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Business opportunities in carbon markets

In the midst of a sluggish world economy and difficult local economic circumstances, issues relating to climate change are not high on the agenda of many businesses.

However, despite the recession, the challenge of addressing energy and environmental sustainability, which are integrally related to climate change, presents new business opportunities.

The long-term forecast indicates rising energy prices from traditional sources. Therefore, there is a growing need for more efficient and cost-effective ways of producing energy.

This means innovators in the energy sector can reap huge rewards by developing new products and services that can meet the demands of the market. Business innovation is, therefore, essential to deliverthe solutions to climate change and an environmentally sustainable economy.

Utility companies will have a key role to play by improving the efficiency with which energy is produced and by investing in renewable sources of energy as part of their energy portfolio.

In this regard, the Jamaica Public Service Company commissioned its first wind-power plant into service in Munro, St Elizabeth, in October this year at a cost of J$800 million.

This investment forms part of its commitment to reduce Jamaica’s dependence on imported oil for electricity generation, through the use of more renewable energy sources.

Developed-country markets, particularly in the European Union (EU), are increasingly favouring companies in their buying decisions that have strong environmentally friendly policies and a low carbon footprint.

A low carbon footprint means that a company has either reduced its emissions of carbon dioxide or other greenhouse gases in its production process to an acceptable level or, alternatively, is consuming energy more efficiently.

CARICOM is concerned that new trade barriers could emerge in this regard that could affect the region’s major exports, as EU and other developed-country markets are increasingly looking at environ-mental provisions to include in trade agreements.

INT’L AGREEMENTS

Under the United Nations Framework Convention on Climate Change negotiated at the 1992 Earth Summit in Rio de Janeiro, nations committed to developing and implementing climate-protection measures “appropriate for the specific conditions of each party”.

In addition, industrialised (Annex I) countries agreed to voluntarily reduce their greenhouse gas, or GHG, emissions to 1990 levels by 2000.

The convention entered into force in May 1994 and has been ratified by 186 countries, including the United States (US). Very few industrialised countries, however, have met the voluntary target. For instance, US GHG emissions have climbed nearly 15 per cent since 1990.

The 1997 Kyoto Protocol would significantly strengthen the conven-tion, by establishing legally binding emission targets for industrialised countries and establishing a range of mechanisms to encourage cost-effective compliance.

In order to meet the objectives of Kyoto, Annex I countries – more developed countries which ratified the agreement – are required to prepare policies and measures for the reduction of greenhouse gases in their respective countries.

In addition, they are required to increase the absorption of these gases and utilise all mechanisms available, such as joint implementation, the clean development mechanism and emissions trading, in order to be rewarded with credits that would allow more greenhouse gas emissions at home.

Arising from this agreement, Europe implemented the Emission Trading Scheme (EU ETS) which would allow EU investors and companies to buy properly certified emissions-reduction credits from energy projects in developing countries, where emissions reduction could be more easily achieved at a lower cost through the implemen-tation of fairly simple processes to either reduce carbon dioxide emissions or through renewable-energy projects.

This, therefore, created an incentive for EU investors to invest in energy efficiency and renewable energy projects in developing countries in order to obtain the emissions-reduction credits that would allow them to meet compliance obligations at home.

PROJECT DEVELOPMENT

The largest developing-country beneficiaries under this scheme have been China, India and Brazil, which are relatively industrialised.

However, Jamaica has also benefited under this scheme through the Wigton Windfarm in St Elizabeth, which has been successfully trading carbon credits.

There are great opportunities for other renewable and energy-efficiency projects in Jamaica which could tap into the financing available under the EU ETS.

However, there is the threat of increased uncertainty in carbon markets if there is no successor agreement to the Kyoto Protocol, which expires at the close of 2012.

The process of project development and certification may take several years. Hence, investors might be unwilling to invest in projects without the more predictable environment engendered by an international agreement.

Nevertheless, it seems likely that the EU ETS will continue post-2012, with an improved design.

Whether the trading in carbon emission-reduction credits continues in its present form or not, the challenges facing the energy and environment sectors, united through the concept of carbon emissions, present great business opportunities for those visionary enough to develop the innovative solutions which will shape the world of tomorrow.

The Private Sector Organisation of Jamaica’s Capacity Building of Caribbean Private Sector Environ-mental and Energy Management Capabilities project, funded by the EU and launched in September, re-presents part of the process of developing the solutions to Jamaica’s energy and environmental challenges.

Omar Chedda is manager – trade and environment at the PSOJ.



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