Consensus needed to control global warming

The global nature of climate change requires international cooperation if regulation is to be effective. Conceptually, governments need to agree on a target for the maximum atmospheric concentration of greenhouse gases (GHGs) in the future. Then, there needs to be a mechanism for ensuring that these targets are met. These targets were set by the 1997 Kyoto Protocol which set specific emissions reduction targets for 37 developed countries. The Protocol did not set any targets for the developing countries and United States did not ratify the protocol. The Kyoto Protocol expires in 2012 and a meeting to negotiate a successor agreement will be held in Copenhagen in December 2009.

Tradable emissions allowances, also known as cap and trade schemes are the most popular under the Kyoto Protocol. They require the government to establish a limit for the amount of emissions permitted each year. Such schemes are intended to raise the cost of emitting GHGs and burning of fossil fuels. The key concept behind such schemes is that the number of emissions allowances declines over time. Hence, average allowance prices are likely to rise which makes energy efficiency, renewable energy and low emissions industrial processes attractive to firms and households. In such a program, settling on the rate of emissions decline is tricky. A very gradual decline in the cap implies a slow rise in allowance costs, leading to little decline in GHG emissions. A very rapid decline in the cap could drive up energy costs so quickly that economic activity is pushed into other countries, where there is little or negligible regulation of emissions – a problem referred to as leakage.

European Union’s Emission Trading Scheme commenced operation in January 2005 as the largest multi-country, multi-sector GHG emission trading scheme worldwide.  However, the scheme applies to only 11 specified sectors, such as power generation, steel manufacturing, pulp and paper. Under the scheme, each member state has to establish a national allocation plan for each trading period. In this allocation, the member state decides the total number of allowances to be created for the period and the distribution of these allowances to individual plants.

The Regional Greenhouse Gas Initiative is a scheme initiated in 10 northeastern states of the US in January 1, 2009. It applies to electricity generators with capacity above 25 MW.

The United Nations Clean Development Mechanism established under the Kyoto Protocol issues credits called Certified Emissions Reductions (CERs) which are linked to emissions reduction projects in developing countries. One CER equals one metric ton of carbon dioxide equivalent. CERs are traded actively on financial markets and emitters covered by the European Emissions Trading Scheme (ETS) may purchase them as alternative to ETS allowances to cover a portion of their greenhouse gas emissions.

The business opportunities offered by climate change are reflected in the estimates for global carbon markets which are expected to grow from c $30 billion in 2006 to c $50 billion in 2012. Furthermore, the average traded price of a CER rose from $7.23/ CER to US $11.45 in 2006. India is considered to be the largest beneficiary of the global carbon market. It has pursued GHG abatements schemes in multiple sectors.

There exists tremendous scope for Pakistani entrepreneurs to benefit under the clean development mechanism by using GHG abatement projects and selling the CERs produced to developing countries, multilateral organisations (like the Asian Development Bank, World Bank). Typical opportunities exist in power generation (thermal, hydel and renewable), heavy process industries such as cement manufacturing and fertilisers and waste management.

Scientific evidence shows strongly that human activity is causing an increase in the average global surface temperature on earth. It occurs due to the emission of ‘greenhouse gases’ (GHGs), which can linger in the atmosphere for decades and alter the balance between incoming solar radiation and outgoing infrared radiation, blocking the escape of energy, leading to an increase in atmospheric and surface temperatures. GHGs are released by a number of human activities – the most important of which are combustion of fossil fuels and land clearance, both of which lead to large scale release of carbon dioxide. Other industrial and agricultural activities such as cement manufacturing, animal husbandry and landfill operations cause emissions of GHGs other than carbon dioxide.

For the sake of convenience, limits on GHG emissions are often discussed in terms of ‘carbon dioxide equivalent’. Some examples of such equivalents as given by the Inter Governmental Panel for climate change are:

Climate change is studied using large scale computer models and these show a strong relationship between GHGs and average surface temperature. The GHGs covered by the Kyoto Protocol are now present at an atmospheric concentration of 385 parts per million, up from 278 in pre-industrial times. Most models link this increase with a mean surface temperature about 1 degree C higher than early 19^th century.  If countries are able to stabilise GHGs at 450 parts per million than another 1 degree C in the mean temperature is in prospect.

Estimated Temperature Effects of Stabilised Greenhouse Gas Concentrations

Increase relative to pre industrial period