Carbon Market in the Middle East

green-middle-eastMiddle East is highly susceptible to climate change, on account of its water scarcity, high dependence on climate-sensitive agriculture, concentration of population and economic activity in urban coastal zones, and the presence of conflict-affected areas. Moreover, the region is one of the biggest contributors to greenhouse gas emissions on account of its thriving oil and gas industry.

The world’s dependence on Middle East energy resources has caused the region to have some of the largest carbon footprints per capita worldwide. Not surprisingly, the carbon emissions from UAE are approximately 55 tons per capita, which is more than double the US per capita footprint of 22 tons per year. The MENA region is now gearing up to meet the challenge of global warming, as with the rapid growth of the carbon market. During the last few years, many MENA countries, like UAE, Qatar, Egypt and Saudi Arabia have unveiled multi-billion dollar investment plans in the cleantech sector to portray a ‘green’ image.

There is an urgent need to foster sustainable energy systems, diversify energy sources, and implement energy efficiency measures. The clean development mechanism (CDM), under the Kyoto Protocol, is one of the most important tools to support renewable energy and energy efficiency initiatives in the MENA countries. Some MENA countries have already launched ambitious sustainable energy programs while others are beginning to recognize the need to adopt improved standards of energy efficiency.

The UAE, cognizant of its role as a major contributor to climate change, has launched several ambitious governmental initiatives aimed at reducing emissions by approximately 40 percent. Masdar, a $15 billion future energy company, will leverage the funds to produce a clean energy portfolio, which will then invest in clean energy technology across the Middle East and North African region. Egypt is the regional CDM leader with twelve projects in the UNFCCC pipeline and many more in the conceptualization phase.

Middle East is an attractive carbon market as it is rich in renewable energy resources and has a robust oil and gas industry. Surprisingly, very few CDM projects are taking place in MENA countries with only 22 CDM projects have been registered to date. The region accounts for only 1.5 percent of global CDM projects and only two percent of emission reduction credits. The two main challenges facing many of these projects are: weak capacity in most MENA countries for identifying, developing and implementing carbon finance projects and securing underlying finance. Currently, there are several CDM projects in progress in Egypt, Jordan, Bahrain, Morocco, Syria and Tunisia. Many companies and consulting firms have begun to explore this now fast-developing field.

The Al-Shaheen project is the first of its kind in the region and third CDM project in the petroleum industry worldwide. The Al-Shaheen oilfield has flared the associated gas since the oilfield began operations in 1994. Prior to the project activity, the facilities used 125 tons per day (tpd) of associated gas for power and heat generation, and the remaining 4,100 tpd was flared. Under the current project, total gas production after the completion of the project activity is 5,000 tpd with 2,800-3,400 tpd to be exported to Qatar Petroleum (QP); 680 tpd for on-site consumption, and only 900 tpd still to be flared. The project activity will reduce GHG emissions by approximately 2.5 million tCO2 per year and approximately 17 million tCO2 during the initial seven-year crediting period.

Potential CDM projects that can be implemented in the region may come from varied areas like sustainable energy, energy efficiency, waste management, landfill gas capture, industrial processes, biogas technology and carbon flaring. For example, the energy efficiency CDM projects in the oil and gas industry, can save millions of dollars and reduce tons of CO2 emissions. In addition, renewable energy, particularly solar and wind, holds great potential for the region, similar to biomass in Asia.

Bagasse-Based Cogeneration in Pakistan: Challenges and Opportunities

Considering the fact that Pakistan is among the world’s top-10 sugarcane producers, the potential of generating electricity from bagasse is huge.  Almost all the sugar mills in Pakistan have in-house plants for cogeneration but they are inefficient in the consumption of bagasse. If instead, high pressure boilers are installed then the production capacity can be significantly improved with more efficient utilization of bagasse.

However, due to several reasons; mostly due to financing issues, the sugar mill owners were not able to set up these plants. Only recently, after financial incentives have been offered and a tariff rate agreed upon between the government and mill owners, are these projects moving ahead.

The sugar mill owners are more than willing to supply excess electricity generated form the in-house power plants to the national grid but were not able to before, because they couldn’t reach an agreement with the government over tariff. The demand for higher tariff was justified because of large investments in setting up new boilers. It would also have saved precious foreign exchange which is spent on imported oil.

By estimating the CDM potential of cogeneration (or CHP) projects based on biofuels, getting financing for these projects would be easier. Renewable energy projects can be developed through Carbon Development Mechanism or any other carbon credit scheme for additional revenue.

Since bagasse is a clean fuel which emits very little carbon emissions it can be financed through Carbon Development Mechanism. One of the reasons high cogeneration power plants are difficult to implement is because of the high amount of costs associated. The payback period for the power plants is unknown which makes the investors reluctant to invest in the high cogeneration project. CDM financing can help improve the rate of return of the project.

Bagasse power plants generate Carbon Emission Reductions in 2 ways; one by replacing electricity produced from fossil fuels.  Secondly if not used as a fuel, it would be otherwise disposed off in an unsafe manner and the methane emissions present in biomass would pollute the environment far more than CO2 does.

Currently there are around 83 sugar mills in Pakistan producing about 3.5 million metric tons of sugar per annum with total crushing capacity 597900 TCD, which can produce approximately 3000 MW during crop season Although it may seem far-fetched at the moment, if the government starts to give more attention to  sugar industry biomass rather than coal, Pakistan can fulfill its energy needs without negative repercussions or damage to the environment.

However some sugar mills are opting to use coal as a secondary fuel since the crushing period of sugarcane lasts only 4 months in Pakistan. The plants would be using coal as the main fuel during the non-crushing season. The CDM effect is reduced with the use of coal. If a high cogeneration plant is using even 80% bagasse and 20% of coal then the CERs are almost nullified. If more than 20% coal is used then the CDM potential is completely lost because the emissions are increased. However some sugar mills are not moving ahead with coal as a secondary fuel because separate tariff rates have to be obtained for electricity generation if coal is being used in the mix which is not easily obtained.

Pakistan has huge untapped potential for bagasse-based power generation

One of the incentives being offered by the State Bank of Pakistan is that if a project qualifies as a renewable project it is eligible to get loan at 6% instead of 12%. However ones drawback is that, in order to qualify as a renewable project, CDM registration of a project is not taken into account.

Although Pakistan is on the right track by setting up high cogeneration power plants, the use of coal as a secondary fuel remains debatable.  The issue that remains to be addressed is that with such huge amounts of investment on these plants, how to use these plants efficiently during non-crushing period when bagasse is not available. It seems almost counter-productive to use coal on plants which are supposed to be based on biofuels.

Conclusion

With the demand for energy in Pakistan growing, the country is finally exploring alternatives to expand its power production. Pakistan has to rely largely on fossils for their energy needs since electricity generation from biomass energy sources is considered to be an expensive option despite abundance of natural resources. However by focusing on growing its alternate energy options such as bagasse-based cogeneration, the country will not only mitigate climate change but also tap the unharnessed energy potential of sugar industry biomass.