CASH POOR and energy-starved Pakistan should consider tapping into the London-based global carbon trading market to fund its renewable energy projects. The carbon market is about $6 billion now, and it is projected to exceed 50 billion dollars after the US joins carbon trading. Here is how I understand it:
The carbon offset market is real. Major investment bankers, including Goldman Sachs and Citibank, are already heavily involved in the business through their carbon trading desks in London. And new players, such as Eco Securities, are being formed to take advantage of this new opportunity
Let’s take the example of a hypothetical big European company XYZ faced with the problem of large carbon emissions that must be reduced or offset by one million ton under the Kyoto protocol. To satisfy the international treaty requirements, XYZ company has the option of either installing carbon-capture equipment to reduce its emissions by a million ton, or retrofit the plant to cut its carbon emissions or buy carbon offsets from a carbon trader for a project in a developing country like Pakistan that offsets its emissions by a million ton. It is a business decision that often leads companies such as XYZ to fund cost-effective carbon offsets in developing nations by buying carbon credits on the open market. Such carbon offset projects could vary from planting mango orchards in Pakistan to absorb a million ton of carbon, or it could be a hydroelectric dam or a wind farm or solar electricity project that replaces a planned fossil fuel project.
This is not just a fantasy. The carbon offset market is real. Major investment bankers, including Goldman Sachs and Citibank, are already heavily involved in the business through their carbon trading desks in London. And new players, such as Eco securities, are being formed to take advantage of this new opportunity.
The industry to generate and verify carbon offsets has seen explosive growth in recent years largely because of the Kyoto treaty, under which nations agreed to impose limits on carbon emissions. The treaty allows United Nations regulated companies to purchase credits produced from these offset projects to meet a portion of their emissions-reductions targets set by the international program. More than 300 million credits, each representing the equivalent of one metric ton of carbon dioxide, have so far been created, and these credits are traded on commodities markets. In February, 2010 issue of Harper magazine, Mark Shapiro, of Berkeley, Calif.’s Center for Investigative Reporting, says up to 2 billion new credits could be drawn from offset projects if a cap-and-trade program similar to the proposals now before U.S. Congress were to become reality. Though the carbon price is determined by market and it is always changing, the current price is about $20 per metric ton. At this price, the expected 2 billion new credits would create an additional $40 billion global carbon trading market.
There are successful examples of the use of trading to cut acid rain from sulfur emissions in the United States. The program allows polluters to figure out their own way to cut emissions rather than mandating a particular kind of technology to reduce emissions like a scrubber on a power plant, rather than forcing them to stop burning coal. It gives the companies a yearly target.
The proposed U.S. House of Representatives bill cuts carbon emissions by 17 percent in the United States by 2020, and it’s up to the corporations to figure out how to do it. They can do it by buying offsets from other companies, or by shutting down coal plants, or by efficiency measures, etc.
Carbon credits trading reinforces the idea that pollution in one part of the world affects all of the inhabitants of the planet. And any measures taken in one part of the world, such as planting of trees or building renewable energy projects instead of fossil fuel based plants, help the entire globe. This realization is expected to help transfer billions of dollars in funds from the rich to the poor nations to deal with the common threat of the global climate change. But these funds will only help those who proactively seek them, and build renewable projects to effectively cut global carbon emissions.
As a signatory of the Kyoto Protocol, Pakistan is eligible to benefit from any project under Clean Development Mechanism (CDM) and exploring carbon credit potential in different industries. Pakistan’s ministry of environment is the Designated National Authority for CDM tasked with raising awareness and participation by Pakistani companies in CDM. At least one Pakistani company, Pak-Arab Fertilizers (Pvt.) Ltd., Multan, has earned $ 13 million through the sale of CERs (Certified Emission Reductions) in 2008, the first year of the launch of CDM. The total cost of the project is $18 million, according to a report published in The Nation newspaper.
Several cities, including Islamabad, are launching carbon credit projects such as greenhouse gas emission reduction s from sources ranging from landfills to vehicles. Seoul City in Korea will begin test-operating a carbon emission trading system in April in a bid to reduce greenhouse gas emissions. Malaysia is planning carbon-neutral cities. Asia is the center of a lot of activity with CDM projects registered with the United Nations Framework Convention on Climate Change (UNFCCC).
In neighboring India, Delhi Metro became the first rail network in the world to get a UN certificate for cutting over 90,000 tonnes of carbon dioxide release into the atmosphere. The certification report, given by Germany-based validation organization TUV NORD which conducted an audit on behalf of the UN Framework Convention on Climate Change (UNFCCC), found that the DMRC stopped the emission of 90,004 tonnes of carbon dioxide from 2004 to 2007 by adopting regenerative braking systems in the metro trains. Media reports indicate that India is emerging as the one of the most active seller of carbon credits worldwide, with many of the country’s firms investing in green projects. India currently has close to 500 projects registered with the United Nations, second only to China’s 680. However, in terms of CERs, India’s share is just 11.63 per cent, while China’s is 58.75 per cent. The Indian government has approved more than 1,455 CDM projects which can potentially make Rs. 28,000-30,000 crore in export earnings, according to a Rediff report. With only a few dozen CDM projects approved to date, Pakistan is significantly behind India and China in taking advantage of the opportunity offered by Kyoto.
A number of consulting companies, such as Carbon Services and Carbon Asset Management in Pakistan, are claiming to guide clients through the process of selling carbon credits to set up clean energy projects. There have been some allegations that middlemen are ending up with huge chunks of the proceeds from carbon credit sales.
Carbon services has arranged seminars with Pakistan’s Ministry of Environment to educate businesses about what CDM is, what projects are being done and what can be done within their countries, according to a report in Computerworld. “We try and bring in examples from India, China, Brazil etc about what their industries have done and disseminate that information to local industries,” Omer Malik of Carbon Services told Rabia Garib of Computerworld. “The Ministry of Environment’s department that looks after this is Designation National Authorities (DNA) is extremely active and very proactive towards promoting CDM in Pakistan”
This is an opportunity for Pakistani government, businessmen and entrepreneurs to seriously pursue creative ways of financing renewable energy projects in Pakistan, including sales of carbon credits, to effectively deal with the current crippling energy crisis in the country. It is also an opportunity to help reduce the impact of climate change on Pakistan. At 8 feet below sea level, Pakistan’s financial capital Karachi shows up on the list of world’s mega-cities threatened by global warming. Other South Asian cities likely to come under rising sea water in the next 100 years include Mumbai, Kolkata and Dhaka. And it’s not just the big cities in South Asia that will feel the brunt of the climate change. The rural folks in India are already seeing rising crop failures, increasing poverty and frequent farmer suicides.
Addressing a regional conference in Islamabad last year, Dr Rajendra Kumar Pachauri, chairman of the Inter-governmental Panel on Climate Change (IPCC), said Pakistan was witnessing severe pressures on natural resources and environment.
He said: “Climatic changes are likely to exacerbate this trend. Water supply, already a serious concern in many parts of the country, will decline dramatically, affecting food production. Export industries such as fisheries will also be affected, while coastal areas risk being inundated, flooding the homes of millions of people living in low-lying areas.”
“The fact that global warming was unequivocal and there is no scope for scientific questioning, Pakistan faces potential environmental catastrophe,” said Dr Pachauri, who has been awarded the Nobel Peace Prize (on behalf of the IPCC) along with former US vice-president Al Gore.
Pakistan’s participation in the carbon market is a win-win for Pakistan and the buyers of carbon credits in the West. It helps Pakistan deal with its energy and climate crises, and helps the western companies meet their goals of cutting global carbon emissions. The best way to make it happen is for the government, educational institutions and industry groups to educate the candidates about going through the United Nations CDM process set up under the Kyoto Protocol
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