Carbon Trade to Fund Energy in Pakistan

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:


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.

Related Links:

Going Through the CDM Process

Pakistan's Energy Crisis

Renewable Energy for Pakistan

Pakistan Inks Hydroelectric Power Deals

Carbon Offsets Under Fire

The Politics of Climate Change

Cap and Trade and The New Carbon Economy

Electric Power Crisis Worsens in Pakistan

Light a Candle, Don't Curse Darkness

Social Entrepreneurs Target India and Pakistan

Grameen Shakti Solar For Pakistan

Climate Change Worsens Poverty in India

Carbon Trading: Opportunity For Pakistan

Pakistani Entrepreneurs Survive Downturn

Water Scarcity in Pakistan

Factor AG and Carbon Services Pakistan Presentation

Comments

Riaz Haq said…
Here's a report on Pakistan climate change policy:

Disaster-prone Pakistan has launched its first ever national policy on climate change, detailing how it plans to tackle the challenges posed by global warming, mitigate its risks and adapt key sectors of the country's economy to cope with its consequences.

Pakistan is highly vulnerable to weather-related disasters such as cyclones, droughts, floods, landslides and avalanches. Devastating floods in 2010 disrupted the lives of 20 million people – many more than the 2004 Indian Ocean tsunami – and cost $10 billion.

The climate change policy, developed with the support of the United Nations Development Programme (UNDP), recommends some 120 steps the country could take to slow down the impact of global warming, as well as adapt sectors such as energy, transport and agriculture.

Measures include flood forecasting warning systems, local rainwater harvesting, developing new varieties of resilient crops, promoting renewable energy sources and more efficient public transport.

"The National Climate Change policy takes into account risks and vulnerabilities of various development sectors with specific emphasis on water, food, energy and national security issues," said Rana Mohammad Farooq Saeed Khan, Minister for Climate Change at the launch of the policy is Islamabad on Tuesday.

But the policy needs a concrete action plan to back it up, with details, budgets and timelines first, some newspaper commentators said, adding that only then could there be a chance of effective implementation.

Questions have also arisen about where the money to fund implementation will come from and whether Pakistan's provinces have the capacity and expertise to put it in place.

Last year, a major U.N. report said the world needed to prepare better to deal with extreme weather and rising seas caused by climate change, in order to save lives and limit deepening economic losses.
UNDP's Pakistan Director Marc-André Franche said addressing changing weather patterns would help the country's economic development.

"Pakistan is among the most vulnerable countries facing climate risks and mechanisms need to be devised for greener, more resilient options for growth and sustainable development, said Franche at the launch.

"I hope the policy will help key stakeholders in identifying capacities and skills for the successful implementation of the policy," he added.


http://www.trust.org/alertnet/news/pakistan-launches-first-national-climate-change-policy

http://undp.org.pk/images/documents/National%20Climate%20Change%20Policy%20of%20Pakistan.pdf
Riaz Haq said…
Here's a report on Pakistan's first CDM energy project:

BONG, Pakistan (Thomson Reuters Foundation) – Pakistan has completed its first project under the United Nations Clean Development Mechanism (CDM) with a hydropower scheme that the government hopes will help tackle the country’s electricity deficit while acting as a trailblazer to attract foreign investment.

The 84-megawatt New Bong Escape project has been built in Mirpur district in Pakistan-administered Kashmir (known as Azad Jammu Kashmir or AJK), 100 km (63 miles) south of Pakistan’s capital, Islamabad.

The project uses “run of river” construction, with a semi-submerged powerhouse containing four sets of turbines and generators rather than a dam. It is located about 8 km (5 miles) downstream from the Mangla Dam, a major reservoir and itself a 1,000 MW hydropower generator, which was commissioned in 1967.

The new plant, co-funded by the Asian Development Bank and the Islamic Development Bank, was the country’s first hydropower scheme to be registered with the UN Framework Convention on Climate Change (UNFCCC) as a CDM project, in January 2009. The $217 million project was completed and began power generation in March.

According to Larib Energy Limited, the project developer, it will reduce Pakistan’s carbon dioxide emissions by 219,000 tonnes annually by supplanting fossil fuel-fired power plants.

LOCAL COMPLAINTS

But people who live near the plant complain that they have seen no economic benefit from its construction, and that the local environment is now in worse shape than previously.

“Locals were denied jobs during the construction and ... threatened by company officials for demanding jobs,” charged Tahir Choudhary, 42, a farmer who lives in Lahri Choudharian, a village close to the scheme.

Residents say that a river downstream from the Mangla reservoir used to flow past the corner of their village and carry away sewage, but it was diverted for the power project, leaving the riverbed dry.


http://www.trust.org/item/20130515095151-n5g3m
Riaz Haq said…
Owing to the poor performance and non-serious attitude of bureaucrats, the government has finally wrapped up the Clean Development Mechanism (CDM) Cell, depriving the country of the benefits of the international carbon credit facility.
The CDM Cell was established in 2005 at the Climate Change Division to provide technical and policy support and to advise the government in matters related to the implementation of the CDM strategy in Pakistan and approval of projects for carbon credits.
Carbon credits and carbon markets are a component of national and international attempts to cap greenhouse gas emissions and to allow market mechanisms to drive industrial and commercial processes towards lowering emissions.
Pakistan signed the Kyoto Protocol on January 11, 2005 and became eligible to benefit from the CDM, but since 2006, it has managed to get approval for only 29 projects, all with minor value for carbon credits.
The CDM was initiated under the 1997 Kyoto Protocol of the United Nation Framework Convention on Climate Change (UNFCCC) in order to explore cost-effective options to mitigate the impact of climate change.
It is one of the instruments that help developing countries achieve sustainable development, while at the same time contribute to the ultimate objective of the UNFCCC.
Under the CDM, developed countries assist developing ones in implementing project activities that reduce greenhouse gas emissions in return for certified emission reductions, widely referred to as carbon credits.
“The CDM is the only instrument that is available for developing countries to assist them in achieving sustainable development and contributing to the ultimate objective of the convention,” a Climate Change Division official said on the condition of anonymity.
Under the CDM projects in Asia till 2012, China deposited 55.8 per cent, India 29.2 per cent, Indonesia 2.3 per cent, Vietnam 3.6 per cent, Thailand 2.3 per cent, Malaysia 2.3 per cent, South Korea 1.3 per cent, Philippines 1.1 per cent, Sri Lanka 0.4 per cent while Pakistan’s share was only 0.6 per cent.
Similarly, in terms of volume of CERs until 2012 in Asia, China’s carbon credit share was 72.7 per cent, India’s 15.6 per cent, Vietnam’s 1.0 per cent, Indonesia’s 1.6 per cent, Thailand’s 0.8 per cent, Malaysia’s 1.3 per cent, South Korea’s 5.8 per cent, Philippines’ 0.4 per cent, Sri Lanka’s 0.1 per cent, while Pakistan’s credit share was only 0.4 per cent.
The figures show that the CDM Cell did little to get its share of the millions of dollars available for carbon credits. Though CDM Cell officials regularly traveled abroad, no awareness programme, seminar or any other activity or capacity building programme was carried out by the cell in the last many years.

http://tribune.com.pk/story/834786/something-in-the-air-govt-snuffs-out-cdm-cell-deprives-country-of-carbon-credit-facility/

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