Region looks for its advantage
It’s all about energy, its sourcing, its usage, and the consequences thereof. On meadows next to London Heathrow, Europe’s busiest airport, protesters haggle with police. On a glacier in the Swiss Alps, news crews have a field day filming a glacier teeming with 600 in-the-buff Greenpeace activists.
In Singapore, worsted-wool clad energy ministers in the ASEAN trade block change the agenda of their main annual meeting and wrestle with carbon emission standards. In Vienna, an entire legion of state officials, industry personalities, and civil society representatives congregate for a week of debates, undoubtedly with a fair share of hot air.
The agendas of all these happenings in the space of less than a month (August 2007) center on one thing: climate change. Re-evaluate it.
The global energy dilemma is like most fundamental conflicts: amazingly straight forward and equally hard to crack. It results from two opposing needs. To widen the range of comfortable living conditions that have been made possible by the technical progress of the industrial age to include the majority of the world’s still growing population, the global output of energy and electricity has to double by 2050.
But to safeguard Planet Earth against the incalculable risks of climate change and global warming that would accelerate after 2050 and peak in the 22nd and 23rd centuries, the output of carbon emissions has to be reduced to achieve a net annual decline by 2030 and every year thereafter.
One global mechanism seeking to instigate reduction of carbon emissions is the Kyoto Protocol. By this 1997 treaty, a club of 35 developed countries are supposed to commit themselves to cutting their output of greenhouse gases — presumed by scientists to be big contributors to global warming — in increments between 2008 and the treaty’s expiry in 2012. The developed countries are obliged to progressively lower their emissions each year during this period to undercut a ceiling defined as their emission volumes in 1990 by 5% in average.
As they are not part of the countries with these reduction targets, most Arab countries have ratified or accepted the Kyoto Protocol between 2002 and mid-2006 along with the majority of the world’s nations. By the end of 2006, 169 countries and nation-level entities had ratified or accepted the Kyoto Protocol and its emission reduction mechanisms.
Kyoto’s benefits to developing nations
What makes the Kyoto Protocol interesting to developing nations are two benefits purposely built-in to their advantage: carbon emissions trading and the Clean Development Mechanism (CDM). These two tools are based on the same basic approach: because developed countries have to meet emission targets for their greenhouse gases and may face either very high costs for the required technology (especially if their emissions are already at the low end of what is technically possible) or even stiffer penalty payments, they are free to look for alternatives.
Countries or entities, such as power plants, factories, or large municipalities, which emit more than they are allowed to, can purchase “carbon credits” from others who emit less than they are allowed to. Or the emitters can invest into an emissions-reducing project in a developing country, which will also earn them credits at a cost advantage over reducing gas emissions at home because implementation of such projects in developing markets is cheaper.
Although countries of the MENA region have largely inked the Kyoto Protocol, steps to take advantage of emission trading and CDM investments are scarce. Up to August 2007, the CDM statistics show about 760 registered projects, of which 80% were concentrated in only four countries — China, India, Brazil, and South Korea.
CDM projects are dedicated mostly either to destruction of greenhouse gases (primarily hydro-flouro-carbons) or energy generation. Wind energy projects account for a notable share in the latter category but to date, there is no registered CDM project that would provide power for a water desalination plant, an omission noted by advocates of the mechanism in Arab countries.
Among a handful of companies that have ventured into Kyoto-related activities in the Middle East is the consulting firm Energy Management Services (EMS). The Jordanian-founded company, which last year became a subsidiary of Dubai Holding through acquisition by Dubai International Capital, has made its money by offering consulting services on energy efficiency for building projects (green buildings) but company managers told Executive on the sidelines of a conference earlier this year that the firm also has ventured into carbon credit trading.
According to a manger for the company, EMS has successfully marketed carbon allowances of a Jordanian power plant that switched from burning fuel oil to natural gas. Selling these carbon credits to European companies has created a revenue stream of 10 million euros annually for the Jordanian side.
Criticisms of the Kyoto process and the CDM include allegations, made in early 2007, that many of the CDM projects receive excessive payments, far beyond their cost of implementing improved energy efficiencies. Another point of critique is that the process of registering a CDM project is complicated, time consuming, and highly bureaucratic.
Nonetheless, the mechanism offers substantial advantages to the limited number of renewable energy projects in the Middle East that are currently making use of it. In Egypt, this is the case in the Zafarana Wind Park, a renewable energy project on the Red Sea coast southeast of Cairo that has several expansions on its agenda for the coming three years, to reach a total projected capacity of 545 MW by 2010.
Egyptian officials are full of praise for wind energy, saying that although it is more expensive than power generation from fossil fuels it has become feasible through CDM revenues. According to a report from a recent conference, Egypt wants to expand its power generation from wind by 750 MW annually under its development plan until 2012 and has an overall target of generating 20% of its electricity from wind farms. The program is backed by research into wind conditions across the country. For Egyptian enterprises, it harbors strong manufacturing prospects with opportunities to set up new manufacturing plants and create thousands of jobs.
Securing alternatives
In their search for securing future electricity supplies, Arab countries aim for substantial usage of nuclear power with policies and projects either under discussion or in the planning stage by the GCC, Jordan, Egypt, and other countries. Additionally, the region sports renewable energy projects such as a plan for generating large-scale solar power for export in Algeria using a hybrid solar heating and gas burning method. The country’s aim is to be able to export thousands of megawatts to Europe by 2020.
Saudi Arabia, which hosted a first CDM conference a year ago this month, has an array of renewable energy plans and then there are some high profile projects in the UAE. Dubai planners this year have come up with a project to build a self-sufficient green skyscraper, the Burj al-Taqa and Abu Dhabi’s Masdar initiative recently entered an agreement with aluminum producer Dubai to implement a CDM project that will reduce greenhouse gas emissions at the smelter, without announcing further details on the costs and expected carbon trading benefits.
Despite those steps forward, the whole range of possibilities for profitable projects in this region as part of the global effort to fight global warming “has not yet been discovered completely,” said Salim El Meouchi, of Beirut law firm Badri & Salim El Meouchi. He told Executive that his firm started adding a specialization in Kyoto Protocol related finance and Islamic finance last year and found that no other major Lebanese law firm has yet ventured into this area.
According to El Meouchi, the evolution of CDM finance in the Middle East is still similar to last year when the lawyer presented a paper at the 2006 CDM conference in Saudi Arabia saying that despite their high potential returns, Kyoto-financed CDM projects remain a novelty “for the Islamic financial community and for the Middle East and GCC areas. This results in numerous foregone opportunities.”
However, he told Executive that he sees all countries of the region as generally interested in such projects because of their importance for the future, adding that he expects a new increase in projects once the rules have been laid out for the period after 2012 when the current Kyoto Protocol expires.
In conclusion of this year’s climate change agenda, a major international conference on the follow-up rules to the Kyoto Protocol is scheduled for December 2007 on the picturesque island of Bali.
