2
Acknowledgment
ThisdocumentisanoutputfromtheMobilisingInvestmentproject,aninitiativeoftheClimateandDevelopmentKnowledgeNetwork (CDKN) and Low Emission Development Strategies Global Partnership (LEDS GP) contracted throughSouthSouthNorth (SSN). The Mobilising Investment project is funded by the International Climate Initiative (IKI) of theGermanFederalMinistry for theEnvironment,NatureConservationandNuclear Safety (BMU),on thebasisofadecisionadoptedbytheGermanBundestag.
3
Disclaimer
The views expressed are not necessarily those of, or endorsed by, BMU or any of the entities delivering theMobilisingInvestmentproject,whocanacceptnoresponsibilityorliabilityforsuchviewsorinformation,orforanyrelianceplacedonthem. This publication has been prepared for general guidance on matters of interest only, and does not constituteprofessional advice. You should not act upon the information contained in this publication without obtaining specificprofessionaladvice.Norepresentationorwarranty(expressor implied) isgivenastotheaccuracyorcompletenessoftheinformation contained in this publication, and, to the extent permitted by law, the entitiesmanaging the delivery of theMobilising Investmentprojectdonotacceptorassumeany liability,responsibilityordutyofcareforanyconsequencesofyouoranyoneelseacting,orrefrainingtoact,inrelianceontheinformationcontainedinthispublicationorforanydecisionbasedonit.
4
Executivesummary
Note:(1)ThisassumesastandardhouseholdconsumptionandisbasedonassumptionsofstoveefficiencyofexistingtechnologiesandcurrentfuelpricingSources:(2)StandardMedia,“ToughTimesAheadasStateIntroducesonKerosenetoFundSpendingPlan”,June92016
MajorityofKenyansstillcookwithdirtyfuelsthatcausesignificanthealthandenvironmentaldamage,despitecleaneroptions
LPGhaspenetratedNairobiandhigher-incomehouseholds;
Bio-ethanolcanbeanattractivecleanfuelforlower
incomehouseholds
EliminatingVATandimporttariffscanmakeBio-ethanolamongthecheapest1cooking
fueloptionsinKenya
Unlikeothercleanfuels,Bio-ethanolcanbeproduceddomesticallyovertime,whichwouldspurindustrialgrowthwhiledeliveringpositivesocialandeconomicbenefits
• Charcoal,kerosene,andfirewoodstilldominatetheKenyanmarket
• Thesefuelsaremajorcontributorstorespiratorydiseases,carbonemissions,anddeforestation
• TheGovernmentofKenya(GoK)hasstateditsambitiontotransitionKenyatomodern,cleanfuels
• TheurbanmarketpresentsthemostimmediateopportunitytotransitionKenyanstocleanerfuels,suchasLPGandBio-ethanol
• Whilemodern,cleanfuelsarenowmoreavailable,therearechallengeswithconsumerawareness,affordabilityandaccessibility
• LPGpenetrationhasincreasedrapidlyoverthepastfiveyears,especiallyinNairobi–thebenefitsarewell-publicized
• Whilelessknownabout,liquidBio-ethanolisnowincreasinglyviableasanurbancookingsolution,drivenbyinnovationsintechnologyanddistribution
• DespitehavingequivalentbenefitstoLPG,thecostofBio-ethanolisinflatedby25%importtariffsand16%VATtreatment
• ThistreatmentisinstarkcontrasttoLPG–whichenjoyseffectivetaxrateofzero–andkerosene,at9%importdutiesandzero-ratedVAT2
• IfGoKmade(denaturedtechnical)Bio-ethanolzero-ratedforVATandeliminatedtariffs,itwouldbeamongthecheapestcookingfueloptionsinKenyaandcoulddisplacecharcoalandkerosene
5
TableofContents
SectionI:Introduction
SectionII:KenyanCookingFuelMarketOptionsandSnapshot
SectionIII:PotentialofBio-ethanolforCookinginKenya
SectionIV:Bio-ethanolPolicyAnalysis
SectionV:ConclusionsandRecommendations
Appendices
6
SECTIONI:INTRODUCTION
Thisstudywasdevelopedto:
1. PositionthecookingfuelmarketwithinthewidercontextoftheGovernmentofKenya’sandothers’effortstoimprovethewelfareofKenyansacrossavarietyofdimensionso Vision2030aimstotransformKenyaintoanewly-industrializing,middle-incomecountryprovidingahighqualityoflifetoallits
citizensby2030inacleanandsecureenvironment;muchprogresshasbeenmade(e.g.,intheareasofhealthcare,education,andhousing)
o However,despitethecontinuedadvocacyeffortsofvariousstakeholders,additionalstridesareneededtoensurethatallKenyanshaveaccesstoaffordablecleancookingoptions
2. EvaluateKenya’surbanhouseholdcookingfuelsectorandunderstandthewaysinwhichcustomersareunder-servedbytraditionalfuels,whichcontinuetodominateovermoremodern,cleanfuelalternativeso TraditionaldirtyfuelsdominatefueluseinKenya:~85%1ofKenyansrelyontheseforcookingo Continueddependenceonthesefuelshasnegativeimpactsonhealth,environmental,andothersocialoutcomes
3. Profiletheavailablemoderncookingfueloptionsbasedonemergingtechnologiesandtrends
4. HighlightBio-ethanolcookingfuelasaviableandscalablemoderncookingfuelwiththepotentialtobesoldatpricesaffordabletothemajorityofurbanKenyanscurrentlyrelyingonkeroseneandcharcoalo Bio-ethanolandLPGarethemostfeasiblealternativestotraditionalfuels,offeringKenyansacleanandefficientcookingexperienceo WhileLPGisgenerallywell-understoodandisbeingactivelypromotedbythegovernment,Bio-ethanolrequiresfurtherexploration
andcanbecomplementarytoLPGasamoderncookingfuelforKenyans
5. Recommendstrategiesforenablingprivatesector-ledmodernizationofthecookingfuelsector–withafocusonBio-ethanol–todelivermaximumsocial,environmentalandeconomicbenefitsforthepublic
Source:(1)KenyaIntegratedHouseholdBudgetSurvey(2018),NationalBureauofStatistics
SectionI:introd
uctio
n
7
TheurbanKenyancookingfuelmarketisestimatedatUSD600m–USD800mperannum,andremainsdominatedbydirtyfuels
*Thismarketsizeestimateisbasedoncurrenturbanpopulationsize,fuelusepatterns,estimatedhouseholdconsumption/spend(basedonaverageefficienciesofcookstoves/fuelsinthemarket),andmarketpricedataforurbanKenyaSource:KenyaIntegratedHouseholdBudgetSurvey(2018),NationalBureauofStatistics
PrimaryCookingFuelUsedinKenyanHouseholdsin2017(households,millions)
SectionI:introd
uctio
n
Firewood -5.7
1.4
Charcoal
-0.2
-0.2Kerosene
LPG
Electricity 0.0 0.1
1.1-0.6
1.5
0.8
PrimaryCookingFuelUsedinKenyanHouseholdsin2017(%ofpopulation)
5584
15
22
14
29
28
16
313 252
Kenya Rural
9 2
Urban
Otherfuels
Charcoal
Kerosene
LPG
Firewood
ThisreportfocusesontheopportunityforBio-ethanoltoservetheurbanKenyanpopulation(marketestimatedat~$600-800mn*perannumwithfullfueltransition).ThemajorityofKenyanscurrentlypayingforcookingfuelsliveinurbanKenya• Mostfuelusedinruralareasisgatheredandnot
purchased(e.g.,84%ofhouseholdsusefirewoodastheirprimaryfuel)
• Market-drivenapproachesforexpandingtheuseofmodernfuelsareunlikelytotakeholdintheseareasintheshortterm
• Inurbanareas,ontheotherhand,over80%ofhouseholdsarealreadypurchasingcookingfuelandareprimetargetsformodernfueluse
Withinmodernfueloptions,Bio-ethanolandLPGarethemostfeasibletoday;Bio-ethanolistheleastunderstood• LPGiswell-understood,alreadypromotedbythe
Government,andenjoysstrongconsumerrecognition• Bio-ethanolisrelativelyunexploredandhasachieved
lowerpenetrationthusfar• Electricitywillbecomeincreasinglyimportanttothe
overallcookingmix;however,fornow,onlyhigherincomeconsumerscanaffordtheexpensivebutefficientelectricstovesthatareneededtomakeelectriccookingviable
InurbanKenya,themajoritystillusecharcoalandkerosene;thisnumberismuchhigherwhenfuel‘stacking’isincluded
Kenyanurbanhouseholdsarenowreadyforrapiduptakeofclean,modernfuels
Urban
Rural
8
SECTIONII:KENYANCOOKINGFUELMARKETOPTIONSANDSNAPSHOTThemajorityofurbanKenyansrelyoncharcoalfuelsandharmfulkerosenefortheircookingneeds• Charcoal(22%),kerosene(29%),andLPG(28%)arethedominant“primary”cookingfuelsinurbanKenyaasof2017• Stacking,i.e.,theuseofmultiplefuels/stoves,isawidespreadphenomenoninKenya;charcoalandkeroseneuseisthusmuchmorecommon
thanprimarycookingfueldataindicates–e.g.,2-3xurbanhouseholdsusingcharcoalvs.numberthatusecharcoalaprimarycookingfuel• NairobiisdistinctfromurbanKenya,withfarhighershareofhouseholdsusingLPG(44%)andkerosene(47%)asprimarycookingfuels(2017).
KeroseneisthedominantfueloftheNairobipoor1
Continueddependenceondirtyfuelsposesserioushealth,environmental,andsocio-economiccostsforKenya• 8-10%ofearlydeathsareattributabletoindoorairpollutionfromcharcoalandwoodcookinginKenya;thisexcludestheunquantifiedbutlikely
substantialnegativeeffectsofkerosenecookingonlungfunction,infectiousillnessandcancerrisks,aswellasburnsandpoisonings• Kenyaloses10.3millionm3ofwoodfromitsforestseveryyearfromunsustainablecharcoalandwoodfueluse• Householdbiomassfuelusecontributes>22milliontonnesofCO2eqeachyear(ashighas35MTCO2eqincludingfuelproductionemissions),
whichisequivalentto30-40%oftotalKenyaGHGemissions1
KeroseneandcharcoalremaindominantinurbanKenyaduetotherelativeaffordabilityandavailabilityofthesefuelsandaccompanyingstoves• KeroseneiscurrentlythelowestcostmainstreamcookingfuelinurbanKenya;charcoalboughtinsmallamounts(i.e.,tins)isthemostexpensive
cookingfuel,butcharcoalboughtinbulkbymiddleclassconsumers,i.e.,in40kgbags,canbeafairlyaffordableoption• Intermsofaccessibility,keroseneandcharcoalarecurrentlyomnipresentinurbanKenya–thereareover1,500kerosenedispensingpointsin
NairobialoneandanecdotalevidencesuggeststhatmostpeopleinNairobilivewithina50-150meterwalkfromacharcoalseller
CleanmoderncookingfuelsareavailableinKenya,buttheyhavenotyetovercomeconsumerawareness,affordabilityandaccessibilitybarriersinordertobecomescalableandsignificantlyreduceuseoftraditionalfuels• LPGiswellunderstoodandincreasinglycommoninurbanKenya,butdespitecontinuedinvestmentsincapacity,LPGisasolutionthatisunlikely
tobecometheprimaryfuelforthemajorityofurbanpopulationduetohighcostsandlimitedavailabilityoutsideofNairobi.LPGalsohasaweakperceptionofsafetyasafuelresultingfrompoorsafetypracticesoftheillegalgreymarketLPGre-fillers(estimatedat30-50%ofmarket)
• ElectricityforcookingisnotviabletodayinKenyaandhasminimalpenetration(~2%inurbanKenya)duetothehighcostsofefficientelectriccookstoves($200+)ofthetypethatcouldmakethecostsofelectriccookingcomparabletoalternatives
• LiquidBio-ethanolisanemergingoption,buthaslowawareness,isonlyavailableinselectgeographiesviaearlystageenterprises,andisrelativelyhighcostduetounfavorabletaxandtarifftreatmentrelativetocookingfuelalternativeslikecharcoal,kerosene,andLPG
SectionII:Ken
yancook
ingfuelm
arketo
ptionsand
snap
shot
(1)Dalbergestimatebasedonbottomupbuild-upofKenyacookingemissionsbasedonfuelmix,averagefuelvolumes,andstandardemissionfactorsincludingCH4andNO2,butexcludingBC.NotethatWRICAITtotalCO2emissionsforKenya(2013)areestimatedat60.53MTCO2eqtotal,whichwebelieveisanunderestimateasthenumberonlyincludes<8MTCO2eqofcookingrelatedemissions.OurrevisedmodelsuggeststhattheKenyatotalemissionsareactuallyinthe75-88MTCO2eqrangebasedonthemostuptodatecookingfuelmixandupcookingfuelcombustionandcharcoalproductionemissionfactorsthatarealignedwithCDMdefaultsforKenyaSource:Statisticsrepeatedandsourcedonfollowingpages
9
DespiteincreasedLPGuse,mosthouseholdsstillusemultiplefuelsanddirtyfuels–charcoal,kerosene,andwood–stilldominateurbanKenya
Source:(1)KenyaIntegratedHouseholdBudgetSurvey(2018),NationalBureauofStatistics;(2)DalbergproprietaryKenyaenergyaccesssurvey,N=300(2015)
SectionII:Ken
yancook
ingfuelm
arketo
ptionsand
snap
shot
UseofLPGhasincreasedsignificantlysinceitsintroduction,especiallyinNairobi;however,dirtyfuelsstilldominatecookinginurbanKenya• LPGsharehasincreased3-4Xsincetheearly2000s;dataacrossthistimeperiodshowsthat,eveninurbanarea,LPGuseis
concentratedamongstthoseearningahigherincome• ~70%ofKenyanhouseholdsinurbanareasusefirewood,charcoal,orkeroseneastheirprimaryfuel
Mosthouseholdsusemultiplefuelsinanygivenweekso,evenwhereLPGpenetrationishigh,householdsarestillcookingwithcharcoalandkerosene
HigheruseofLPGamonghigh-incomeKenyanssuggeststhatlower-incomeKenyansneedanalternativethatcandeliversimilarbenefitstoLPG,whilecompetingwithcharcoalandkeroseneonprice
Dirtyfuelsrepresent~70%and~55%ofprimaryfuelsuseinurbanKenyaandNairobi,respectively
Becausemostpeopleusemorethanonefuel,useofdirtyfuelsishigherthanprimarycookingfueldataindicate
Charcoal/keroseneareprimaryNairobicookingfuel(2016)1(%oftotalhouseholds(HH),N=24,000KenyaHHself-reportedprimaryfuel)
55
16
15
22
14
29
47
1328 44
AllKenya
3 5
1UrbanKenya Nairobi
3
5Charcoal
Kerosene
Other
Firewood
LPG
AllKenya–anyuseoffuelvs.primarycookingfuel2(%oftotalHH,N=300,Dalberg2015survey)
65%
Charcoal KeroseneFirewood
55%
LPG
69%
26%35%
8%15% 10%
Maincookingfuel
Anyfueluse
10
Continueddependenceonthesedirtyfuelsposesserioushealth,environmental,andfoodinsecurityrisksforKenya
Note:DALYisameasureofoveralldiseaseburden,expressedasthenumberofyearslostduetoill-health,disabilityorearlydeathSource:(1)2016GlobalBurdenofDiseasedata;(2)DalbergbottomupestimatetriangulatedwithWRICAIT(2013)KenyaGHGemissionsestimatesavailableathttps://www.climatelinks.org/sites/default/files/asset/document/2017_USAID_GHG%20Emissions%20Factsheet_Kenya.pdf;(3)UNEnvironment,“DeforestationcostingKenyaneconomymillionsofdollarseachyearandincreasingwatershortagerisk”,2016;Dalberganalysis
• Indoorairpollution:728kDisability-AdjustedLifeYears(DALYs)and16.6kdeathsannually,8-10%ofearlydeathsinKenya1,likelyasubstantialunderestimateofthefulldiseaseburdenasmanynegativecookinghealtheffectshavenotyetbeenquantified(e.g.,burns,eyediseases,physicalinjuriesfromcarryingfirewood,etc.)
• LowerrespiratorytractdiseaseisthethirdlargestcontributorofdeathsinKenyawhilepneumoniaisamajorcauseofdeathtochildrenundertheageoffive,largelyduetoindoorairpollution1
• Deforestationandforestdegradation:Kenyaloses10.3millionm3ofwoodfromitsforestseveryyearfromunsustainablecharcoalandwoodfueluse,amajorcontributortothe0.3%peryeardeforestationrate2
• GHGemissions:HouseholdfueluseinKenyacontributes22-35milliontonnesofCO2eqeachyear,whichisequivalentto30-40%oftotalKenyaGHGemissions2
• Foodinsecurity:deforestation,resultingfromtheuseofdirtyfuels,exacerbatesfoodinsecurityandharmstheagriculturesector.Kenya'sfiveforestwatertowersfeedfilteredrainwatertoriversandlakesandprovideover75percentofthecountry'srenewablesurfacewaterresources3
Impactofusingbiomassfuelforcooking
Health
Environment
Foodinsecurity
SectionII:Ken
yancook
ingfuelm
arketo
ptionsand
snap
shot
11
Charcoalisparticularlyharmfulasitcontributesmoretohouseholdairpollution,GHGemissions,anddeforestationthanotherfuels
Source:DalbergimpactsizingmodelforruralKenya,2018;HouseholdAirPollutionInterventionTool,withcustomizedinputsforNairobibasedrespectiveswitchingtoLPGandethanolconsumption.Note:morequalitativedetailprovidedinAppendixA
SectionII:Ken
yancook
ingfuelm
arketo
ptionsand
snap
shot
IMPACT Wood Charcoal Kerosene
Health(deathsandDALYsduetohouseholdairpollutionfromPM2.5)
~2kavoidabledeaths165kaDALYs
~3kavoidabledeaths~250kaDALYs
~2-3kavoidabledeaths~160kaDALYs
Environment&climate(GHGemissions)
2.5-4.4tonneCO2eq/urbanHHannually
3.6-5tonneCO2eq/urbanHHannually
1tonneCO2eq/urbanHHannually
Socialopportunitycosts(timeopportunitycoststofuelcollection,cookingandcleaning)
0.8-1.3avoidablehrsperdayperurbanHH
0.3-0.4avoidablehrsperdayperurbanHH Notimepovertyimpact
Householdandmacro-economics
• Foregoneincomesforavoidabletimespentcookingandcleaning
• Taxrevenuelossforgovernmentgiveninformalityofmarket
• Foregoneincomesforavoidabletimespentcookingandcleaning
• Avoidablespendingonexpensivefuel
• Taxrevenuelossforgovernmentgiveninformalityofmarket
• Costtoeconomyofillicitmixingofkerosenewithdiesel
• Negativebalanceofpaymentseffectsduetokeroseneimports
12
CharcoalandkeroseneremaindominantinurbanKenyabecauseofwideavailabilityandrelativeaffordability…
Note:Givencombinedaffordabilityandaccessibilityconstraints,electricityasacookingfuelnotexploredindetailinthisreport.Source:(1)Dalbergproprietaryresearch;(2)KokoandDalberg;(3)Dalbergfieldresearch;(4)Dalbergsurveyandproprietarycharcoalpricetracker;(5)DalbergandKokoresearch;(6)KokoNetworksestimate;(7)Yonemitsu(2014)forKiberaandK.Muindi(2016)forKorogochoandViwandanislums
SectionII:Ken
yancook
ingfuelm
arketo
ptionsand
snap
shot
Relatively low costs and wide availability for dirty fuels, but such fuels are increasingly expensive
FUEL Affordability&availabilityassessment
Wood
• Abundantandlargelyfreeinruralareasforcollectors,though20-30%ofruralHHsbuyingatleastsomeoftheirfirewood1
• FirewoodisincreasinglyscarceandexpensiveinurbanKenya,particularlyNairobi(e.g.,>$0.50/kg),butstillfairlylowcost(e.g.,$0.15/kginKisumu,$0.10-0.15/kginmostruralandperi-urbanKenya)2
• Traditionalandmoderatelyimprovedfirewoodstovesarefreeorverylowcost(<$10)
Charcoal
• WidelyavailableinurbanKenya(e.g.,charcoalavailablewithin50–150mofmosthomesinNairobi)3
• Increasinglyexpensiveasforestsrecede(pricesrosefrom$0.10/kgto$0.35-0.50/kginNairobiinpastdecade,doublinginjustpast3-5years)4
• Majorpovertypremium–20-30%highercostfrombuyingcharcoalin2kgtinsvs.40kgbags5
Kerosene
• Widelyavailablethroughoutmass-marketneighbourhoodsathyper-localdistributionpoints(e.g.,1500+pointsinNairobialone)6
• MostaffordableandlowestcostfuelinurbanKenyacurrently
• Oftenonlytrulyaffordableoptionforpooresturbanresidents(e.g.,keroseneisprimaryfuelfor70-80%ofslumhouseholdsinNairobi)7
13
…butadvantageoftraditionalfuelsvs.cleanfuelsisfasteroding
*Bio-Ethanolcookingfuelisaclearliquidmadefrom~95%ethylalcohol,5%water,violetdye,andanindustry-standardbitteringagent(Bitrex)whichirreversiblymakesthisfuelunfitforhumanconsumption;Excludesalcohol-based‘gels’,whicharetypicallyhigher-costandlower-powerfuels.Note:Givencombinedaffordabilityandaccessibilityconstraints,electricityasacookingfuelnotexploredindetailinthisreport.Source:(1)ChristianAid(2017)survey,(2)Dalbergfieldresearch,(3)KokoNetworks,(4)Dalberganalysis
SectionII:Ken
yancook
ingfuelm
arketo
ptionsand
snap
shot
Clean fuels face availability and affordability challenges, but both gaps are closing
FUEL Affordability&availabilityassessment
LPG
• FuelavailabilityisfairlywidespreadinNairobi(>40%useLPGasprimaryfueland>60%haveLPGstove)1;forurbanKenyaasawhole,availabilityisprojectedtoincrease–KenyaPipelineCompany(KPC)plantomorethandoubleLPGstoragecapacityby2020
• LPGislargelyunaffordableasaprimaryfuelforbottom50-70%acrossurbanKenyaandpriceshavebeenunstable($1.25to1.75/kgovercourseof2017)2
• Highupfrontstove/cylindercosts(>$100for2-burner)2
Electricity
• Notwidelyavailable:residentialgridprovisionedforlightingonly;majorcapexinvestmentrequired• Electricitycoststoohighformass-marketelectriccooking(uptake~5%inNairobi,~2%inurbanKenya)1
• Efficientelectricstovesarepriceduncompetitively(>$200)forstovesthatbringcostsofelectriccookingwithinrealmofotherfuelalternatives2
Bio-ethanol
• DenaturedBio-ethanol*forcookingcurrentlyonlyavailablefromahandfulofprovidersthatareallcurrentlyatnascentorpilotscale(i.e.,KOKONetworks,Leocome,SafiInternational),butabouttoscalequickly–e.g.,1000KOKOPointsgoingliveacrossNairobiinlate20183
• CookingwithlowestcostBio-ethanolonKenyamarketisslightlymoreexpensivethankerosene,onparwithLPG,andbelowcostof4kgtincharcoal--wouldbelowestcostoptioniftaxandtariffregimewasequaltootherfuels4
• Bio-ethanolstovesarefairlylowcost($45for2-burner)comparedtocleanalternativeslikeLPG4
14
ModerncookingfuelsareavailableinKenya,buttheyhavenotovercomeconsumerawareness,affordabilityandaccessibilityadoptionbarriersSectionII:Ken
yancook
ingfuelm
arketo
ptionsand
snap
shot
LPG Bio-ethanol
Appliances Mixof1-burner‘meko’and2-burnerstovekit(includinghose,pressureregulator,cylinder)
Mixof1-burnerand2-burnerBio-ethanolstovesfromKOKO,SAFI,CleanCook
Fuel • Imported• Availableincylindersof3kg,6kg,13kg
• Importedanddomesticallyproduced• Availablein1&5Lpre-packagedbottles(oraslittleas350mLinrefillable2.3Lcanister–KOKONetworks)
Players • Total(TotalGaz)• Hashi• KenolKobil(KGas)• KenyanPipelinecompany(infrastructure)• Pay-as-you-goLPGpilots–(e.g.,PayGoEnergy,
EnvirofitSmartGas,KopaGas)
• KOKONetworks• Leocome• SafiInternational• ProsolLimited• IR&DAfricaLimited
Keybarrierstoscale
• Highupfrontstoveandcylindercosts• Highongoingfuelcosts(especiallygivenLPG
notwidelyavailableinsmallerquantities)• Safetyconcernsbysomecustomers• Highcapitalexpendituresrequiredforscaling
necessaryinfrastructure
• RelativelyhighongoingfuelcostsduetoVATandtariffsvs.otherfuelalternativesthatdonotfacesuchduties
• Verylowlevelsofconsumerandmarketawareness
Source:Deskresearch,previousNairobisurveyandfocusgroups.
LPGiswell-understood.LiquidBio-ethanolisacomplementary,emergingcookingfuelsolutionthatisdescribedandanalyzedinmoredepthinthefollowingsectionofthisreport
15
Source:(1)CalculationsbasedonFAO,“LogisticsofCharcoalProduction”,2010;(2)bottomupbuildofHHemissionsatpointoffuelconsumptionandincludingfuelproductionw/averageemissionsfactors-charcoalstoveusedisKCJ;(3)assumesaverage50ug/m324hremissionsof50forbothLPGandEthanolbasedonlabdata,fielddatarangesare15-71ug/m3forLPG,30-100+forethanol,butfieldnumbersnotapplestoapplesgivenambientpollutionvariation;(4)KokodatatriangulatedwithProjectGaiareportsforCleanCookinMadagascarandTanzania;independentreportsforHaiti;SafiJikoinKenya;evidenceseemstopointtocomparableLPGandEthanolstovecookingtimes
SectionIII:A
nalysiso
fBio-ethan
olfo
rcoo
kingpoten
tialinKe
nya
ImpactofswitchingtoBio-ethanol ImpactofswitchingtoLPGCategory
• ~0.25DALYssavedperHHperthreeyearinterventionperiodfromswitchingfromcharcoalandkerosene
• Reductionof~50deathsper25,000householdsfromreducedindoorairpollution3
• Safetyrisksofstorage,handlingandusearelowerforaliquidthanpressurizedgas
• ~0.25DALYssavedperHHperthreeyearinterventionperiodfromswitchingfromcharcoalandkerosene
• Reductionof~50deathsper25,000householdsfromreducedindoorairpollution3Health
• Upto30treessavedperHHannuallyfromswitchingfromcharcoal1
• Slowsdownrateofdeforestationand,consequently,itsimpactonfoodinsecurity
• 0.7-3.3tonnereductioninGHGemissionsperHHperyearfromswitchingfromkeroseneandcharcoalrespectively2
• Upto30treessavedperHHannuallyfromswitchingfromcharcoal1
• Slowsdownrateofdeforestationand,consequently,itsimpactonfoodinsecurity
• 0.5-3.1tonnereductioninGHGemissionsperHHperyearfromswitchingfromkeroseneandcharcoalrespectively2
Environmental
• Distributedinsmallervolumes,makingitmoreaccessibletolower-incomeusers
• ExistingdomesticBio-ethanolsectorcouldbeexpanded,creatingformal,taxablejobsandboostingsmallholderfarmingincome
• 20-40minssavedperHHperdayfromswitchingawayfromcharcoal4
• Higherupfrontcostsandrequirespurchasinginlargerbundlesizes
• 20-40minssavedperHHperdayfromswitchingawayfromcharcoal4Economic/
opportunitycosts
Bio-ethanoldeliversenvironmentalimpactscomparabletoLPGwhilerequiringconsumerstopaylowerupfrontcostsandallowingsmallerpurchasesizes
16
TheGovernmentofKenyahasintervenedtopromoteLPG;policyactionisnowneededtoleveltheplayingfieldforBio-ethanol
Source:Stakeholderinterviews;StockholmEnvironmentInstitutediscussionbriefontheKenyancharcoalsector;Variousnewspaperarticles;Dalberganalysis
Thegovernmentisusingatwo-
prongedstrategytopromotecleancookinginKenyan
households
Curbuseofdirtyfuelsandstoves
Promotecleancookingfuelsandstoves
Todate,Bio-ethanolforcookinghasnotbeenasmuchatargetofgovernmentinterventiondespitebeingahigh-impactcleanfueloption,mainlyduetolimitedprivate
sectoractivitySectionII:Ken
yancook
ingfuelm
arketo
ptionsand
snap
shot
• ‘Kerosene-FreeKenya’campaignaimstophaseouttheuseofkeroseneforlightingandcooking,andreplaceitwithcleanenergysources,includingplanstoincreasetaxesonkerosene.Thiswouldalsoreducetheillicituseofkerosenetodilutediesel
• Effortstoregulatethecharcoalindustrybyprovidingsupportforsustainableproductionandcommunityforestmanagementareminimizingimpactofcharcoaluse
• GoKhasintroducedfiscalincentivestoreducecostsofcleancooking
• VATzero-ratingforLPGhasreducedpricesandMwananchiGasProjectsubsidizescostofcylinders
• RemainingdutiesandVATonBio-ethanolstovesandfueladdscosttocustomers
Policysupport LPG Ethanol
FUEL Removeimportduty
VATzero-rating
APPLIANCE
Reduceimportduty
RemoveVAT
Subsidizeappliance
ü
ü
ü
ü
ü
ü
17
SECTIONIII:POTENTIALOFBIO-ETHANOLFORCOOKINGINKENYA
Note:statisticsrepeatedandsourcedonfollowingpages.MoredetailedimpactanalysiscontainedinAppendixB
SectionIII:P
oten
tialofB
io-ethan
olfo
rcoo
kinginKen
ya
Thehealth,environmental,andothersocialimpactsoftransitioningfrommoretraditionalfuels(e.g.,firewood,charcoal,andkerosene)arewelldocumented;whileLPGhasenjoyedmorevisibilityandpromotioninKenya,thepotentialbenefitsoftransitioningtoBio-ethanolarealsosignificantataHHlevel• SwitchingfromcharcoaltoeitherBio-ethanolorLPGcouldsaveupto30treesandreduce3-5tonnesofGHGemissionsperhousehold• Bio-ethanolandLPGhaveaveragePM2.5emissionsmuchlowerthanthoseoftraditionalfuels• TransitioningallkeroseneandcharcoalusersinNairobitoBio-ethanolcouldresultinupto2mntonnesGHGsand200,000DALYsaverted
annually• ThistransitionwouldalsocounteractdeforestationanditsnegativeeffectsonagriculturalyieldsandfoodinsecurityBio-ethanolcanalsodeliveradditionaleconomicbenefits• Aslocaldemandisunlockedandthenecessaryinvestmentsaremade,theexistinglocaltechnicalalcoholindustrycouldbeexpandedtoserve
thisdemand,creatingjobsacrossthevaluechain• Whilethesewilldisplacejobsinthecharcoalvaluechain,theywillgenerallybeofhigher-qualityandbetterpaying,andpotentiallytaxable,
providingthegovernmentwithadditionalresourcestoinvestotherjobcreationactivitiesfordisplacedpersons
Bio-ethanolisbecomingcost-competitiveandscalableasacookingsolution,giveninnovationsthatleveragelocalizeddistributiontechnologyandexistingdownstreaminfrastructure• Bio-ethanolV2.0modelhasshrunklogisticscostsbetweenthelandedcostandfinalpricetocustomer,withtaxesnowdriving~25%offinal
price• Bio-ethanolV2.0canbescaledwithsignificantlylowercapitalexpendituresthanrequiredforscalingLPGThepartnershipbetweenVivoEnergy,adownstreamfueltradingcompany,andKOKONetworks,ahardwareandsoftwaretechnologycompanyenablingthelast-miledistributionofBio-ethanolfuel,istheleadingexampleofV2.0inKenya• Leveragingexistingfuelinfrastructure,salespoints,andmobileandcloudtechnology,KOKO’smodeldeliversfuelcloserandmorecheaplyto
customers• VivoEnergyusesKOKOtechnologiestosafelyandefficientlyaddanewlineofliquidfueltoitsexistingdownstreaminfrastructure• Withthismodel,Bio-ethanolissoldtocustomersat$0.85/L
18
Alcohol-basedcookinghasadecades-longhistory,butonlyinnichemarkets
Source:Expertinterviews.
SectionIII:P
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WorldWarII:Soldiers&farmers
usedalcoholproducedonfarms
Late20thcentury:Usedforcamping,recreational
vehicles;distributedbyEuropeanandNorthAmericancompanies
Early21stcentury:Adaptedforusein
refugeecampsinEastAfrica;non-commercial
2013:FirstcommercialV1.0ventureforBio-ethanolcookingcaptured10%ofMaputoHHswithinayearofretaillaunch
Sugarfeedstocks(e.g.,sugarcane)
Starchfeedstocks(e.g,maize,grains)
Cellulosicfeedstocks(e.g.,wasteresidues)
Ediblesugar
Syrup
Bio-ethanolmadefrommolassesbyproductor
syrup
Denaturedtechnicalalcoholusedforcookingis
thecheapest
molasses
HistoryofBio-ethanol
Bio-ethanolproduction
2014-17:V1.0BioethanolcookingfuelcompanieslaunchedinmanyAfricancountries
2017:FirstV2.0ethanolcookingfuelsolutioncommerciallylaunchedinNairobi
19
Atransitionofallkerosene/charcoalusersinNairobitoBio-ethanolcouldresultin~2mntonnesGHGs,200KDALYs,and1,500deathsavertedp.a.
Note:(1)KyotoparticlesandblackcarbonCO2equivalents;Source:(2)Kenya’sIntendedNationallyDeterminedContribution,MinistryofEnvironmentandNaturalResources,2015.(3)HAPITmodel;(4)DalbergNairobiimpactmodel.SeeAppendixBformethodology.
SectionIII:P
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AfulltransitionofkeroseneandcharcoaluserstoBio-ethanolinNairobialonewouldhelptowardsachievingtheSustainableDevelopmentGoals
~200,000DALYsand1,500deathsaverted34overathreeyear
interventionperiod
Difficulttoquantifygivenpoordata,butmosttimesavingsfromcollection,cooking,andcleaning
willaccruetowomen
USD60mninannualconsumersavings4
Reductionof2mntonnesofCO2eqemissions1
Thisrepresents2-3%ofKenya’sannualGHGemissionsand10%ofKenya’s2030GHGreductiongoal2
20
RecentinnovationsenableBio-ethanoltoundercutdirtyfuelsandquicklyscale
Source:KOKONetworks
SectionIII:P
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“V2.0SmartFuelATM”approachleveragestechnologyanddownstreamfuelsinfrastructuretoremoveover50%ofsupplychaincostswithinthetraditional“V1.0CentralizedBottling”approach
V1.0CentralizedBottlingApproach
Urbanstorage Packaging Distribution Retail Userexperience
Paymentsandtracking
Cashandclipboards;stockon
consignment,leadingtostockouts
100%digitalpayments;automatedinventory
management
Safelydockreusable,valve-
controlledcanisterwithATM&stove
Nospillage,noplasticwaste
FuelATMsinsideshopswithlowfuels-
industrymarginsforshopkeepers
Smallretrofittedfueltankersforlast-mile,slashinglogisticscosts
Zerorecurringpackagingcosts
asfueldistributedinbulkform
Distributedstorageincustomisedtanksat
existingpetrolstations
Pourfrombottle;wipeupspillage;discard
bottle
Smallshops&highfast-moving
consumergoods(FMCG)
industrymargins
Low-capacitytrucks
transportingbottlesfromcentralfacilityandacross
longdistances
Expensive,thickplastic
disposablebottles
Large,centralized
bottlingfacility
V2.0SmartFuelATMNetworkApproach
21
V2.0approachenablesBio-ethanoltonowscalecompetitivelywithotherfuels
Source:(1)BusinessDailyAfrica,“MorepainforpoorascharcoalpriceitsSh2,500abag”,2018;(2)BusinessDaily,“GasPricesFallbyOverSh600in2015”;(3)TimetricLPGdata2018;(4)KOKONetworkspricingdata2018;(6)Basedon3,500MJperHHperyear–thisisatriangulatedfigurebasedon:WorldBankDevelopmentResearchGroup,“HouseholdCookingFuelChoiceandAdoptionofImprovedCookstovesinDevelopingCountries”,2014;UniversityofNairobiandPlankInstituteforChemistry,“BiofuelconsumptionratesandpatternsinKenya”,2002;O’SullivanandBarnes,“EnergyPoliciesandMultiptopicHouseholdSurveys,2007;DalbergNairobifuelhouseholdsurvey2018(7)StovepricesfromDalbergfieldresearch
SectionIII:P
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Charcoal Kerosene LPG Bio-ethanolV1.0 Bio-ethanolV2.0
Fuelretailprice
$0.30-$0.45/kg1
$0.75-$0.85/L2
$1.70-1.75/kgfor6kg,13kgcylinders,
>$3.00/kgforPAYGLPG3
$0.90-$1.10/LwithsmallvolumesofKenyanfuel>$1.48atlarge
scalewithimportedBio-ethanol4
$0.85/LsustainableatscalewithimportedBio-ethanol,including$0.21/LofVATand
importtariffs4
AnnualcookingcostforaverageNairobiHH6 $207-249 $224 $233
$234–297(withlocally-producedBio-ethanol)
$385(atscalew/importedBio-ethanol*)
$220-230
Stoveretailprice7
$7KCJ,$25-35Burn/
Envirofit
$6-$20
$40-50for1-burner,$100-120for2-burner(incl.hose,regulator,cylinderdeposit)
$50-$70for2burnerstove(SAFI,Dometic)
$45for2burnerand$30for1-burner
(KOKO)
“V1.0CentralizedBottling”approachhasdifficultycompetingatscale,oncelimitedvolumesofKenyanBio-ethanolareabsorbedandimportsarerequired“V2.0SmartFuelATM”approachdeliverscostsavingsthatareacriticalenablerofscale.
22
V2.0CaseStudy:VivoEnergyKenyausesKOKOtechnologiestosafelyadda4thlineofliquidfuelstoitsexistinginfrastructureandincreaseitsreach
Source:KOKONetworks
SectionIII:P
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VivosourcesandstoresbothdomesticBio-ethanolandforeignimports,usingKOKOtechnologiestoensurevisibilityoffuelflows§ Bio-ethanolisstoredindedicated
undergroundtanksaturbanpetrolstations
§ StationsinstallKOKO’sSmartDepotSystemtocontrolandmanagefuelflows
VivoMicroTankersequippedwithKOKO’sSmartTankerSystemperformlast-miledeliverytoKOKOpointFuelATMslocatedinneighbourhoodshops§ KOKOpointsarerefueledviaasecure
externalrefillingbox,locatedontheoutsideoftheshop
§ Avaporrecoverylineensuresnoescapeofvaporatanypoint–allvaporissafelytransferredbacktotheVivoservicestation
KOKOtechnologiescapturedataacrossthefuelsupplychainandfacilitatepayments
§ KOKO’sNetworkOperationsCentreensurescompletevisibilityandcontrolacrossthefuelsupplychain
§ KOKOpointsensorstransmittechnicalhealth,safety,inventoryandtransactioninformationinreal-time
§ KOKOSettlement&PaymentsSystemautomatesandde-riskspaymentflowsbetweenVivoandretailers
23
V2.0CaseStudy:Leveragingsalespoints,andmobile/cloudtech,KOKO’smodeldeliversfuelcloserandmorecheaplytocustomers
Source:KOKONetworks
SectionIII:P
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KOKOpointsaredeployeddenselyacrossthecity,insideneighbourhoodshopsandconveniencestores§ KOKOpointsarelocatedwithina
shortwalkoftargethouseholds.§ ShopkeepersbecomeKOKOAgents,
withKOKOpointinstalledinshopunderfranchiseagreement.
AtaKOKOpoint,customersorderstovesandusetheirreusable“smart-valve”canistertosafelypurchasefuel§ NewcustomerordersanBio-ethanol
stove(1-or2-burner)fromlocalKOKOpointorviamobile
§ Stoveandcanisterarereadyforcustomercollectionthenextday
§ Customerspre-payandtop-upKOKOaccountusingmobilemoney–entiresystemiscashless
§ Vapor-tight“smart-valve”systemensuresthatfuelcanonlybeobtainedfromaKOKOpointoraddedtoastovewiththecanister
KOKOpointsyncstocustomer’sKOKOaccountandallowspurchasesofaslittleas~350mL§ Chipinsidecanisterinstantly
recognisescustomerdetails,synchingwithcustomer’sKOKOaccount
§ KOKO’sdispenser-baseddistributionmodelallowscustomerstobuyfuelfromaslittleasKES30/bundle(~350ml)
§ Customerselectsfuelvolumetobuy;nopenaltyforbuyingsmalleramount
24
V2.0innovationsmeanthatBio-ethanolcanbedeliveredatscaletothecustomeratapriceupto~40%lessthantheV1.0approach
Source:KOKOnetworks,expertinterviews.
SupplychainmarginsforBio-ethanol(%oftotalcost)
SectionIII:P
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0.35 0.35
0.29
0.210.84
0.29
1.48
V1.0CentralizedBottling
V2.0SmartFuelATMs
0.85
-43%
LandedSupplyCostLogistics,Distribution,andRetailTaxes
Bio-ethanolV2.0costsaresignificantlylowerthanthoseofBio-ethanolV1.0
• Leveragingexistingdownstreaminfrastructurecancutdownbulkstorageandtransportcostsby~90%
• Technology-enableddistributioncanreducecombineddistributionandretailcostsby~45%
• Asidefromlandedsupplycost,taxesdrivetheretailpriceofBio-ethanolV2.0
25
Bio-ethanolV2.0canbescaledwithsignificantlylowercapitalexpenditurethanrequiredforscalingLPG
Note:Terminalincludes:LPG:terminalcapacityincrease,Bio-ethanol:fuelslinesfromshiptoport.Source:(1)KOKONetworksbusinessmodelassumptions,expertinterviews;(2)GLPGKenyaMarketAssessment,2013.
Incrementalinvestmentrequiredtoextendsupplyto2millionadditionalHHsinurbanKenya,(USDmillion)
SectionIII:P
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Terminal Bulkstorageandtransport
Trucks
Tankers
Depotsandfillingplants
Cylinders
Lastmiledistribution
Total
27
98
164 290
Retailpoints
Terminal Bulkstorageandtransport
Lastmiledistribution
Micro-tankers
Total
0.05 0.08
1616
LPG2
CapexrequirementforscalingLPGinKenyais18xthatofBio-ethanolV2.0model
Bio-ethanol1
26
SectionIV:Bio-ethanolpolicyanalysisBio-ethanolisascalablecleanfueloption–especiallyusinglatesttechnologies–buttaxationisaffectingcustomers’abilitytoaccessfuelatlowestpossiblecost• GiventhelimitedlocalproductionoftechnicalBio-ethanol,importswillbenecessarytomeetthepotentialdemandintheshort-tomedium-term
• Only1.8mLofviabletechnicalBio-ethanolareproducedKenyaversusapotentialdemandof~120mnLinNairobialone• TechnicalBio-ethanolfaces16%inVATand25%indutiescomparedto0%formostotherfuels,withtheexceptionofkerosene,whichfacesa9%exciseduty;thisinflatesthecostatwhichBio-ethanolcookingfuelcanbesoldtocustomers
• Infact,Kenyaranksbelowothersub-SaharanAfricancountriesintermsofBio-ethanol-friendlypolicy,withcombineddutiesandVATof41%forBio-ethanol,vs.anaverageof33%for21sub-SaharanAfricancountriesforwhichdatawasavailable
• Thesetaxesandtariffsnowdrive~25%ofBio-ethanolretailpriceInthelongrun,Bio-ethanolcouldbeproducedlocallyafterfirstprovingdemandusingimports• Scalingthelocalindustrywillrequireaphasedapproachaspotentialinvestors(i.e.,thoselikelytoprovidetheprojectfinancetobuildmorededicatedBio-ethanolplantsinKenya)willwanttoseeatrack-recordofdemand
• Oncethisdemandisunlockedwithareliablesupplyofimports,domesticproductionwillfollowtoserveit
TaxconcessionswouldaccelerateunlockingtheBio-ethanolcookingfuelopportunitybylevellingtheplayingfieldandmakingpricesmorecompetitive• LevellingtheplayingfieldbygrantingdenaturedtechnicalalcoholaVAT-zeroratingandeliminatingrelatedtariffswouldmakeBio-ethanolfuelthecheapestoption,providingKenyanswithanaffordablealternativetotraditionalfuelsanddeliveringuptoaUSD60mnsavingtocustomersannually
• PlanstoincreasetaxesonkeroseneandrecentspikesinlocalKenyancharcoalpricesduetolocalloggingbansreinforcetheneedforcheaperalternativesforthelowestincomeusers
Note:statisticsrepeatedandsourcedonfollowingpages.MoredetailedimpactanalysiscontainedinAppendixB
SectionIV:B
io-ethan
olpolicyan
alysis
27
GiventhelimitedlocalproductionoftechnicalBio-ethanol,importswillbenecessarytomeetthepotentialdemandintheshort-tomedium-term
(1)Accountsfor3-5%oftotalethanolproductionfromthetopthreeethanolplantsinKenya(2)AssumesfulltransitionawayfromcharcoalandkerosenetoBio-ethanolasaprimarycookingfuelforthetop50%householdsbyincomeSource:KOKONetworks;Dalberganalysis
Bio-ethanolvolumesinKenya(millionlitersperyear)
BuildingupthelocalindustryforindustrialBio-ethanolwouldrequirefirstunlockingdemand;taxconcessionscouldfacilitatethisbyallowingKenyancustomersto
purchaseBio-ethanolatpriceslowerthancharcoalandkerosene
114.8
53.2
116.6
Totalethanolproduction
High-gradeethanol
production
1.8
55
Supplygapforproducingcookingfuel
Addressablemarketforethanol
cookingfuel(Nairobi)
Technicalethanol
production
Currently,mostoftheBio-ethanolproducedlocallyishigh-gradeBio-ethanolusedbythebeverageindustry,andnotforcooking;at1.8million1litersoflocaltechnicalBio-ethanolproduction,only~1.5%ofjustNairobi’spotentialaddressablemarket2wouldbeserved
SectionIV:B
io-ethan
olpolicyan
alysis
28Note:(1)MostcharcoalconsumedinNairobiissuppliedthroughinformalmarketshencevirtuallynotariffortaxesarecollected(2)Basedon7.25KESexcisedutychargedonaliterofkerosene(3)KOKONetworksretailanalysisSource:PetroleumInstituteofEastAfrica;WorldIntegratedTradeSolution;PwC,OverviewofVATinAfrica
FUEL Effectiveduty EffectiveVAT
Charcoal N/A N/A1
LPG 0% 0%
Kerosene 9%2 0%
DenaturedtechnicalBio-ethanol 25% 16%
KenyandutyandVATratesforcookingfuels
Bio-ethanolisatamajordisadvantagecomparedtotherestofthefuelsector;duty+VATrepresents25%oftheretailpricetothecustomer3
DutyandVATfordenaturedtechnicalBio-ethanolimportsaremuchhigherthanthoseappliedtoothercookingfuels
SectionIV:B
io-ethan
olpolicyan
alysis
29
Infact,KenyaranksbelowotherSub-SaharanAfricancountriesintermsofBio-ethanol-friendlypolicy
Source:WTO,mostrecentdataasofApril,2018forproduct220720-ethylalcoholandotherspirits,denatured,anystrength;PwCOverviewofVATinAfrica
DutyandtaxburdenonimporteddenaturedBio-ethanolSubsetof21SSAnations,reflectingduties+taxes,%
SectionIV:B
io-ethan
olpolicyan
alysis
Ghana
Benin
SierraLeone
35
Nigeria
Zambia
Uganda
Burundi
DRC
BurkinaFasoCoteD’Ivoire
Algeria
Kenya
MaliSenegalAngola
MozambiqueCongo
10
Cameroon
20
Madagascar
43RwandaTanzania 43
2126
2828282828
30
3739394041
43
4349
ImporttariffVAT
30
GrantingBio-ethanolaVAT-zeroratingandeliminatingtariffswouldmakeitthecheapestcookingfueloptionforKenyans
(1) 3,500MJistriangulatedfigurebasedon:WorldBankDevelopmentResearchGroup,“HouseholdCookingFuelChoiceandAdoptionofImprovedCookstovesinDevelopingCountries”,2014;UniversityofNairobiandPlankInstituteforChemistry,“BiofuelconsumptionratesandpatternsinKenya”,2002;O’SullivanandBarnes,“EnergyPoliciesandMultiptopicHouseholdSurveys,2007;DalbergNairobifuelhouseholdsurvey2018
(2) Recentpricespikeincharcoalpricereach$0.5/kgandcontinuetorise;thisisduetoabanonillegalloggingintroducedbythegovernmentinadditiontotheexpectedupswingduringthewetseason
(3) AssumesV2.0modelandusingimportedBio-ethanolSource:Renetech2017;TERI2016;KenyainstituteforPublicPolicyResearchandAnalysis2010;KOKONetworksconsumerresearch;DalbergAnalysis
Averageannualfuelexpenditurebyfueltypetomeet3,500MJfuelconsumptionofatypicalNairobihousehold1
USD/year
$0.64/L3
Charcoal
226
LPGKerosene
224228
176
233
Ethanol
Bio-ethanolaftertaxreduction
Ethanolaftertaxandtariffreduction/elimination
MinimumStoveEfficiency
Recentcharcoalpricespike2MaxStoveEfficiency
AverageStoveEfficiencyAssuming:
$1.70/kg$0.82/L$0.79/L$0.40/kgPrice
March2018charcoalpricespikeofupto0.5/kgdroveuppricesevenataveragestoveefficiency
SectionIV:B
io-ethan
olpolicyan
alysis
31
ThisreductionintaxesandtariffscouldleadtosavingsofuptoUSD60mnperyearforconsumersinNairobi,iftheyswitchtoBio-ethanol
Assumptions:100%ofpoorest,middleandupperincomecharcoalandkeroseneusersswitchtoBio-ethanol;noLPGusersswitchtoBio-ethanolinlower,middleorwealthiest–theseestimatesarethereforetheupperlimittosavingsSource:(1)Householdsegmentationbasedonatriangulationof:KenyaPopulationandHousingCensus2009;KenyaNationalBureauofStatistics,“FinAccessHouseholdSurvey”and“KenyaIntegratedHouseholdBudgetSurvey,2016;KenyaDalbergNairobihouseholdsurvey2016;KOKOhouseholdsurvey2017
3mn
Poorest50% Middle30% Upper20% Total
60mn
40mn17mn
Aggregatehouseholdsavingsbyincomesegmentwith100%charcoalandkerosenehouseholdsswitchingtoBio-ethanol1USDperyear NewBio-ethanolprice:USD0.64/L
<$200/month $200–500/month >$500/month
PoorestincomeHHcouldsaveupto$60peryearbyswitchingcompletely
toBio-ethanol
MiddleincomeHHcouldsaveupto$50peryearbyswitchingcompletely
toBio-ethanol
SectionIV:B
io-ethan
olpolicyan
alysis
32
ProvingthestrengthofurbanmarketswillunlocktheconditionstogrowadomesticBio-ethanolindustryovermediumtolongtermtomeetdemand
Source:Expertinterviews
• Proofofdomesticmarketestablishedthroughloweringoftradebarriers
• FulldemandforBio-ethanolsatisfiedthroughimports(e.g.fromSudan,Mauritius,Pakistan)
• Governmentidentifyinglandfordomesticproduction
• Growthoflocalfarmersandprocessingplants
• GovernmenttoincentivizingprivatesectorinvestmentinsmallholderfarmsfornewBio-ethanolcrops,andencourageefficientuseofwastedmolasses
• Public/privatedevelopmentoflogisticsnetworksfordistribution
• EstablishedKenyanBio-ethanolproduction
• FarmersgrowingBio-ethanolcropsandnetworkoffactoriesprocessingcrops
• GovernmentcreatesregionalBio-ethanolexportstrategy,afterprovingdomesticsuccessandscalability
Activ
ities
FullimportsofBio-et
hanolModerate
domestic
production;stil
lheavy
relianceonimports
Fulldomesticp
roduction
withexcessex
ported
SectionIV:B
io-ethan
olpolicyan
alysis
TheKenyanbeveragealcoholmarketisagoodexampleofhowimportswereusedtoprovelatentdemand;oncethiswasclear,localmolassesproducersbuiltBio-ethanolplantsinordertoservethebeveragemarket.NowtherearethreeBio-ethanolproducersinKenya,producing
50mnlitersannuallyandexportingtoUgandaandTanzania
33
RisksoftenassociatedwithBio-ethanolareoverstated;infact,thecookingBio-ethanolindustrycandriveeconomicgrowthinKenya
Source:(1)LightingAfrica,“Kerosene-freeKenya”,2012;(2)Ndegwaetal,“PotentialforBiofuelFeedstockinKenya”,2011;(3)ExpertinterviewsandDalberganalysis
NegativeimpactofBio-ethanolproductiononfoodsecurityhasnotbeenobservedinothercases;inKenya,<1%ofarablelandwouldberequiredforBio-ethanolproduction2
Foodsecurity Charcoalproductiondepletesnon-renewableforests,leadingtolanddegradation;reducingcharcoalusecouldactuallyenhancefoodsecurity
Jobs Jobslostinthecharcoalindustryarelowquality,lowpaying,andhighlyseasonalandlikelytobelostanyway,givengovernment’sgoalstocurbcharcoalproduction
AdomesticBio-ethanolindustryserving500,000customerscouldcreate40-70Knewjobs,generatingUSD17-35mninincrementalincomes2
Tradebalance InitialnegativeimpactofimportedBio-ethanolwilldecreaseasdomesticproductiondevelops
Inthefuture,domesticallyproducedBio-ethanolcouldreplaceimportedkerosene,improvingthetradebalance;KenyacouldonedaybearegionalnetexporterofBio-ethanol
Taxrevenue Largestpotentialnegativetaximpact–revenueslostfromkeroseneimports–willhappenregardless,sincegovernmentadvocatingaKeroseneFreeKenya1
DomesticBio-ethanolproductionwillcreateformal,incometax-payingjobs
PotentialrisksassociatedwithBio-ethanolareoftenoverstatedandlargelyaddressable
Infact,Bio-ethanolusepresentsopportunitiestostrengthentheKenyaneconomy
SectionIV:B
io-ethan
olpolicyan
alysis
34
SectionV:Conclusions
SectionV:Con
clusions
1. Ultimately,thedesiredoutcomeunderlyingthisreportisthatKenyanconsumershaveaccesstosafeandcleancookingfueloptionsatthelowestpossiblecost
2. Today,thereareviablecleancookingfueloptionsthatcanservetheKenyanpopulationcurrentlypayingfortheirfuel–theseusersareconcentratedinurbanKenya
3. Bio-ethanolandLPGareindisputablycleanerandsaferoptionsthancharcoal,kerosene,andfirewood–betterforKenyansandbetterfortheenvironmentasawhole
4. UseofLPGhassuccessfullyexpandedanditremainsakeysolution;now,Bio-ethanoltooiswell-positionedtobeamass-marketsolutionforurbanKenya
5. TheGoKandotherstakeholdershavebeenproactiveinpromotingcleanfuels;thereremainopportunitiestofurthereliminatebarrierstodriveadoptionofcleanfuels
6. Bio-ethanoldeliversequivalenthealthandenvironmentalbenefitsasLPG,anditcannowbedistributedatpricesaffordabletolowerandmiddleincomeKenyans
7. InorderfortheBio-ethanolopportunitytobefullyrealized,thereneedstobealevelplayingfieldtocompetewithothercookingfuels;specifically,VATandimporttariffsneedtobeeliminatedtoreducetheendcosttoKenyanconsumers
35
ComparisonofprimarycookingfueloptionsinUrbanKenya
Note:PM2.5exposureandGHGemissionsfiguresdependoncombinationoffuelandstoveused;however,conclusionsheartakeintoconsiderationtherangeoflikelycombinations.Source:Expertinterviews
SectionV:Con
clusionsand
Recom
men
datio
ns
Impa
cts
Affo
rdab
ility
/ ac
cess
ibili
ty
Pote
ntia
l fo
r sca
le
Charcoal Kerosene Bio-ethanol
• HighestPM2.5exposureandGHGemissions
• Keydriverofdeforestationand,consequently,foodinsecurity
• HighPM2.5exposure• LowerGHGemissions
thancharcoal,butstillhigher
• Safetyconcerns(firesandburns)
• Negativeimpactontradebalancegivenimports
• LowPM2.5exposure• LowestGHGemissions• Domesticproductionand
jobcreationopportunity• Shorter-termnegative
impactontradebalancegivenimports(untildomesticindustrygrows)
• LowestPM2.5exposure• LowGHGemissions• Negativeimpactontrade
balance
• Cheapestperunitprice• Annualcostofcooking
variesbasedonstoveefficiency;historicallylowonaveragethoughnowathighpoint
• Relativelylowupfrontstovecost
• Widelyavailablethroughoutmass-marketneighborhoodsathyper-localdistributionpoints
• Lowestannualcostofcooking
• Lowupfrontstovecost
• Notwell-understood;lowconsumerawareness
• Comparableannualcostofcookingtocharcoal;pricesinflatedbydisproportionatetaxes
• Relativelyhighupfrontstovecostvs.baselinecharcoal(competitivevs.cleanfuelalternatives)
• Highconsumerawareness• Availabilityconstrained
outsideofNairobi,butaccesshighincapital
• Highestpriceandannualcostofcooking
• Highestupfrontstovecost
• Alreadyavailableatscale • Alreadyavailableatscale • Recentinnovationshavereducedcapitalrequiredtoscale
• Highestcapitalexpendituresrequiredforscale
LPG
36
RecommendedpolicychangesforscalingupcleancookinginurbanKenya
GrantdenaturedBio-ethanolfuelaVAT-zerorating
Removeimportdutiesand
additionaltaxesonBio-ethanolfuelandappliances
Establishandenforcesafetyandqualitystandardsthroughregulatory
bodies
1 2 3
Themostcost-efficientandimpactfulwayforGoKtoscaleupcleancookingistoleveltheplayingfieldforemergingBio-ethanolwithLPG,increasingavailabilityandaffordabilityofcleancookingsolutionstoconsumers.Thespecificpolicyrecommendationsbasedonthisstudyare:
SectionV:Con
clusionsand
Recom
men
datio
ns
37
APPENDIXA:CookingFuelOptionsintheKenyanMarketB:PotentialofBio-ethanolforCookinginKenyaC:Bio-ethanolPolicyAssessmentD:RisksandOpportunities
38
Appendix
A:CookingFuelOptionsintheKenyanMarket
B:PotentialofBio-ethanolforCookinginKenya
C:Bio-ethanolPolicyAssessment
D:RisksandOpportunities
39
Charcoal,kerosene,andLPGarethedominantcookingfuelsinurbanKenya,whilewoodfuelcookingstilldominatesruralKenya
Source:KenyaDemographicandHealthSurveys2003,2009,2014;2018datafromKenyaNationalBureauofStatistics;Dalberganalysis
66 63 56 55
14 1917 15
1512 14
12 13841
2003
3 37
2009 2014
2
2017
LPGOtherfuels
CharcoalKerosene
Firewood
9 17 1626 41 28 22
51 27 27 29
1122 25 28
3
20142003
54
62009
4
2017
85 83 84 84
10 11 10 91 1 2 31 3 3 2
2003 20142009
23 1 2
2017
Urban RuralTotal
Kenyanhouseholduseofprimarycookingfuel(%ofhouseholds)
• Firewoodisstillthedominantcookingfueloverall,thoughitsshareisdecliningoverallwithlowlevelsofuseinurbanareas.WooduseinurbanKenya(outsideNairobi)isstillrelativelyhighandmayhaveriseninrecentyearsduetohighcharcoal/keroseneprices
• IncreasingLPGadoptionwithhighlevelofuseinurbanareas.LPGsharehasincreased3-4xsincetheearly2000s.28%ofurbanHHusedLPGastheirprimaryfuelin2017,butruralLPGpenetrationremainslowduetocosts
• Lowuseof“other”fuels,includingBio-ethanolandelectricitywhichofferhealth,environmentalandsocio-economicoutcomescomparabletoLPG;likely0.5-1.5%shareinurbanKenyaforelectricityand<10,000HHforBio-ethanolfuels(excludingBio-ethanolgel)
A:CookingFuelOptionsintheKenyanMarket
40
FuelstackingisawidespreadphenomenoninKenya;useofcharcoalandkerosenearemuchmorecommonthanprimarycookingfueldataindicate
Source:DalbergproprietaryKenyaenergyaccesssurvey,N=300(2015);smallsamplesizeleadtolowerconfidencelevelfordata,butinsightsdirectionallycorrectinthecaseofstove/fuelstackingpatterns
AllKenya–anyuseoffuelvs.primarycookingfuel(%oftotalHH,N=300,Dalberg2015survey)
UrbanKenya–anyuseoffuelvs.primarycookingfuel(%oftotalHH,N=~100,Dalberg2015survey)
KeroseneFirewoodCharcoal LPG
78%
24%
41%32%
47%
10%
29%23%
AnycookingfueluseMaincookingfuel
55%
Charcoal KeroseneFirewood
65%
LPG
26%
69%
35%
10%8%15%
A:CookingFuelOptionsintheKenyanMarket
41
LPGandkerosenedominateasprimarycookingfuelsinNairobi
Source:(1)KenyaNationalBureauofStatisticsfuelsurvey(2018,using2017data);(2)MundietalMPDI/Toxics,APHRC(2016);(3)DalbergandKokoNetworksfieldresearch;(4)https://www.ncbi.nlm.nih.gov/pubmed/29051417andhttps://www.researchgate.net/publication/279375156_A_Choice_Experiment_Study_on_Fuel_Preference_of_Kibera_Slum_Households_in_Kenya
• KeroseneandLPGaretheprimarycookingfuelinNairobioverall,withlowprimaryusageofcharcoal;useishighlydependentonincomelevelwithtop25-30%ofincomedistributionusingLPGalmostexclusivelyandnext20-30%usingamixofLPGwithcharcoalandkerosene;therestonlyuseLPGatlowlevelsduetoaffordability3
• ThelowermiddleoftheNairobiincomedistribution(30-40%ofHH)primarilyusekeroseneandmixwithcharcoalforthebulkoftheirday-to-daycookingneeds3
• Keroseneisthedominantfuelforthepoorest(15-20%)householdsinNairobiwhousekerosenealmostexclusivelyorinparallelwithalowlevelofcharcoalasasecondarycookingfuel4
• MajorityofHHengageinfuelstackingandcharcoalisthemostcommonsecondaryfuelacrossallincomelevelsasidefromthemostwealthygivenubiquityacrossNairobiandaculturalpreferenceforcharcoalcookingfordishes(e.g.,meatgrilling)
Charcoal/keroseneareprimaryNairobicookingfuel(2018)1(%oftotalHH,N=11,415KenyaHHself-reportedprimaryfuel)
Charcoal+KeroseneareprimarycookingfuelsforNairobipoor(%ofHH,n=1000inKorogocho&ViwandanislumsinNairobi,2016)2
55%
16%
14%
29%47%
15%
22%
13%28%
44%
5%
3%AllKenya UrbanKenya
5% 1%3%Nairobi
Kerosene Charcoal
72%
LPG
18%
94%76%
26%12%
Usestove/fuelCommonlyusestove/fuel
CharcoalLPG
FirewoodKerosene
Other
A:CookingFuelOptionsintheKenyanMarket
42
Charcoalisparticularlyharmfulasitcontributesmoretohouseholdairpollution,GHGemissions,anddeforestationthanotherfuels
Source:DalbergimpactsizingmodelforruralKenya,2018;HouseholdAirPollutionInterventionTool,withcustomizedinputsforNairobibasedrespectiveswitchingtoLPGandethanolconsumption.
Wood Charcoal Kerosene
Health • DeathsandDALYsduetohouseholdairpollutionfromPM2.5
• Qualityoflifediminutionduetootherhardtoquantifyhealtheffects(eyeirritation,cataracts,childmalnutrition)
~2kavoidabledeaths,165kaDALYs
• DeathsandDALYsduetohouseholdairpollutionfromPM2.5
• Qualityoflifediminutionduetootherhardtoquantifyhealtheffects(eyeirritation,cataracts,childmalnutrition)
~3kavoidabledeaths,~250kaDALYs
• DeathsandDALYsduetohouseholdairpollutionfromPM2.5
• Incrementalunquantifiedkerosenehealthharms(e.g.,cancersfrompolycyclicaromatichydrocarbons)
• Poisoningsandburns,particularlyforwomenandkids(e.g.,40-60%ofpediatricpoisoningcasesinKenyaduetokerosene)~2-3kavoidabledeaths,~160kaDALYs
Environment&Climatecosts
• GHG(CO2,BlackCarbon,otherglobalwarmingKyotoParticles)
• Contributortodeforestationand,consequently,foodinsecurity
2.5-4.4tCO2eq/urbanHHannually
• VeryhighGHGemissionsperhousehold(CO2,BlackCarbon,otherglobalwarmingKyotoParticlesfromcharcoalproductionanduse)
• Substantialdriverofdeforestationand,consequently,foodinsecurity
• Negativeimpactsonfoodsecurityduetoforestloss
3.6-5tCO2eq/urbanHHannually
• RelativelylowGHGemissionsperHHbutstill2-3xhigherthanfortrulycleanfuelslikeLPGandBio-ethanol
1tCO2eq/urbanHHannually
Socialopportunitycosts
• Timeopportunitycost(timepoverty)duetofuelcollection,slowercookingtimes,needtocleanupcharredcookingpotsandpans
0.8-1.3avoidablehrsperdayperurbanHH
• Timeopportunitycost(timepoverty)duetoslowercookingtimes,needtocleanupcharredcookingpots/pans,
0.3-0.4avoidablehrsperdayperurbanHH
• Notimepovertyeffectsvs.alternatives• Propertydamagefromurbanfiresdueto
kerosenecooking
Notimepovertyimpact
Householdeconomicsandmacro-economiceffects
• Foregoneincomesduetoavoidabletimespentcooking/cleaning
• Taxrevenuelossforgovernmentgiveninformalityofmarket
• Foregoneincomesduetoavoidabletimespentcookingandcleaning
• Avoidablespendingonrelativeinefficientandhigh-costcookingfuel
• Taxrevenuelossforgovernmentgiveninformalityofmarket
• Negativebalanceofpaymentseffectsduetokeroseneimports
A:CookingFuelOptionsintheKenyanMarket
43
Appendix
A:CookingFuelOptionsintheKenyanMarket
B:PotentialofBio-ethanolforCookinginKenya
C:Bio-ethanolPolicyAssessment
D:RisksandOpportunities
44
ThusfarlittleattentionhasbeenpaidtoBio-ethanolasacleanandeasy-to-usecookingfuelfortheKenyanpopulation
Source:KOKOcustomersurvey2017;Dalberganalysis
• Lowcosts:LowerupfrontcoststhanLPG,andsimilarongoingfuelcosttoLPGandkerosene,despiteVATandimporttariffsbeingleviedonBio-ethanolonly
• Affordablebundles:Bio-ethanolcanbesoldinsmall“refillbundles”,criticaltoservinglower-income“kidogoeconomy”segments
• Clean:Bio-ethanolburnscleanlywithlowparticulateemissions,likeLPG
• Sustainable:Unlikefirewoodandcharcoal,Bio-ethanolcanbeproducedsustainablyinKenya
Bio-ethanolisaviableandscalablealternativecookingfuel
B:PotentialofBio-ethanolforCookinginKenya
45
V2.0CaseStudy:Leveragingsalespoints,andmobile/cloudtech,KOKO’smodeldeliversfuelcloserandmorecheaplytocustomers
Source:KOKONetworks
§ Customersmakeupfrontpurchaseof1-or2-burnerBio-ethanolstove,alongwithreusable‘SmartCanister’.
§ KOKO'sproductofferingprovidesconsumerswithanaffordably-pricedmoderncleancookingsolution.
§ Stovescanbepurchasedwithfullamountpaidupfront,orvialayaway/savingsprogrammewherebysmallerdepositsmadeovertime(nodifferencetoprice).
§ Vapor-tight“smart-valve”systemensuresthatthecanisteristheonlywaytoobtainfuelfromaKOKOpoint,ortoaddfueltostove.
§ Dockingandvalvesystemensuresthatatnopointisthecustomerexposedtothefuelitself.
§ Optionalcustomersmartphoneappallowscustomerstomanageaccounts,shareKOKOcreditandearnmoneybysigningupfriendsandfamilymembers.
§ Referralprogrammeincentivisedthroughfuelcreditandsubsequentlythroughdirectmobilemoneypaymentsforbestcustomerpromoters.
B:PotentialofBio-ethanolforCookinginKenya
46
Impactmodellingmethodology
AnalysisconductedforNairobi
*Wehaveusedlabdatahere(despiteitsshortcomings)duetoabsenceofreliablereal-worlddatathatcontrolsforimpactofambientpollution**ThisretailpriceassumeszeroVATratingandnoimporttariffs
Changeinconsumptionofdifferentfuels
whenmovingfrombaselinetofuel
transitionscenario
Forenvironment:differenceinemissionsswitchingfromcharcoalorkerosenetoBio-
ethanol
Forhealth:HAPITmodelcalculationsofDALYsanddeathsavertedbasedon
PM2.5labdata
Forconsumersavings:differenceinspending
assumingthosewhoswitchpurchaseBio-ethanolat
$0.64/L**
Highlevelassumptionsoffuelusemixacrosslow,middle,andhighincome(basedonobservedstacking
behaviourinsurveys)
Perhouseholdassumptionsforper
HHannualfuelconsumption(basedonlabnetcalorific
value,stoveefficiency,and3,500MJperHHannualconsumption)
AnnualGHGemissionsreduced
DALYsanddeathsavertedoverathreeyearperiod
AnnualUSDsavings
B:PotentialofBio-ethanolforCookinginKenya
47
Fuelconsumptionandexpenditureatthehouseholdlevel:calculationandkeyassumptions
Source:LPG:JeulandFuelandStoveSurvey2012(50-60%),Jeuland2016(53%average),GLPGA(55%);KeroseneJeuland2012(25%-40%);Charcoal:GACCKenyacookstovesmarketassessment(12%and20%);BURN(40%);Bio-ethanol:ProjectGAIA2016;all:GACCCookstoveDatabase;Forpricing:KOKONetworksconsumersurveysNov2016toMarch2018,DalbergconsumersurveyFeb2018,expertinterviews
Fuel Netcalorificvalue(MJ/kg)*
Rangeofstoveefficienciesfromliterature
Stoveefficiencyusedforanalysis
Averageannualhouseholdfuelconsumption(assuming3,500MJ/HHannualconsumption)
Pricetoconsumer(USD)
Averageannualcostofcooking(USD)(assuming3,500MJ/HHannualconsumption)
LPG 46.6 50% 60% 55% 137kg 1.70/kg 233
Kerosene 43.1 25% 40% 35% 284L 0.79/L 224
Charcoal 28.2 12% 43% 21.9% 569kg 0.40/kg 228
Bio-ethanol 27.0 58% 62% 60% 275L 0.82/L 226
Annualcostofcooking=AnnualHHfuelconsumptionxunitpricetoconsumer
AnnualHHfuelconsumption=3500MJ/(netcalorificvaluexstoveefficiency)
B:PotentialofBio-ethanolforCookinginKenya
48
Baseline:high-levelfueluseassumptions
Intheabsenceofdetaileddataonprimaryandsecondaryfueluse,wehaveusedhigh-levelestimatesbasedonobservedstackingbehaviorandsimplifiedbyremovingnot
consideringfuelswithnegligibleuse
Note:theseareDalbergestimatesbasedonareviewofvarioussmallersurveys.Moregranularandvalidatedviewsofthisdataarenotpubliclyavailable
Lowincome Middleincome Highincome
Definition <$200/month
$200-500/month $500/month
ShareofHH 50% 20% 30%
#ofHH 687,500 412,500 275,000
LPGuse(%) 0% 20% 60%
Keroseneuse(%) 40% 50% 20%
Charcoal(%) 60% 30% 20%
Bio-ethanol(%) 0% 0% 0%
B:PotentialofBio-ethanolforCookinginKenya
49
Environmentimpact:fuel/stoveemissionsdataassumptions
Note:Charcoal(BasicICS)usedforcharcoalmodellingpurposes.AllKenyadatapointsSource:GACCCookstoveDatabase2017
5,1
3,6
1,9
1,00,5 0,3
LPGstoveKerosenewickstove
Charcoal(BasicICS)
Traditionalcharcoalstove
Charcoal(Intermediate
ICS)
Ethanolstove
TotalCO2eqemissions(Kyotoparticles+BCCO2eq)annuallyforfuel/stovecombinationsinurbanareastonnes/year
B:PotentialofBio-ethanolforCookinginKenya
50
Healthimpact:PM2.5emissionsassumptions
Note:Figuresareaveragesbasedonwiderliteratureandresearchsince,asofMarch2018,nopersonalexposuretestingforallfuelshasoccurredinNairobiSource:LPG:WHOIndoorAirQualityGuidelines;IPCBEEIndiaVolume10;Elsevier“Women’sPersonalandIndoorExposurestoPM2.5inMysore”.Kerosene:“WHOIndoorAirQualityGuidelines:HouseholdFuelCombustion”,2014;Charcoal:WHOIndoorAirQualityGuidelines;CleanCookstoves2015;BerkeleyAirMonitoring2015;GACC2015;ProjectGAIA2010;Firewood:CleanCookstovesTesting2015;Dalbergresearch
160 10050 47
500
LPGFirewood Charcoal Kerosene Ethanol
PM2.5EmissionsbyFuelAveragemicrograms/cubicmetre
B:PotentialofBio-ethanolforCookinginKenya
51
Healthimpact:HAPITcalculations
Note:inreality,personalexposurelevelsofPM2.5varywithe.g.ambientpollutionlevels,ventilationofcookingareainandconditionofstove.IngeneralstudiesfindLPGandBio-ethanoltobehighlycomparableintermsofbeneficialhealtheffectsSource:HAPITmodel–Inputstakethepre-interventionexposuretobebasedonaveragePM2.5databyfuel,andtakethecoutnerfactualexposuretobe10,inlinewiththeHAPITmodel'sdefaultassumptions.AnimportantcaveatforthisdataisthatpersonalexposuretestinginNairobiisminimal,particularlyforBio-ethanol;Data:LPG:WHOIndoorAirQualityGuidelines;IPCBEEIndiaVolume10;Elsevier“Women’sPersonalandIndoorExposurestoPM2.5inMysore”.Kerosene:“WHOIndoorAirQualityGuidelines:HouseholdFuelCombustion”,2014;Charcoal:WHOIndoorAirQualityGuidelines;CleanCookstoves2015;BerkeleyAirMonitoring2015;GACC2015;ProjectGAIA2010;Firewood:CleanCookstovesTesting2015
Impactofcharcoalusersswitching ToLPG ToBio-ethanolDALYsper25,000 6181 6050DALYsperHH 0.25 0.24Deathsavertedper25000 58 52
Impactofkeroseneusersswitchingto: ToLPG ToBio-ethanolDALYsper25,000 2651 2432DALYsperHH 0.11 0.10Deathsavertedper25000 15 12
B:PotentialofBio-ethanolforCookinginKenya
52
Appendix
A:CookingFuelOptionsintheKenyanMarket
B:PotentialofBio-ethanolforCookinginKenya
C:Bio-ethanolPolicyAssessment
D:RisksandOpportunities
53
Withouttaxes/tariffsthe10-yearaveragepriceofBio-ethanolislowerthanthoseofLPGandkerosene,and20%cheaperthancharcoal’stoday
*$198overpastyearassuming$0.40/kgaveragefortinof4kg;inrecentmonthpriceshavespikedupto0.46-.5/kg,0.46/kgyields$226cookingbudgetSource:Renetech2017;TERI2016;KenyainstituteforPublicPolicyResearchandAnalysis2010;KOKONetworksconsumerresearch2017;DalbergAnalysis
Averageannualfuelexpenditurebyfueltypetomeet3,500MJfuelconsumptionofatypicalNairobihousehold1
USD/year
228 224 233 224
176177
231
278 272
203
Ethanolaftertaxandtariffreduction
Charcoal* Kerosene LPG
10yearBio-ethanolavg.onparw/currentcharcoal,lowerthanotherfuels
Ethanol
Bio-ethanolw/otaxandtariffislowest-costoptiontoday
Pastyear10yraverage
310
March2018charcoalpricespike • Bio-ethanolisaglobalcommodity
withpricesthatfluctuateovertimeandinthepasthavebeenupto50%higherthantoday
• However,evenoverlongterm,tax/dutyfreeBio-ethanolwouldhavebeenalowercostfuelvs.LPGandkerosene
• Withtaxesandtariffsremoved,evenifglobalBio-ethanolpricesrevertedtohistoricalmean,Bio-ethanolwouldbecheaperthantoday’scharcoal
• Whilecharcoalhasbeencheaperinthepast,itspricescontinuetotrendupwardsinKenya
C:Bio-ethanolPolicyAssessment
54
RecentspikesinlocalKenyancharcoalpriceshavereinforcedtheneedforcheaperalternativesforthelowestincomeusers
Source:Charcoal(4Kg)pricesfrom2005to2013Q1obtainedfromTimetric,dataasofApr.2013;Dalberganalysis
200820062000
0.5
2002
0.3
0.2
2010
0.7
2004 20142012 2016 20180.0
0.1
0.4
0.6
0.8
Averageannualcharcoalprices2000-2018
2017USD/kg
• Thepriceofcharcoalhasbeentrendingupwardssincemid2005
• Recentincreaseshavebeenevenmoredramaticasaresultoflocalgovernmentcommitmentstocurbillegallogging
• Giventhelowest-incomeKenyans’disproportionatedependenceoncharcoal,theywillbetheonestosufferthemost
Whiletheseconditionsmaybetemporary,thesituationreinforcestheneedforacheaper,cleanerandreliablealternativetocharcoal
C:Bio-ethanolPolicyAssessment
55
Appendix
A:CookingFuelOptionsintheKenyanMarket
B:PotentialofBio-ethanolforCookinginKenya
C:Bio-ethanolPolicyAssessment
D:RisksandOpportunities
56
ThepotentialrisksofcookingBio-ethanoltransitionflaggedbygovernmentstakeholdersinourconsultationsareover-estimatedandlargelyaddressable
Taxrevenue
• ArgumentaroundimpactofBio-ethanolproductiononfoodsecurityisweakandhasnotbeenobservedinothercases
• Kenyahasabundantlandsuitableforsugarcaneproduction,ofwhichonlyasmallpercentage(~1%)wouldbeneededforBio-ethanolproduction3
• Thelandrequirementisevenlowerwhenproductionprocessesaremademoreefficient
Tradebalance
Jobs
Foodsecurity
• Short-termnegativeimpactoncharcoalindustryascharcoaluserssubstituteBio-ethanol• However,thesejobsarelowquality,lowpaying,andhighlyseasonal2• Furthermore,thegovernmentisalreadycurbingproductionofandencouraginguserstoswitchfromcharcoal,sohasalreadyacceptedtherisktothesejobs
• Potentialnegativeimpactof~USD60mnannuallyifallofNairobi’scookingBio-ethanolimported
• Asdomesticproductiondevelops,thiswilldecrease
• LargestpotentialimpactistaxrevenuesfromkeroseneusedforcookingasusersshifttoBio-ethanol;however,thegovernmentisalreadyencouraginguserstoswitchfromkerosene
• TaxrevenuescollectedfromBio-ethanolusedforcookingarenegligibleandcharcoalisuntaxedandoftenproducedinformally1
1
2
3
4
Source:(1)KenyaForestryService,“CharcoalValueChainAnalysis”,2016;(2)ExpertinterviewsandDalberganalysis;(3)Ndegwaetal,“PotentialforBiofuelFeedstockinKenya”,2011;
D:RisksandOpportunities
57
Infact,formostpotentialrisksraised,therearepotentialopportunitiesforstrengtheningtheeconomy
Taxrevenue
• Reducingcharcoalusecouldenhancefoodsecurity• ~90%ofcharcoalforcookingisharvestedfromnon-renewableforests,drivingfoodinsecuritythroughnegativeimpactsonwatercyclesandlanddegradation
Tradebalance
Jobs
Foodsecurity
• DomesticBio-ethanolindustrywilldeliverbetter-paying,formaljobsalongtheBio-ethanolvaluechain,fromfarmerstodistributors
• Dependingonbusinessmodelsadopted,anindustryserving500,000customerscouldcreate40-70Knewjobs,generatingUSD17-35mninincrementalincomes
• Inthefuture,domesticallyproducedBio-ethanolcouldreplaceimportedkerosene,improvingthetradebalance
• Withenoughinvestmentintodomesticproduction,KenyacouldonedaybearegionalnetexporterofBio-ethanol(vs.importsfromSudan,Mauritius,andPakistan)
• DomesticBio-ethanolproductionhasthepotentialtoincreasestaxrevenuesinthelong-runasformal,incometax-payingjobsarecreatedinthedomesticBio-ethanolindustry
1
2
3
4
Source:Ndegwaetal,“PotentialforBiofuelFeedstockinKenya”,2011;PrajIndustries;Dalberganalysis
D:RisksandOpportunities
58
ThegovernmentstandstoloseuptoUSD4.5mnperyearfromforegonekerosenetaxrevenues–butthisisconsistentwiththekerosenecampaign
Source:WorldBankgovernmentdata2015;Kenyantaxandtariffschedule2017;Dalberganalysis
EstimatedyearlytaxrevenuefromfuelimportsMnUSD/year
Mainpotentiallossoftaxrevenuesisfromkeroseneimports;however,thegovernmentisalreadyworkingtocurbtheusekerosene
• Replacingallofthekeroseneestimatedtobeusedforcookingcouldresultinalossofupto$4.5mnperyear
• Lossofkerosenerevenuesisanexpectedoutcomeofthegovernment’sKeroseneFreeKenyacampaigninanycaseandwouldonlyrepresent<0.1%oftaxrevenues
• TaxrevenuescollectedfromBio-ethanolusedforcookingarenegligibleandcharcoalisuntaxedandoftenproducedinformally
4.5
4.5~0.0 ~0.0
CharcoaltaxrevenueEthanoltaxrevenueCookingkeroseneinNairobi
1
EstimatedimportedvolumesforNairobi:~60mnlitresofkeroseneperannum
Taxrevenue
D:RisksandOpportunities
59
Lossofkerosenerevenuesareminimal;whilstinitialbalanceoftradeeffectsofimportedBio-ethanolwillbenegative,adomesticindustrywilllessenthis
(1)Charcoalisnottaxedasislargelyinformal,andthereforenotincludedhereSource:WorldBankgovernmentdata2015;Kenyantaxandtariffschedule2017;Dalberganalysis
LPG
AllNairobiHHstransitiontoimportedLPG
AllNairobiHHstransitiontotax/tarifffreeethanol
Currentbalanceoftrade1
Kerosene-80mn
-30mn-50mn
-320mn
-240mn
EstimatedimportedvolumesforNairobi:125mnlitresofkeroseneand32,000tonnesofLPG/year
BalanceoftradefromNairobicookingfuelsMnUSD/year
2
Whileanegativeimpactonthetradebalanceislikelyintheshort-term,afulltransitiontoBio-ethanolwithouttaxesandtariffswouldhaveasmallerimpactonthetradedeficitthanonetoLPG• Basedonourmodeling,thecurrenttradebalanceforimportingkeroseneandLPGforcookinginNairobiwouldbe(-)~USD180mn/year
• AfulltransitionofNairobihouseholdstoLPGcouldexacerbatethisby~$180mn,whileafulltransitiontoBio-ethanolcouldexacerbatethisby~$240mn
• UnlikewithkeroseneorLPG,thereisacredibleopportunityfordevelopingadomesticBio-ethanolindustry
• Thiswouldimprovethetradebalanceinthelong-runandcouldeventransformKenyaintoanetexporterofBio-ethanol
Tradebalance
D:RisksandOpportunities
60
AnBio-ethanoltransitionwillsupport>70,000jobsandboostincomesacrossvaluechain,particularlyoncedemandfordomesticBio-ethanolisunlocked
39,0 40,0
31,0 33,1
0,2 0,6
Bulkstorageandtransport
0.8
Feedstockproduction
0.5
Lastmiledistribution
SalesEthanolproduction
1.0 0.3
Total
70.0 1.4 73.10.3
PotentialjobscreatedthroughdomesticBio-ethanolproduction000snumberofjobs
Whenmarketreaches500kBio-ethanolcookingcustomers,using54mnlitresoflocallyproducedBio-ethanolperyear,40-70Kjobswouldsupportcookingethanolvaluechain:
• LowerrangeofjobcreationexplainedbypotentialefficienciesinBio-ethanolproductionthatcoulddeliveranadditional30mnlitres1
• Jobswillbedisplacedincharcoalvaluechain,particularlyforcharcoalproducers,butthissamedisplacementwillresultfromthegovernment’sencouragementofatransitiontoLPG
• Furthermore,charcoaljobsarelowquality/incomeandeconomicallyandenvironmentallyunsustainableinthelong-term
Improvedprocesses1
NoimprovedprocessesIdenticalcapacityneeds
PotentialforadomesticindustrythatcreatesjobsisuniqueforBio-ethanolamongalternativefuels
Note:Lastmiledistributionandsalesareunaffectedbyimprovedupstreamproductionprocessesandthereforesameimpactonjobsexpected1MismanagementofBio-ethanolproductionprocessmeansfactoriesrunbelowcapacity;manyprocessingplantsrunatjust25%capacity.Improvedprocessescouldaddupto30mnlitresofdenaturedtechnicalBio-ethanolperyearusingexistingcapacityandinfrastructureSource:PrajIndustries;KOKONetworks;FoodandAgricultureData2017SugarcaneYieldbyCountry;Dalberganalysis
3
Jobs
D:RisksandOpportunities
61
Thiscouldresultinanadditional$35mnofadditionalincome,particularlyforsmallholderfarmersproducingsugarcane
Note:Lastmiledistributionandsalesareunaffectedbyimprovedupstreamproductionprocessesandthereforesameimpactonincomesexpected1MismanagementofBio-ethanolproductionprocessmeansfactoriesrunbelowcapacity;manyprocessingplantsrunatjust25%capacity.Improvedprocessescouldaddupto30mnlitresofdenaturedtechnicalBio-ethanolperyearusingexistingcapacityandinfrastructureSource:PrajIndustries;KOKONetworks;FoodandAgricultureData2017SugarcaneYieldbyCountry;Dalberganalysis
Whenmarketreaches500kBio-ethanolcookingcustomers,using54mnlitresoflocallyproducedBio-ethanolperyear,USD17-35mninincomesandprofitscouldbegenerated
• Thisestimationusesaconservativemedianpriceforsugarcane,asfeedstockincomeswillvarywithcommodityprices
• InthecaseoftheKOKOlastmiledistributionmodel,anadditionalUSD1,000–1,500taxableincomecouldbegeneratedperdistributionpoint,translatingintoatotalofUSD2mn–3mnperyear(assuming2,000distributionpoints)
0.9
Bulkstorageandtransport
17.5
Feedstockproduction
Ethanolproduction
Lastmiledistribution
13.0
3.4
Sales
0.8
Total
24.2
5.734.9
3.2
11.2
1.22.2
2.5
17.4
IdenticalcapacityneedsNoprocessesimprovedProcessesimproved1
PotentialincrementalincomesgeneratedthroughdomesticBio-ethanolproductionUSDmillions
3
Jobs
D:RisksandOpportunities
62
Foodsecurity:Upto30mmlitresofBio-ethanolcouldbeproducedthroughmoreefficientprocesses,whilstKenyahassurpluslandtomeetrequirements
Note:MismanagementofBio-ethanolproductionprocessmeansfactoriesrunbelowcapacity;manyprocessingplantsrunatjust25%capacity.Improvedprocessescouldaddupto30mnlitersofdenaturedtechnicalBio-ethanolperyearusingexistingcapacityandinfrastructureSource:(1)Ndegwaetal,“PotentialforBiofuelFeedstockinKenya”,2011;(2)ExpertinterviewsincludingPrajIndustries
15
12,000
6
Projectedhectaresassumingprocessesimproved2
Projectedhectares
assumingnoimprovementinprocess
Totalsuitablelandforsugarcane
AdditionalhectaresofsugarcanerequiredtomeetpotentialBio-ethanoldemand000shectares
1%oftotalsuitableland
0.5%oftotalsuitableland
DomesticproductionofBio-ethanolcouldevenimprovefoodsecuritybyreducingcharcoal-relateddeforestationandclimatechange,whichreducesagriculturalpotential
4
Atmost,~1%oflandsuitableforplantingsugarcanewouldbeneededtomeettheestimatedBio-ethanoldemandofNairobi1• Additionallandneededwouldnotencroachonlandforfoodorlivestock,asKenyahasabundantviablelandcurrentlynotinuse
• SugarcaneinKenyaisnotusedforfood,andthereforewouldnotredirectgrainsthatcouldbeusedforfood
Foodsecurity
D:RisksandOpportunities
63
Jobsimpactassumptions
Note:Basedonexpertinterviews,mismanagementofBio-ethanolproductionprocessmeansfactoriesrunbelowcapacity;manyprocessingplantsrunatjust25%capacity.Improvedprocessescouldaddupto30mnlitersofdenaturedtechnicalBio-ethanolperyearusingexistingcapacityandinfrastructureSource:(1)FAO,“Economiclivesofsmallholderfarmers”,2015;Humanosphere,“SouringSugarIndustryinKenya”,2017;(3)Calculationbasedonexpertinterviewsandsources(1)and(2)withlandtoproduce1Lofethanol;(4)KOKONetworksprocessingdata;expertinterviewsinclude:PrajIndustries,LakeOil
Item
FullProduction
needsImprovedProcesses
FeedstockproductionAveragesizeofSHF(Ha)1 0.47 0.47Tonnesofsugarcane/hectareofland(T/Ha) 65 65LofBio-ethanol/tonneofsugarcane(L/T)2 75 75LofBio-ethanol/hectareofland(L/Ha) 4875 4875Totalhectaresoflandneeded(Ha)3 11077 4923Average#ofadultsperfarm 3 3AverageSHFrevenue/tonneofsugarcane(USD/tonne) 35 35Averageannualyieldofsugarcane(Tonnes/hectare) 65 65
Bio-ethanolproductionAnnualcapacityoflargeprocessingplants(L) 12,000,000 12,000,000#ofstaff/plant 100 100Monthlyincomeforstaffinplants(USD) 400 400
Item
Fullproduction
needsImprovedprocesses
Bulkstorageandlogistics4
Sizeofstoragefacilities(L) 20,000 20,000Numberofstaffperstoragefacility 0.5 0.5Monthlyincomeforstaffinstoragefacilities(USD) 350 350
Lastmiledistribution4Capacityoftransporttankers(L)4 2000 2000#oftankers 65 65#ofpetrolstations 60 60#ofstaffperpetrolstation 2 2#ofstaffpertanker 2 2Monthlyincomefortransportstaff(USD) 250 250
Sales#ofKOKOpoints 2000 2000#ofagents/KOKOpoint 0.5 0.5IncomeperKP(USD) 150 150
D:RisksandOpportunities
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