadership of the Container Based Sanitation Alliance (CBSA), we have started a feasibility study, 2 years ago, using real life data from 5 sanitation businesses and the results are quite promising, provided the companies scale their business sufficiently as the upfront costs are quite high. We are now working on developing a specific methodology that covers the entire sanitation chain.
In general, there is an increasing recognition that improperly managed sanitation is a major contributor to carbon emissions. The recent publication of a study about the GHG-emissions of the sanitation sector in Kampala, Uganda, which showed that almost half of the city’s emissions are linked to sanitation, caused quite a stir. At two recent conferences, the IRC’s All Systems Connect event in The Hague and the Global Water Summit in Berlin, some specific panels on the topic were included in the programme and in general there was a lot of talk on this.
Do you think the Kampala findings are applicable to other cities ? Can we generalise?
Yes, in my view, the findings in Kampala can be compared to other similar cities in the developing world. One of the most striking conclusion of the study is the fact that GHG-emissions are still very much underestimated and that more robust research and emission analysis, under real life conditions, are needed. In October 2022, a Meta-Analysis of greenhouse gas emissions from non-sewered sanitation systems was published in Science Direct. The study provides an analysis of the issue at the global level and comes to similar conclusions than the Kampala study.
As you already mentioned, you are in contact and working with several WASH businesses that have entered the carbon credits market, can you tell us a little bit more about the trajectories of these businesses in this market?
For some WASH businesses, carbon credits are just a nice additional revenue, for others it’s the core pillar of their business model. Especially in the water filter sector, the revenue from carbon credits can represent a very substantial portion of the revenue of the business. In sanitation, we also start to have a few businesses working on the issuance of carbon credits, but this is still a multi-step process. On the one hand, we still need to work on the implementation of a basic methodology to calculate the baseline and the reductions in GHG-emissions that can be achieved with improved set-ups. The sanitation companies will then need to calculate the baselines that apply to their specific client portfolio and the emissions produced by their improved front-to-back setup to determine the reductions in GHG-emissions of their particular solution. This often entails surveys, emission measurements and controls which need to be undertaken by the businesses themselves. All this is combined in a Project Development Document (PDD) which then needs to be approved in order to participate in the official Voluntary Carbon Market (VCM). Some sanitation businesses follow another path and get compensated for their carbon emission reductions in a more informal way, by using their in-house calculations to determine the carbon emissions and sell them to companies in their networks in a bilateral, more casual way.
What steps do sanitation businesses need to follow to successfully enter the carbon credits market and benefit from it, could you give some top tips?
A crucial element to be successful in the carbon credit market is to have a very good handle of the data side of your business. You have to be able to establish a good baseline which includes having knowledge about the sanitation solutions that your clients have been using until now and how much excrements are produced, since those are really the culprits of the GHG-emissions. You also need to have a detailed overview of the whole current sanitation chain, including the final disposal and reuse of the human waste. Efficient IoT-devices that can transmit data about sanitation services offer some interesting opportunities and tools to better measure your future solution. Most of these elements can already be started before any final carbon credit methodology for the sanitation sector has been established. But in order to officially issue carbon credits and sell them in the official VCM market, the methodology and the PDD need to be officially approved.
What is your outlook on the sector? Where do you think we will be in 10 years from now?
I am convinced that carbon credits will become an important revenue stream for the sanitation sector, as part of the overall growth of carbon finance. An increasingly efficient and data-driven carbon market will support this evolution and will help reduce costs barriers. First pioneers are already showing the way today.
The increasing recognition that sanitation is a significant, and probably still underestimated, contributor to GHG-emissions is also an important step. It draws attention and probably also funding to the sector. This will help accelerate the creation of the required methodologies and increase the interest of sanitation companies in participating in carbon offset schemes, especially once the money starts to flow to the pioneers in the field and makes their business models sustainable.
I trust that future developments in the sector will allow sanitation companies to offer efficient climate positive solutions to a much wider clientele and help solve the huge sanitation crisis.