Environment, Kyoto Protocol and the Carbon Market

Energy is one of the major stimulants for the economic development of any country. In the case of the developing countries, the energy sector assumes a critical importance in view of the ever increasing energy needs requiring huge investments to meet them. However this development and energy growth has resulted adversely on the environment. The Intergovernmental Panel on Climate Change (IPCC) has predicted an average global rise in temperature of 1.4°C to 5.8°C between 1990 and 2100. The faster the climate changes, the greater will be the risk of damage. The mean sea level is expected to rise 9 - 88 cm by the year 2100, causing flooding of low lying areas and other damages. Food shortages and hunger would also follow as water resources will be affected as precipitation and evaporation patterns change around the world.

Greenhouse gases (GHG):

Burning of fossil fuels is a major source of industrial greenhouse gas emissions, especially for power, cement, steel, textile, fertilizer and many other industries which rely on fossil fuels (coal, natural gas and oil). Some greenhouse gases occur naturally in the atmosphere, while others result from human activities. Naturally occurring greenhouse gases include water vapor, carbon dioxide, methane, nitrous oxide, and ozone. Very powerful greenhouse gases that are not naturally occurring include hydro-fluorocarbons (HFCs), per-fluorocarbons (PFCs), and sulfur hexafluoride (SF6), which are generated in a variety of industrial processes. The intensity of greenhouse gases varies and is measured by the global warming potential (GWP) of the gas. GWP of carbon dioxide is “1” and that of methane and sulfurhexafluoride are 21 and 23,900 respectively.

A STEP FORWARD

Kyoto Protocol:

The last few decades have seen many treaties, conventions, and protocols for the cause of global environmental protection. The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change (UNFCCC). The major feature of the Kyoto Protocol is that it sets binding targets for 36 industrialized countries and the European community for reducing greenhouse gas (GHG) emissions .These amount to an average of five per cent against 1990 levels over the five-year period 2008-2012. The Kyoto Protocol was adopted in Kyoto, Japan, on 11 December 1997 and entered into force on 16 February 2005. One-hundred eighty-four Parties of the Convention have ratified its Protocol to date. Under Kyoto, industrialized countries agreed to reduce their collective GHG emissions by 5.2% compared to the year 1990. Article 17 of the Kyoto protocol opens up for emissions trading between countries that have made commitments to reduce greenhouse gas emissions. The countries have the option to delegate this right of emissions trading to companies or other organizations.

Clean Development Mechanism (CDM):

CDM allows industrialized countries to meet their emission reduction targets by paying for green house gas emission reduction in developing countries.The purpose of the CDM was defined under Article 12 of the Kyoto Protocol. Apart from helping developing countries comply with their emission reduction commitments, it must assist developing countries in achieving sustainable development, while also contributing to stabilization of greenhouse gas concentrations in the atmosphere.

Eligible projects under CDM include renewable energy, fuel switching and reduction of N2O and CH4 emission in agriculture and industrial activities.

Certified Emission Reductions (CER’s):

CER's or Certified Emissions Reductions are a "certificate" just like a stock. A CER is given by the CDM Executive Board to projects in developing countries to certify they have reduced green house gas emissions by one tonne of carbon dioxide per year. For example, if a project generates energy using wind power instead of burning coal, it can save 50 tons of carbon dioxide per year. There it can claim 50 CERs (as one CER is equivalent to one ton of carbon dioxide reduced).Developed countries buy CER's from developing countries under the CDM process to help them achieve their Kyoto targets. CER’s are awarded based on the global warming potential (GWP) of the gas.

CER’s awarded = Tons of green house gas reduced x GWP of the gas

An example using hypothetical figures:

A company in Pakistan (a developing country) for instance switches from coal power to biomass. The CDM board certifies that by doing this the company has reduced carbon dioxide emissions by 50,000 tons per year. It is issued with 50,000 CER’s . Under the Kyoto Protocol, Britain (a developed country) has to reduce its green house gas emissions by 500,000 tons of carbon dioxide each year. If it purchases the 50,000 CER’s from the Pakistani company, this target reduces from 500,000 tons/year to 450,000 tons per year making the goal easier to attain.


Pakistan and the carbon market:

Pakistan today considered to be among the top 20 countries in the world that are gravely endangered to the adverse affects of climate change. Pakistan produces more than 30 million metric tons of carbon emissions. This is about 0.4% of global emissions. The energy sector contributes about 53% of these emissions. The Federal Ministry of Environment was nominated by the government of Pakistan as the Designated National Authority (DNA) to fulfill the legal & mandatory requirements of the UNFCCC and the Kyoto Protocol. Hence, Pakistan signed the Kyoto Protocol on 11th January, 2005, and therefore is now eligible to initiate CDM projects in the country and to benefit from this initiative.



Pakistan : A viable country for investment.

Pakistan is generating 65% of its electricity by burning fossil fuel (coal, oil, gas); hence a large amount of GHG’s emitted to the environment. At present, Pakistan is facing a shortage of over 2000MW. In order to overcome the power deficiency Pakistan must achieve lower dependence on fossil fuels through the provision of support for renewable energy projects.

Currently most of the CDM projects among the developing nations are being housed in India, China and Brazil. Pakistan can easily grasp this opportunity and implement fuel switching schemes as well as create job opportunities and earn foreign exchange. Apart from energy, forestry is another sector where there is abundant opportunity under the CDM. It is estimated that 20% of global carbon emissions grows due to deforestation. Pakistan has one of the most alarmingly high deforestation rates and also one of the least percentage areas covered with forest.

Therefore, Pakistan must devise an effective and a workable strategy in order to benefit from the carbon market; otherwise it will be too late for us to capitalize out of the current boom in the industry.