scaling up clean cooking in urban kenya with lpg & bio-ethanol

ScalingupcleancookinginurbanKenyawithLPG&Bio-ethanol

AmarketandpolicyanalysisJune2018

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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.

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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.

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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

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TableofContents

SectionI:Introduction

SectionII:KenyanCookingFuelMarketOptionsandSnapshot

SectionIII:PotentialofBio-ethanolforCookinginKenya

SectionIV:Bio-ethanolPolicyAnalysis

SectionV:ConclusionsandRecommendations

Appendices

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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

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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

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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

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(1)Dalbergestimatebasedonbottomupbuild-upofKenyacookingemissionsbasedonfuelmix,averagefuelvolumes,andstandardemissionfactorsincludingCH4andNO2,butexcludingBC.NotethatWRICAITtotalCO2emissionsforKenya(2013)areestimatedat60.53MTCO2eqtotal,whichwebelieveisanunderestimateasthenumberonlyincludes<8MTCO2eqofcookingrelatedemissions.OurrevisedmodelsuggeststhattheKenyatotalemissionsareactuallyinthe75-88MTCO2eqrangebasedonthemostuptodatecookingfuelmixandupcookingfuelcombustionandcharcoalproductionemissionfactorsthatarealignedwithCDMdefaultsforKenyaSource:Statisticsrepeatedandsourcedonfollowingpages

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DespiteincreasedLPGuse,mosthouseholdsstillusemultiplefuelsanddirtyfuels–charcoal,kerosene,andwood–stilldominateurbanKenya

Source:(1)KenyaIntegratedHouseholdBudgetSurvey(2018),NationalBureauofStatistics;(2)DalbergproprietaryKenyaenergyaccesssurvey,N=300(2015)

SectionII:Ken

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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

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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

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Charcoalisparticularlyharmfulasitcontributesmoretohouseholdairpollution,GHGemissions,anddeforestationthanotherfuels

Source:DalbergimpactsizingmodelforruralKenya,2018;HouseholdAirPollutionInterventionTool,withcustomizedinputsforNairobibasedrespectiveswitchingtoLPGandethanolconsumption.Note:morequalitativedetailprovidedinAppendixA

SectionII:Ken

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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


•  Costtoeconomyofillicitmixingofkerosenewithdiesel

•  Negativebalanceofpaymentseffectsduetokeroseneimports

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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

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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

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…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

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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

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ModerncookingfuelsareavailableinKenya,buttheyhavenotovercomeconsumerawareness,affordabilityandaccessibilityadoptionbarriersSectionII:Ken

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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

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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

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kingpoten

tialinKe

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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

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TheGovernmentofKenyahasintervenedtopromoteLPG;policyactionisnowneededtoleveltheplayingfieldforBio-ethanol

Source:Stakeholderinterviews;StockholmEnvironmentInstitutediscussionbriefontheKenyancharcoalsector;Variousnewspaperarticles;Dalberganalysis

Thegovernmentisusingatwo-

prongedstrategytopromotecleancookinginKenyan

households

Curbuseofdirtyfuelsandstoves

Promotecleancookingfuelsandstoves

Todate,Bio-ethanolforcookinghasnotbeenasmuchatargetofgovernmentinterventiondespitebeingahigh-impactcleanfueloption,mainlyduetolimitedprivate

sectoractivitySectionII:Ken

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•  ‘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

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SECTIONIII:POTENTIALOFBIO-ETHANOLFORCOOKINGINKENYA

Note:statisticsrepeatedandsourcedonfollowingpages.MoredetailedimpactanalysiscontainedinAppendixB

SectionIII:P

oten

tialofB

io-ethan

olfo

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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.

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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.

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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

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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

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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

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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

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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)

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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)

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Terminal Bulkstorageandtransport

Trucks

Tankers

Depotsandfillingplants

Cylinders

Lastmiledistribution

Total

27

98

164 290

Retailpoints

Terminal Bulkstorageandtransport


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

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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

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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

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29

Infact,KenyaranksbelowotherSub-SaharanAfricancountriesintermsofBio-ethanol-friendlypolicy

Source:WTO,mostrecentdataasofApril,2018forproduct220720-ethylalcoholandotherspirits,denatured,anystrength;PwCOverviewofVATinAfrica

DutyandtaxburdenonimporteddenaturedBio-ethanolSubsetof21SSAnations,reflectingduties+taxes,%

SectionIV:B

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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

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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

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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

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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

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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)


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%


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


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


•  Timeopportunitycost(timepoverty)duetoslowercookingtimes,needtocleanupcharredcookingpots/pans,


•  Notimepovertyeffectsvs.alternatives•  Propertydamagefromurbanfiresdueto

kerosenecooking

Notimepovertyimpact

Householdeconomicsandmacro-economiceffects

•  Foregoneincomesduetoavoidabletimespentcooking/cleaning


•  Foregoneincomesduetoavoidabletimespentcookingandcleaning

•  Avoidablespendingonrelativeinefficientandhigh-costcookingfuel


•  Negativebalanceofpaymentseffectsduetokeroseneimports


43

Appendix





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


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.


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


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)


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%


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


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


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


52

Appendix





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


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


55

Appendix





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;


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


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


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


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


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


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


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


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


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


scaling up clean cooking in urban kenya with lpg & bio-ethanol

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