Waqas Bin Najib
waqas@sdpi.org
To many in the scientific community, the threat of climate change can only be understated. The Kyoto Protocol was seen only as the first step in addressing the issue of climate change. The Marrakesh Accords laid the foundation of the global initiative and the Kyoto Protocol came out with concrete mechanisms for establishing mitigation actions. The protocol makes it binding for the signatory industrialized countries (the so-called ‘Annex-I’) to reduce their greenhouse gas emissions by 5.2 percent compared with 1990 levels.
Different flexible mechanisms were also devised that allow trading of emission allowances and obligations through financial exchanges. There is an exhaustive debate on the effectiveness of these mechanism and real responsibility of global warming. Nonetheless, the reality of global economics and politics make it abundantly clear that such mechanisms are here to stay.
The Clean Development Mechanism (CDM) is one of the financial mechanisms designed to encourage participation of developing countries (hosts) in emission reduction activities. The objective of the mechanism is two-fold: to offset
greenhouse gas emissions and to contribute towards sustainable development in the host country. |
The Clean Development Mechanism (CDM) is one of the financial mechanisms designed to encourage participation of developing countries (hosts) in emission reduction activities. The objective of the mechanism is two-fold: to offset greenhouse gas emissions and to contribute towards sustainable development in the host country. The mechanism ‘offsets’ the responsibility of emission reduction by introducing tradable emission reduction credits. Emission trading schemes, such as the CDM, have given rise to a thriving global carbon market; the emission trading volume was over $138 billion in 2008.
Various shortcomings of the existing CDM mechanism have been recognized and discussed. Far too many Certified Emission Reductions (CERs) came from only a few types of projects (for instance, HFC destruction). The real objective of promoting switchover to renewable energy and energy efficiency remained lagging in the first-generation CERs produced from these mechanisms. There are also serious questions about and criticism of the methods and processes for assessment of "early consideration" and "additionality".
The achievement of one of the objectives of the CDM; promotion of sustainable development, also seems marginal in many related activities. Uneven spread among developing countries is another area of concern, because most of the CDM projects are hosted by China, Brazil or India (therefore, the capital flows towards them). Moreover, there is far too laborious bureaucracy for the regulatory process that oversees the CDM; about which Marc Stuart writes that it often seems to have been designed by Kafka, with a helping hand from Dante.
In relation to the challenge of climate change, Pakistan will have to focus on the more complex issue of adaptation to climate change impacts, especially with regard to the vulnerable communities of its diverse ecological and agricultural zones. The country’s role in mitigation of climate change drivers will be limited, but it will provide opportunities to gain for its own benefit and move towards sustainable development as a result.
It is a little more than four years ago that the first CDM project was registered with the UNFCCC (the United Nations body responsible for registration and issuance of credits). More than 1,600 projects have since been registered (roughly 1.5 billion tonnes of emission reductions through 2012) and another 2,500 projects are in the pipeline. Various methodologies have been developed that cover at least 100 different project types.
Pakistan ratified the Kyoto Protocol in 2005; much later than most other developing countries. The country, therefore, missed out on the early learning opportunity and was too slow to catch up in an ever evolving carbon market. Pakistan has only three registered CDM projects to date. Roughly a dozen are at the validation stage. There may be around two to three dozen more projects at the development stage. One of the major reasons for very slow activity at the carbon front is lack of awareness in the industrial sector.
Only a few industries were able to aggressively pursue carbon-related emission reduction projects. However, most medium-sized and conventionally-managed industries have little or no knowledge about identifying and exploiting this potential. The lack of clarity about the process and dearth of reliable CDM project development companies in the local market have also contributed to the sluggish progress. Industries that could have earned carbon revenues, resulting in a considerable opportunity cost, have commissioned several projects in the last few years without caring for the CDM.
The Ministry of Environment acts as the Designated National Authority (DNA), tasked with ensuring the fulfillment of sustainable development objectives of the country. The DNA approves the projects prior to validation / registration. Many independent researchers and stakeholders have identified a very weak DNA in Pakistan with insufficient capacity and experience for evaluating CDM project documents. Systematic awareness raising and capacity building programs are virtually nonexistent.
There has also been criticism of the DNA for taking far too long in approving the projects, though it has committed to a 30-day timeline for approval in national operational strategy. Moreover, Pakistan’s DNA requires a list of unnecessary documentation, which makes the process even slower and cumbersome, not to mention costly. An effective institutional arrangement is vital to attract investors and benefit from CDM potential. If a DNA contributes towards lowering the transaction costs, poses less bureaucratic hurdles and offers faster approval process, it indeed attracts more carbon investors.
To participate in the CDM, the industrial sector will have to play a more proactive role. The lack of initiative is perhaps an established trend that hampers the progress and growth of Pakistan’s industrial sector. Undoubtedly, it hurts the industry in more ways than only missing out on the carbon market. The CDM presents an opportunity to attract investments, while making the industry more robust and energy efficient. There is still room to capitalize on the opportunities and give a push for energy efficiency, which should also reduce cost of production and make the industrial sector more competitive in the international market.
Taking a look at the negotiations for a post-2012 agreement, it is likely that the focus will shift to new approaches, such as ‘sectoral CDM’ and ‘programmatic CDM’. These measures will be designed in the backdrop of putting more responsibility of mitigation on developing economies and also to address climate change more effectively.
Given the global economic scenarios and international trade and climate negotiations, there appears to be a more stringent future climate regime. The climate will perhaps be more tightly tied to the trade regulations (e.g. American Clean Energy and Security Act 2009). Countries like Pakistan will have to adapt and position themselves for more appropriate policy responses to take advantage for their economy and people.
(The author is a visiting researcher on energy and climate change at SDPI, Islamabad, and country representative of South Pole Carbon Asset Management Ltd in Pakistan.)
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