''Extract taken from Newsweek Web Exclusive
By Katie Connolly
Dec 15, 2009''

When foreign investors visit Suraj Wahab in the Ghanaian capital of Accra, where he manufactures energy-efficient stoves, he likes to point to a tree on the dusty roadside just outside his business's building. He tells them that before investors were willing to back him, his company's headquarters were housed in the shade of that very tree. There, he'd work in the dirt with his hands, molding household cooking stoves. Wahab's company, Toyola Energy Limited, has grown out from under the shade and into a five-building main complex with eight other factories and distribution centers around the country. He used to make just five stoves a week. In 2010 his 150 employees could make 75,000.

Wahab's entrepreneurial success is a product of the complicated world of carbon finance. Wealthy bankers at the Goldman Sachs commodities desk in New York are helping to make the Nigerian-born Wahab's dream a reality. After unsuccessfully shopping his idea around to local banks, Wahab came across E+Co, an American nonprofit company that invests in clean-energy businesses in the developing world. E+Co saw the potential for his project to generate carbon offsets, an increasingly valuable commodity that corporations purchase to help neutralize their own emissions. Toyola's stoves usually replace older ones that burn wood and charcoal less efficiently and that pollute the homes of Ghanaians and release greenhouse gases. Each stove that Wahab sells to replace less-efficient one prevents the release of about the same amount of greenhouse-gas emissions over its useful life (about three years) as is released by driving a Honda Civic for one year. That reduction in carbon emissions is then monetized and sold as an offset. And in this case, the offsets are being snapped up by Goldman Sachs.

Offsets are currently a voluntary purchase in the U.S., unlike in Europe, where cap-and-trade laws limit greenhouse-gas emissions and force polluters to offset their consumption by purchasing carbon credits. So why would U.S. firms buy carbon offsets now? Their motivations are partly altruistic and partly commercial, says Gerrit Nicholas, head of the North American Environmental Commodities Sales Team at Goldman Sachs. Companies can claim a premium on products billed as "carbon neutral." Some like to create a green brand image, while others have corporate social-responsibility objectives or plans to achieve carbon neutrality simply out of good will. But for big energy companies that see regulation on the horizon that would potentially burden them with an enormous carbon liability, the main driver is cost. "If you expect prices will change once regulation comes into effect, you can buy something at a fraction today of what it might cost you even a year from now," says Nicholas. He anticipates that once regulation is in effect, demand for offsets like those offered by E+Co will rapidly outstrip supply.

Where Toyola's stove business differs from most carbon-offset projects is that it has "co-benefits," an industry term meaning that the project has other positive development outcomes. According to World Health Organization estimates, more people in the developing world die each year from conditions related to indoor air pollution—mostly from inefficient, solid-wood-burning stoves—than tuberculosis or malaria. In Ghana, about 85 percent of the population is exposed to indoor air pollution. Although Toyola's stoves still employ traditional cooking techniques, their efficiency means a dramatic reduction in smoke and a marked improvement in air quality.

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