Carbon credit in GCC

The private public partnership in the green energy sector bodes well for the future of the carbon credit market, says Ivano Iannelli, CEO of Dubai Carbon Centre of Excellence.

How do you view the increased green energy efforts in the Arabian Gulf region?

The GCC is late entrant in the sustainability scene, however it carries an important ability in its modus operandi: private sector participation. Traditionally, all global developmental models were structured using a multiplier approach whereas ODA (official development assistance) would only fund activities that would start/ pilot/initiate industrial sector and services. In essence ODA would fund the proof of concept and the private sector would follow.

In the GCC, sustainability has now been embraced in the organizational structure and is a synonym of corporate resource efficiency and participation in its macro environment. Companies are now more interested in their ability to benchmark efficiency and integrate their activities and value chains within the immediate environment, thus taking onboard the additional value generated from the social interaction.

Sustainable energy is not how much solar or wind power we can produce, as regardless of the supply, demand will always grow. On the other hand demand is where efforts are being focused in the short term. There are a lot of efficiencies that can be generated from avoidance or better utilization, and a knowledge economy captures such efficiencies. It is a balance between supply and demand that will solve the energy paradigm.

Global carbon credit markets have been facing troubled times, what are your views?

Carbon markets are unevenly performing. The large mature trading schemes in the European Union, and the emergent compliant markets in Australia are demonstrating resilience and withhold the interest of the investment community. On the other hand, despite the second commitment period of

Kyoto, we are still suffering from a seriously wounded global carbon instrument due to an oversupply of “cheap” industrial credits and no increase in demand.

A number of policies and strategies seems to offer relief in the medium term to such market conditions, but we are yet to see the markets recuperate from the lack of ambition globally and setting more stringent targets. This has unfortunately resulted in the loss of interest from the investment community in a segment of carbon markets, which looks at developing countries and emerging economies.

The Clean Development Mechanism has successfully harvested the private sector potential and involvement in developing and financing thousands of initiatives and projects. Now, due to the difficulties linked to obtaining consensus across 200 different stakeholders on a legally binding agreement, seven operational years of CDM private sector know-how are being set aside.

How do you view the private public partnerships in the sustainable energy sector in the Gulf region?

Private public partnerships are a not a new tool in the GCC. Practically, we have already seen a number of initiatives based on the more traditional build-operate-transfer models in the infrastructure realms, now being applied in other areas as well, including energy and low-carbon development.

PPPs are an efficient tool to bring new business models into emerging markets based on the fact that local enterprise may not posses the know-how and rather than “experimenting”. PPPs allow for risk sharing between investors and service providers with a consequential transfer of intellectual property across the board. The Dubai Carbon Centre itself was formed as a PPP with the United Nations Development Program (UNDP) and Dubai Government and successfully leverages international best practices in combination with regional expertise through this.

Have you been successful in selling Dubai’s carbon credits in the international market?

DCCE-supported projects are not at the commodity-selling stage just yet, although orders are piling up. In essence carbon credits are not issued at face value, but as a result of a demonstrated (and audited), avoidance taken place. Once the project is registered, and similar to economic accrual models, carbon credits are “earned”, and issued upon the project owner readiness to engage a third party verifier. This can happen as frequently as necessary, considering that the third party has a cost, and with carbon markets so low, it is rather advisable to achieve more credits before calling on for verification.

The Dubai Carbon Centre finalized the registration of four carbon credit projects for clients such as DEWA, Dubal and UCC at the end of 2012. These projects will generate carbon credits upon implementation in 2013, therefore will only enter the market in 2014. We are nevertheless confident to find a large domestic demand for locally manufactured emission reduction certificates. Companies in the UAE would prefer to use carbon credits that contribute to the national green economy for their offsetting over “anonymous” projects from abroad.

What is the current status of greenhouse gas emissions in the region, and how has this changed over the past few years?

Dubai Carbon was commissioned by the Dubai Supreme Council of Energy (DSCE) to establish a Greenhouse Gas Inventory for the Emirate, commonly addressed as “Carbon Footprint”, and a system for monitoring, reporting and verification (MRV). The majority of carbon emissions in the UAE come from energy consumption and transportation. As the energy production is already highly efficient with DEWA utilizing 100 per cent gas, the focus must be on demand side reduction, for example having energy efficient upgrades in buildings and or increased saving efforts of the consumers.

Despite being an oil-rich region, why should the GCC countries adopt green technologies? What are the incentives?

There is one simple answer to this question: because it makes financial sense. With recent improvements in efficiency and reduced procurement costs, renewable energy like solar photovoltaic panels or solar water heaters on roof tops the business case is clear. In many projects Dubai Carbon develops for its clients, the investment is paid back under 10 years. The business case is even stronger, when we look into energy efficiency upgrades like efficient lighting or chillers, some of this equipment pays back within half a year. The GCC can furthermore not afford to be left behind in research and application of green and sustainable technologies.

How do you see the future of the sector in this region?

Sustainable green technologies have a bright future in the GCC, with strong business interests and sufficient resources to invest in R&D as well as an Arab culture that prioritizes preserving the environment of their forefathers for generations to come. The greatest surprise of the 21st century has been the emerging role of GCC-based private sector and expect that the current liquidity and interest in energy and low-carbon development may built upon a new class of sophisticated entrepreneurs that leverage the GCC business acumen and can-do attitude with a new industry focus.

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Chief executive of Dubai Carbon Centre of Excellence Ivano Iannelli