Will economic slowdown adversely effect carbon market growth?

The credit crunch has had a huge impact on the oil prices which have now dropped to $100 per bbl. Early July carbon prices experienced significant price rise due to increasing oil prices and now these prices have stablised with oil price becoming relatively steady. Although economic growth and thus the industry output is witnessing a slowdown but an increasing rate of electricity demand pushes the power sector to continue to generate more electricity and thus emit more carbon dioxide. The slowdown may cause a 1% or 2% carbon emissions decrease in large power plants but the total emissions would still be higher than last year. Increasing carbon emissions calls for more carbon permits. Clearly, the demand for carbon credits would continue to grow in near term.

However, negative investor sentiments and high-priced debt could lead to a cut in supply of fund to renewable energy projects which would deter the growth of carbon market in medium term.

Liquidity crisis means that the banks and other lenders are less willing to give loans as they are skeptic about their loans being repaid. The flow of capital has slowed down in across all the sectors in the industry. Loan for renewable energy sector could also witness short-supply. Many project developers in such a scenario would look at other financing options - pension funds & equity investors. However, in a long run the clean energy sector appears to be a more competitive sector vis-à-vis the others considering rising energy demand & global warming which is know acknowledged by more & more nations.

The Far-reaching Impacts of Climate Change

That climate change will severely affect the Third World is an oft-repeated fact. For instance, Bangladesh, which already suffers from devastating natural disasters, is predicted to bear some of the worst effects of climate change. Rising sea-levels threaten to inundate the low-lying regions in Bangladesh and erratic weather patterns will intensify the impacts of the cyclones that hit Bangladesh's populated coast.

But the effects of climate change are not going to be restricted only to developing countries. As Hurricane Ike hit countries in the Caribbean (Haiti, Cuba, and Turks and Caicos) and then the southern US coast, it is obvious that the developed world of USA is not immune to climate change either.

Ike killed more than 70 people in the Caribbean, with Haiti, an already impoverished country, being the hardest hit. There has been widespread destruction of property in all the Caribbean nations. In the US, an estimated one million people were evacuated to escape the storm which made landfall at the Gulf Coast of Texas. The storm caused damage worth US$ 10 billion in USA.

Thus, the need for a concerted global effect to fight climate is now even stronger. Climate change is not limited to few corners of the globe but instead has the potential to wreak havoc on entire sections of the world. In light of this fact, it is shocking that the developed world might not even fulfill it's obligation under the Kyoto Protocol.

With this year being election year in USA, it will be interesting to see what kind of a role climate change plays in the campaigns of the Presidential candidates. The US has already gotten notoriety for refusing to be a part of the international climate change treaty – Kyoto Protocol. But with hurricanes lashing the US with ever-increasing ferocity, this might just be the wake-up call that America needs.

Article in TImes Of India, Mumbai on 15th Sept, 2008

Highlights from the recently concluded international climate change talks in Accra, Ghana

Phase I of the Kyoto Protocol will draw to a close in 2012. Negotiations for a follow-up protocol have already been started internationally. The key talks in this negotiation series will be held in Copenhagen in the end of 2009. As a run-up to these crucial talks, the UN held an international climate change meeting in Accra, Ghana from 21 to 27 August 2008. Around 1,600 participants, including government delegates from 160 countries and representatives from environmental organizations, business and industry and research institutions, attended this meeting.

The Accra talks have been positive and encouraging. Governments made it clear in Accra that they regard deforestation to be an important factor towards climate change and signaled a readiness to tackle deforestation. The issue of deforestation will thus be very much on the table in the Copenhagen Meeting.

Discussions at Accra also seriously looked at ways to improve the CDM process. Lack of substantial CDM investment in Africa was cited as one of the shortcomings of the current CDM. Climate change can not be mitigated without including Africa in the fight against climate change. It is essential that Africa does not get left behind.

Countries also focused on "sectoral approaches" - through which countries can address emissions from a whole sector of their economy. But it was clearly emphasized that such approaches should not lead to binding targets for developing countries and it should be up to the country to decide if it wants to implement sectoral policies (or not).

The above main conclusions of Accra clearly indicate the agenda for the next round of climate change talks which will be held in Poznań, Poland in December 2008 in preparation of the grand finale talks in Copenhagen in end of 2009.

The Carbon Benefits of Forests

Preserving the natural environment is one of the surest ways to mitigate the effects of climate change. Forests are a natural carbon sink: through the process of photosynthesis, trees absorb the carbon-dioxide from the atmosphere, releasing oxygen in exchange. Trees thus effectively sequester carbon, which is why protection of forests should be a key point in any climate-change strategy.

The UNFCCC has also recognized the importance of forests as climate-change-mitigation weapons. Afforestation and reforestation projects are included in the UN's CDM mechanism and the UN has defined rules and methodologies for quantifying the emissions reductions available from forestry activities.

While trees sequester carbon during their life-times, forest fires, deforestation and other such human-related activities which destroy forests and fell trees, releases this stored carbon back into the atmosphere. It is believed that deforestation accounts for about 20 percent of all greenhouse gas emissions. And with most of the world's major forests located in the developing world, it will be a challenge to prevent the deforestation of these forested lands, as there is constant need of this land for agricultural, industrial, livelihood purposes.

The World Bank has developed a unique programme, known as the Forest Carbon Partnership Facility (FCPF), to prevent deforestation in the developing world. The FCPF became functionally operational on June 25, 2008 and was recently launched in 14 developing countries: six in Africa (the Democratic Republic of Congo, Gabon, Ghana, Kenya, Liberia, Madagascar); five in Latin America (Bolivia, Costa Rica, Guyana, Mexico, Panama); and three in Asia (Nepal, Lao PDR, and Vietnam).

Under this programme, the Bank will work closely with national governments to devise a national strategy that focuses on preventing deforestation while preserving the livelihoods of communities that are dependent on forests. Moreover, the Bank will advise UNFCCC on how to incorporate deforestation projects into the CDM mechanism. Initially the Bank will buy the carbon-credits generated from the forestry projects, from the national governments. In this manner, countries will get further financial incentive to conserve their forests. For poor, developing countries, the carbon-finance derived from conserving their national forests is economically important.