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Unlocking Carbon Credits

Jibu's journey to affordable clean water

On the heels of the hottest July and August on record, there was renewed focus on reducing carbon and methane emissions to slow global warming at New York Climate Week. Keynotes and panels on energy transition, greenhouse gas (GHG) reduction, market regulation, and ESG accountability (i.e., no greenwashing) took center stage. Nonetheless, carbon finance, a potential game-changer for enabling access to affordable products and services for low-income and marginalized people most affected by climate change, received insufficient attention. For many early-stage enterprises operating in emerging markets, the practical aspects of carbon certification remain a mystery.

To address this knowledge gap, Jibu’s co-founder Galen Welsch provides meaningful insights based on firsthand experience. Jibu, an award-winning enterprise established in 2012, enables access to clean drinking water (SDG 6) and other essential products to hundreds of thousands of people across Africa. After a decade of operations, carbon finance emerged as a worthwhile endeavor for Jibu.

Having leveraged traditional funding sources — grants, loans, debt, equity, philanthropy, friends and family — to expand into eight African countries (Rwanda, Zambia, DRC, Kenya, Tanzania, Uganda, Burundi, and Ghana), market forces and unit economics had put increasing upward pressure on prices. By 2023, Jibu’s rapidly expanding social franchise network, creating thousands of new businesses and jobs, mostly for youth and women (SDG 8), had grown sufficiently to justify undertaking the resource-intensive and time-consuming carbon credit certification process.

By leveraging carbon finance, Jibu aims to keep prices affordable and reach more customers in need of clean drinking water.

While the establishment of 189 franchises and 10,000 retail points for distribution of over 750 million liters of water had proven the model, the drive to have the greatest impact on people living in poverty underpinned Jibu’s decision to pursue carbon credits. Significant U.S. dollar expenses for clean water treatment systems and water bottles, combined with reduced revenues due to local currency depreciation, created a growing financing gap. This underscored the value of carbon finance as an additional funding stream to keep prices affordable for customers.

Jibu’s Social Franchise Model

Driven by a passion for entrepreneurship, Galen Welsch, Jibu’s co-founder established a social franchise model that creates meaningful business ownership opportunities across emerging markets. Jibu finances, equips, and trains entrepreneurs to launch and grow drinking water franchises. It installswater treatment systems in high-visibility, mainly urban retail points, enabling entrepreneurs to treat water onsite from a local source, package it in reusable 20-liter bottles, and distribute within a one to two-kilometer radius. The production franchises serve 50-100 retail points (B2B) or direct customers (B2C) immediately surrounding them.

Galen Welsch headshot

Galen Welsch, Co-founder of Jibu

Unique to Jibu is how they combine financing with a typical franchise model. Jibu identifies entrepreneurs to deliver safe drinking water at affordable prices in their communities. As local ownership and empowerment are central to the vision, Jibu provides the entrepreneur with financing alongside the franchise system — “the tracks to run on,” according to co-founder Galen Welsch.

Rationale for Carbon Financing

Jibu’s capital-intensive growth model for expansion into new regions and reliance on low-cost funds, especially to subsidize water processing in areas of deep poverty, spurred the decision to undertake the carbon accreditation process. Despite variability in the price of carbon credits, Welsch foresaw that Jibu had reached sufficient scale for the certification process to be worthwhile. Also, competition from clean water social enterprises that have incorporated carbon credits into their model made certification inevitable.

In spite of the earlier calculation, current significant shifts in the carbon market have led to new regulations, taxes, and evolving policy frameworks. Increased scrutiny and higher compliance standards imposed by many governments have driven up the cost of certification and participation in voluntary and compliance carbon markets, making them less profitable for Jibu, particularly for smaller projects.

As a result, many carbon markets are no longer profitable, leaving only a few countries where Jibu operates, such as Rwanda, feasible and economically viable. Mainly, this is due to Jibu’s  well-established operations there and large number of credits.

Meanwhile, competition from clean water social enterprises that have incorporated carbon credits into their models made certification inevitable.

Factors that influenced Jibu’s decision:

  1. High Capital Expenditures: Prefinancing social franchises requires significant capital.
  2. U.S. Dollar-Denominated Expenses: Costs for clean water treatment systems and water bottles are in U.S. dollars as compared to revenue in local currencies.
  3. Local Currency Depreciation: Earnings in local currencies forced Jibu to adjust pricing upward, which they would rather avoid.
  4. Affordability for Customers: Carbon financing can help drive down prices allowing Jibu to reach lower-income market segments.
  5. Additionality: Research showed that majority of Jibu’s customers were initially boiling water on charcoal to make it safe for drinking before becoming a Jibu user. (Rwanda 2022)
  6. Attracting new investors and donors: As the urgency to address climate change escalates, investors and funders increasingly expect companies to leverage carbon finance. Tangible evidence of Jibu’s potential to reduce carbon emissions can be a powerful magnet for additional funding and investment.

Demonstrating Jibu’s potential to reduce carbon emissions can be a powerful way to attract new investment and funding.

African woman with Jibu water container

Choosing South Pole as a Partner

South Pole met all of Jibu’s key criteria in choosing a carbon finance partner:

  1. Upfront Pre-Financing: South Pole provided the necessary funds to start the process.
  2. Development Work: They undertook all the work to develop carbon credits.
  3. Fair Commission: South Pole offered a reasonable percentage commission (18-20%).

“It was a no-brainer,” said Welsch about choosing South Pole. No other potential partner provided pre-financing, was willing to do the work themselves, or was as cost-effective. Given Jibu’s strategy of treating carbon finance as supplemental, Welsch did not want to invest in financing, hire a team, and expand bandwidth to develop the credits. South Pole brought an inclusive package and was the lowest-cost partner. The aligned partnership enabled Jibu to maintain its core business focus without having to dedicate additional headcount or divert resources.

African man and woman at Jibu water distribution center

Leveraging External Support

Of critical importance, Jibu benefited from existing relationships and outside support to negotiate from a position of strength. Having participated in the accelerator at the Miller Center for Social Entrepreneurship at Santa Clara University, Jibu drew on the center’s resources for:

  1. Baseline Data Collection: Miller Center student interns collected baseline survey data that Jibu presented to South Pole, demonstrating market potential and enabling the carbon certification process.
  2. Legal Support: Referrals from the Miller Center’s network provided “low-bono” legal expertise, aiding Jibu in negotiating ERP contracts and securing a fair deal.
  3. Connecting with industry experts: The Miller Center connected Jibu with industry experts to stay informed and up-to-date on developments in the carbon credit sector.

Negotiating the Commission

As a mature business with a proven potential for a large volume of credits, Jibu was in a stronger position to push the margins to a reasonable level. Based on advice from experienced climate attorneys, Jibu negotiated a commission of 18-20% of the carbon credit revenue with South Pole, compared to 40% in other instances.

African man on motor bike pulling cart of Jibu water containersThe Upside of Carbon Financing

Given projections from South Pole, Jibu estimates that carbon credits will generate $250,000 to $350.000 per year. The credits apply only to new customers in Rwanda, as there must be additionality. Existing volumes are excluded. Despite volatility in carbon credit pricing, the revenue will significantly impact Jibu’s capacity to keep prices affordable and drive-up income for entrepreneur franchises.

Carbon finance is not the only lever Jibu is managing to maintain affordability; it is one additional tool. According to Welsch, “carbon credits are the icing on the cake”, enabling Jibu to reach more customers and have greater impact.

Lessons from the Carbon Certification Process

Embarking on carbon certification, Jibu has several lessons to share with social enterprises considering the process:

  1. Cut Through Market Emotions: Focus on practicalities rather than the emotional debates surrounding carbon credits. Also, be prepared to weather uncertainty in carbon markets.
  2. Collect Baseline Data: Ensure sufficient volume of potential credits by gathering accurate data.
  3. Align with Values and Business Model: Choose partners and take actions that fit your organization’s philosophy.
  4. Leverage Relationships: Utilize existing networks for resources like low-cost legal advice and data collection support.
  5. Be Informed in Negotiations: Understand industry standards when negotiating commissions and terms.
  6. Consider Other Financing Options: Carbon finance should complement, not replace, other funding mechanisms.
  7. Ensure Sustainable Unit Economics: The business model should be viable even without carbon credits.

Future Outlook

Despite uncertainties around carbon market regulation, price volatility, and potential reputational issues related to verification and accountability, Jibu applied discernment in its decision to develop carbon credits. By leveraging carbon finance, Jibu aims to reach more low-income customers with affordable clean drinking water. Time will tell the full upside return of carbon credits. The initial outlook is promising.

Susan Chaffin,an Impact Entrepreneur correspondent, has 30 years of experience in emerging markets, private sector partnerships, and gender-inclusive solutions. Having founded in 2002, SBC Global Advisors, Inc., a research, strategy, and advisory firm, she designs, implements, and evaluates programs on digital innovation, financial inclusion, climate adaptation, clean energy, healthcare, water, ... Read more
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