Ali Ashar Jaffri
In the loving memory of my late father Justice (R) Syed Ali Aslam Jafri, whose teaching and guidance made me who I am today. Even though he may no longer be among us, his prayers and best wishes will continue to shine upon me.
To avoid the worst effects of climate change, aggressive emission reductions and removals of CO2 from the atmosphere are necessary. Our collective inaction has underscored the urgency of this task. As the need to reduce the emission of greenhouse gases (GHG) has grown more urgent over the last quarter century, key stakeholders across the globe are trying to carve out a path towards sustainable social and economic development. The focus on carbon credits as a means of combating climate change is relatively new.
The concept of an international carbon market was first established by the Kyoto Protocol in 1997. Carbon markets are one of the tools to tackle the climate change problem. Government and various other organizations are striving to create avenues for countries to participate in carbon reduction efforts using carbon credits and carbon offsets through carbon markets. In 2021, the voluntary carbon market grew at a record pace, reaching US$ 2 billion, four times its value in 2020 and the pace of purchases is still accelerating in 2022. The market is expected to reach between US$10 billion and US$ 40 billion by 2030, and US$ 250 billion by 2050.
Carbon markets are trading systems in which carbon credits are sold and bought. Companies or individuals can use carbon markets to compensate for their greenhouse gas emissions by purchasing carbon credits from entities that remove or reduce greenhouse gas emissions. Carbon markets can be either voluntary or regulatory (compliance). Government regulates compliance markets. Voluntary carbon markets are comprised of individuals, companies, and government committed to minimizing their carbon footprint.
Accordingly, organizations reduce their GHG emissions and purchase carbon credits in carbon markets to compensate for any remaining GHG emissions. Carbon credits are an emission unit issued by a carbon crediting program, representing an emission reduction or removal of greenhouse gases. Carbon offsets can be created by either avoidance or reduction projects such as renewable energy, methane capture, or other such facilities.
To address the increasing concerns around the issue of climate change, the major economies in both developed and developing countries have started to create and engage in carbon markets. The growth of carbon markets has been very impressive in the last few years. More specifically, the number of carbon markets has doubled since 2012 and the general interest in carbon trading is also on an upswing. In the global market, China is the largest seller of Certified Emission Reduction capturing almost 60% followed by India having an 11.3% share and Brazil having a 6.5% share in the global market.
It can be seen that both India and China are among the top polluters of the world due to their high growth yet both economies have entered the world of Carbon Trading and are among the highest sellers of carbon credits in the current marketplace. Forest-rich countries such as Costa Rica are strategically entering the carbon markets. In Southeast Asia, Cambodia has extensive experience with the voluntary carbon market in the forest sector. Meanwhile, countries such as Ghana are already pioneering the implementation of carbon market instruments.
Although much later than the rest of the world, Pakistan has also finally entered the Carbon market and trading landscape. The country’s current ranking on Environment Performance Index (EPI) is 124th among 149 countries. The economic cost of growing environmental degradation, resource depletion and climate change are continuously on the rise. Carbon Markets can play an important role in revitalizing the country’s economy.
Currently, Pakistan has 14 approved Clean Development Mechanism (CDM) projects with the status of the host country while 60 projects are in the pipeline. The main objective of these projects is to bring a positive impact on the socioeconomic status of the country along with its contribution towards environmental sustainability.
According to CDM cell, these projects are expected to bring US$ 345 million in foreign investment along with a 3.35 million tons GHG reduction per year as well as a positive impact on agriculture productivity, employment opportunity and technology transfer.
However, it must be understood that setting a price for carbon emissions is a valuable beginning, but not the end, of climate policy. Much more needs to be done to complement the carbon trading system and carbon markets, to ensure an effective policy response to the threat of climate change. It is also necessary for government to take appropriate action to support innovation and low-carbon technologies and industries.
The writer is Group Head (Administration, IT, Engineering Projects & BCP) and look after Green Banking as well at Bank AL Habib Limited, Pakistan. He has more than 23 years of managerial experience in a number of reputed national and international organizations and can be reached at Email: li.ashar@bankalhabib.com, LinkedIn: https://www.linkedin.com/in/ali-ashar-jaffri-a1790a1a
