MIGA is providing its first-ever support for a project that will sell carbon credits gained by reducing greenhouse gas emissions. The reductions, which can be sold under the Kyoto Protocol, will result from the conversion of methane gases to less harmful carbon dioxide at a landfill in El Salvador. MIGA is supporting the project by providing $1.8 million in guarantee coverage (insurance) to Canadian company Biothermica Energy Inc. The guarantee covers the risks of expropriation, war and civil disturbance, and breach of contract—including the breach of the Salvadoran government's commitments under a letter of approval for the carbon emission reductions under the Clean Development Mechanism of the Kyoto Protocol.
The first phase of the project involves the construction and operation of facilities for capturing and flaring gas generated by municipal waste at a landfill that serves metropolitan San Salvador. The landfill currently receives 500,000 tons of solid waste a year, generating some 7,500 tons a year of methane gas. With the landfill slated to expand to meet the entire country’s municipal waste disposal needs, methane gas emissions are expected to double within the next decade. The global warming potential of methane is 21 times higher than that of carbon dioxide. Phase two of the project will involve the construction of a 4 MW landfill gas power plant.
Emission reductions from the captured gas are expected to be between 140,000 and 190,000 tons of carbon dioxide equivalent a year from 2006-2012. The guarantee holder, Biothermica Energy Inc., has completed the Kyoto Protocol validation process and has agreed to sell carbon credits to a private carbon fund on delivery of the certified emission reductions.
This groundbreaking deal signals that projects in smaller developing countries can indeed cash in on the benefits of reducing greenhouse gases, and also illustrates how carbon finance can work in a sector that developing countries can easily tap into. MIGA aims to increase its support for projects that mitigate harmful practices associated with global warming.