By Zaid Aboobacker in Kuwait Times
17 August 2023
KUWAIT: Step into the world of carbon credits. Picture this: A permit granting countries and organizations a set carbon emission limit. But here’s where it gets intriguing – if they don’t use up their allowance, they can trade it. Imagine a company selling its unused emissions to another that’s gone overboard their emission limits. In simple words, carbon credits grant organizations the right to emit a certain amount of CO2 annually, acting as a regulatory framework which allows countries to stay within their emission control goals.
Emission trading systems
Carbon markets mainly fall into two types: Compliance and voluntary. Compliance markets emerge due to the presence of national, regional and/or global policies or regulatory obligations. These are obligatory responsibilities that businesses must meet. Voluntary carbon markets, both at the national and international levels, refer to the voluntary trading, purchasing and selling of carbon credits. The current supply of voluntary carbon credits comes mostly from private organizations that develop carbon projects, or governments with certified programs that reduce emissions and/or removals.
Demand is generated by businesses with sustainability goals, private individuals looking to offset their carbon footprints and other parties looking to profit by trading credits. One of the first tradable emission offset mechanisms is the 1997 US Clean Air Act. This act enabled a permitted facility to increase emissions if it compensated by paying another company to cut emissions by an equal or greater amount.
This act laid the groundwork for a mesmerizing dance of emission trading that echoes across subnational, national, and international stages. In 2023, under India’s Carbon Credit Trading Scheme, entities exceeding emission limits now face a choice: Pay a penalty or embrace responsible practices. Programs like California’s Cap Trade Program cover about 85 percent of statewide GHG emissions. One of the biggest emission trading systems is the European Union Emission Trading System (EU ETS), which witnessed emission allowances from €12.4 per ton by the end of 2010 to a jaw-dropping €100.3 per metric ton of CO? by 2023.
Carbon offset schemes for carbon credit
Let’s talk about carbon offset schemes — these schemes are programs which produce credits in exchange for funding programs that offset carbon emissions. Carbon credits and offsets are produced from diverse projects like fuel switching, energy efficiency, reforestation and renewable energy. In practice, a developed country can fund a greenhouse gas reduction project in a developing country. As a result, the developed country receives credit for achieving its carbon reduction goals, while the developing country receives funding for projects, technologies or a favorable change in land use. This falls under the Clean Development Mechanism, a UN-administered carbon offset initiative. CORSIA, the Carbon Offsetting and Reduction Scheme for International Aviation, represents a global initiative aimed at limiting international aviation emissions, which also establishes a framework for generating credits and offsets on a global scale. The REDD+ program is another international program that aims to monetize landowners to refrain from deforestation or degradation. In doing so, the program fosters a collaborative balance between conservation and compensation. Dr Nadine Moustafa, a PhD researcher specializing in carbon capture technologies, said: “Should Kuwait embark on implementing such a scheme, it must brace itself for an ongoing and vigilant monitoring process.
Embracing an emissions trading scheme becomes especially pivotal if Kuwait intends to embrace industrial innovation, championing technologies like carbon capture and storage.” Some carbon markets are implementing blockchain technology for processes like tracking carbon credit transactions or monitoring, reporting and verification. This can improve the auditability of emission-reduction project data, streamlining verification processes, thus reducing transaction costs and enhancing trust among market participants, according to the World bank.
Value of Credits
How are the carbon credits valued? How can we ensure the quality of a carbon credit? How do we determine the value of a carbon credit produced by a carbon offset program? We will all answer it here. A number of factors can affect the prices of the value of the credits produced in an offset program. Project development costs and certification from a respected organization, projects that absorb CO2 and projects with added social and environmental advantages can all command a higher price. Carbon credits with older vintages tend to be valued lower on the market. The vintage is the year in which the carbon emissions reduction project generates the carbon offset credit. Certification programs are a key component of this community. In 2022, voluntary carbon market prices ranged from $8 to $30 per ton of CO2 for the most common types of offset projects.
Risks of the current market
Dr Moustafa also informed Kuwait Times about potential drawbacks and uncertainties such as carbon leakage, overallocation of credits, lack of additionality and inaccurate emission accounting. She added it is important to note that these risks can be managed and mitigated through proper design and transparency.
Carbon credit for Kuwait
Kuwait has huge potential to implement this into their system in the future, according to Shariq Ahmed, who works as an HSE Specialist in a Kuwait petroleum company. “Several factors could influence the implementation and success of carbon credits or an emission trading system, as Kuwait’s economy profoundly depend on oil exports, and the oil industry is a major supplier to its carbon emissions.
The availability of technologies for monitoring and reporting emissions is important for an effective ETS or carbon credit system. Precise measurement is necessary to ensure the integrity of emission reductions,” he said. Kuwait Finance House supported the first carbon offset platform in 2021. Its aim was to mitigate carbon emissions by increasing tree plantings and starting new environmental projects. But Kuwait has still not established a proper emissions trading system.
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