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.
Haq's Musings: Creative Financing of Pakistan's Energy Projects
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.
Haq's Musings: Creative Financing of Pakistan's Energy Projects
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