The famous proverb, “When Life Gives you Lemons, Make Lemonade!” sums up the idea of developing carbon markets in Pakistan where lemons are the rising amount of industrial, agricultural, construction, and vehicular Greenhouse Gas (GHG) emissions and lemonade would be the carbon credits traded in the carbon markets. Carbon markets are trading systems in which carbon credits are sold and bought. A carbon credit represents one tonne of carbon dioxide or equivalent greenhouse gases that have been reduced, avoided, or removed by a mitigation activity. The carbon market is a way to increase climate ambition and lower carbon dioxide (CO2) levels in the atmosphere by creating a financial incentive to curb emissions. Countries can trade carbon credits, which each represent one tonne of CO2, with each other in a global marketplace.
Carbon credits can be used to finance the implementation of Nationally Determined Contributions (NDCs), UN-SDGs 2030 or encourage investments in climate-mitigation projects such as renewable energy generation, regenerating forests and mangroves, biodiversity conservation, and food security. More than two-thirds of countries plan to use carbon markets to meet their NDCs to the Paris Agreement. The Clean Development Mechanism (CDM), adopted under the Kyoto Protocol in 1997, is an international compliance market. Under the CDM, emission-reduction projects in developing countries have generated carbon credits used by industrialized countries to meet part of their emission-reduction targets. Pakistan has abundant potential carbon mitigation and adaptation options and could benefit greatly from collaboration in carbon emission trading with other developing countries like China. The development of eco-friendly projects, like renewable energy in the Green China Pakistan Economic Corridor (Green CPEC), will not only foster Pakistan’s energy transition but also create carbon credits. Pakistan can sell or trade carbon credits from projects like “Billion Tree Tsunami” to GHG emitters, who wish to offset the negative effects of their GHG emissions, through carbon markets.
The carbon market is a way to increase climate ambition and lower carbon dioxide levels in the atmosphere by creating a financial incentive.
Pakistan can participate in the global carbon credit market by taking steps to reduce its carbon footprint and earn carbon credits in return. There are several ways in which Pakistan can earn carbon credits, including the development of renewable energy projects, forest conservation programmes, energy efficiency measures, and waste management projects. Pakistan is an agricultural country having the potential to earn carbon credits by adopting sustainable agricultural practices. This can create positive economic impacts for the farmers by creating opportunities for creating saleable carbon credits. The sustainable development of Pakistan’s blue economy can also reduce the carbon footprint.
Carbon markets can either be Carbon Compliance Market (CCM) or the Voluntary Carbon Market (VCM). Pakistan needs the development of a Carbon Compliance Market to fully achieve the various benefits of carbon trading and operate effectively in the global carbon market. The government of Pakistan may set up a regulatory authority to monitor and manage Pakistan’s carbon market and put pressure on the polluting industries to limit GHG emissions. The regulatory authority can implement a “Cap and Trade” mechanism to limit GHG emissions. Under this regulatory mechanism, the government issues a set amount of permits to companies, which comprises a cap on allowed CO2 emissions. Companies that surpass the cap have to pay carbon taxes, while companies that cut their emissions may sell or trade unused carbon credits. A carbon tax is a form of carbon pricing through which the emitters pay for their carbon emissions.
An important step towards reducing GHG emissions through carbon markets is the development of a digital infrastructure that keeps verified data secure and ensures that GHG emission reductions are accurately accounted for and tracked. GHG Accounting or Carbon Accounting can play an instrumental role in this regard. Carbon accounting is the process of calculating the total greenhouse gas emissions associated with an organization’s operations. These emissions include carbon dioxide, methane, and fluorinated gases that contribute to rising temperatures and climate change. By quantifying these emissions, public and private institutions can identify opportunities to reduce their carbon footprint and develop strategies for mitigating the environmental impact of their operations. The process of carbon accounting should be followed by carbon assessment. Carbon assessment is the evaluation of numerical data of the greenhouse gas emissions provided by carbon accounting. Carbon assessment can help a company thoroughly understand its carbon emissions, and, therefore, help strategically plan for more environmentally and economically sustainable business operations.
The development of an effective and efficient carbon market complemented by the implementation of carbon accounting and assessment across industries can not only mitigate the adverse economic effects of pollution but also provide financial benefits for Pakistan. The banking industry of Pakistan can play an instrumental role in this regard by providing green financing for eco-friendly industries and Natural Climate Solutions (NCS) including project types such as reforestation, avoided deforestation, improved forest management, and agroforestry, which can be used for carbon trading. Green Banking synchronizes with carbon accounting by focusing on all three scopes of emissions, i.e., direct carbon emissions, indirect emissions, and emissions during value chain activities. Concerned stakeholders should be provided training on GHG Protocol which is a widely recognized standard for carbon accounting developed by the World Resources Institute and the World Business Council for Sustainable Development. Carbon accounting and assessment may also be included in the academic curriculum at the university level. Pakistan is lagging in the global carbon market scenario, and it is time that all stakeholders join together so Pakistan can move forward in the carbon credit and trading sector and achieve both economic and environmental sustainability. According to a UNEP report, the development of a carbon market can help slash carbon emissions with clearly defined rules and transparency in the absence of any greenwashing. Every year, we countdown together across the globe to celebrate Earth Hour and switch off the lights. This year lets us take a step beyond and play our part in decarbonizing Pakistan and creating a sustainable path towards the creation of a Net-Zero economy.
The writer has a PhD in Green Banking and works as a Chief Manager Green Banking Office at Bank AL Habib Limited, Pakistan. He can be contacted at [email protected].