Counting the carbon credits

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The economics of global energy supplies could be in for a radical shake-up. Reducing pollution has become big business, and pollution markets play a major role in encouraging industries to adapt to the requirements of a non-carbon intensive world future.

"Money and the environment are not enemies, in fact they work fantastically together," says Tilak Doshi, executive director of energy at the Dubai Multi Commodities Centre. "The best way to cure problems of pollution are in fact to use the market in order to create the correct incentives."

Often criticised for lack of transparency and openness to corruption, the carbon trading system is relatively young. But Rod Beckstrom, a board member of the influential Environmental Defence Fund that co-drafted the Kyoto Protocol, believes it is a system the world can't afford to give up on. "I believe it's a system that has integrity," he maintains, "and it's certainly a system that's so important for the climate of this planet that where it has shortfalls, boy we need to work on those shortfalls. But we don't need to get rid of the system because we need this system." And it needs to grow: "we need this system to be much more expansive and include the US, China and the GCC."

Currently there are no limits on how much companies in the region can pollute, but despite this in some countries carbon clean-up operations are already in place. In May 2007, one of the GCC's first UN approved clean development mechanism (CDM) registered projects was established in Qatar. Developed by Qatar Petroleum, the Al Shaheen Oil Field Gas Recovery and Utilisation project is set to reduce the company's greenhouse gas emissions by over 2m tonnes of carbon dioxide a year.

In Egypt, the ancient mud-brick industry is quietly overhauling itself and switching from the use of mazot, a dirty heavy oil, to natural gas to fuel the factories. Fertiliser factories are also taking advantage of CDM compliant techniques to reduce their emissions and enable them to trade their carbon credits.

At the financial heart of one of the globe's biggest hydro-carbon producing regions, Dubai is preparing to launch its own carbon exchange platform. The Dubai Multi Commodities Centre (DMCC) is working with EcoSecurities, one of the world's largest carbon trading firms, and companies with large carbon footprints that are interested in carbon trading. These include Dubai Municipality, DEWA and several major cement companies. "Even though we might not have pollution controls here, we can participate in cleaning the environment in an economically feasible way," says Doshi, "there are no controls as in Europe. But we can cut pollution, generate carbon credits and sell those credits to countries who want to buy them."

The DMCC is positioning itself as a free to use ‘one-stop-shop' for companies to get emission reduction operations approved by the UN, a complex task. Once a critical mass of registered CDMs have been created making trading viable, an exchange platform will be set up. "It would be a DMCC-led venture and it would most likely be in our exchange in which we have majority share, the Dubai Gold and Commodities Exchange," explains Doshi. Partnering the firms it has assisted, the DMCC will benefit from revenues generated when trading commences.

The carbon trading market is both compliance driven and attracts investors who see the pollutant and its equivalents - classified under the Kyoto Protocol and all referred to in financial terms as carbon credits - as commodities to be traded in the same way as any others. The market is complex and many factors affect the price of the credits, significantly the price of other energy commodities. Robin Gregory, emissions trader at CantorCO2e, explains: "the price essentially is derived from all the other energy commodities so if someone is really looking to invest in this market they need to have an awareness of the other energy commodities. Therefore they can then take a view on where this market's going."

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