Understanding Carbon
Markets & Potential for
Pakistan
Why Markets for Climate Action?
• Inextricable linkages between Economic growth and
environmental cost to the society with the goal to
limit the unsustainable practices
• Integrating social cost of pollution in full through
policies and regulations
• Internalizing the environmental externalities leading
to policies such as:
• Quantity Regulations
• Carbon Pricing mechanisms
• Carbon Taxes, Cap and Trade Mechanisms
1
Paris Decarburization Target & Carbon Markets
50
Mitigation Targets and Financing
Business as
Usual
40
• Drastic emissions reductions required
-23 G ton from
for keeping the global average temp in current Level
1.5 oC range (570 Gtons of GHG global 30
budget)
• GHG emissions to be cut by 50% from
20
2030 and reach to net-zero by 2050
• Financing gaps to fund the required
10
emissions reductions amounts to
trillions - Not possible to be financed
from public and/or concessional funding 0
sources
Net Zero by 2050
2020 2030 2040 2050
Principle of Cap & Trade
A market-based approach used to control pollution by setting a ceiling on total
pollutant emissions and providing an economic incentive for achieving emissions
reductions
Participants are allowed to trade emissions reduction permits (aka allowances) in
order to make profits from unused allowances or to meet requirements
Carbon Credit
A financial instrument equivalent to either:
(a) the right to emit 1 metric ton of CO2 (an allowance); or
(b) the reduction of 1 metric ton of CO2 (i.e an offset)
Carbon Offset
Offsetting involves reducing net carbon emissions by buying the rights to emissions reductions
generated by GHG reduction projects
Offsets are project-based emissions reductions and may be used in voluntary or regulated markets
Introduction to Carbon Market
Compliance Vs Voluntary Market
• Voluntary Carbon Market (VCM) is a
decentralized market where private actors
voluntarily buy and sell carbon credits that
represent certified removals or reductions of
GHGs
• Compliance Carbon Markets (CCMs), are set
by “cap-and-trade” regulations. Carbon
emission certificates for domestic firms and
sectors are issued by governmental
organizations or international body (United
Nations)C
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Mechanism of Carbon Trading
$$$ $$$ $$$
Government
implements
carbon pricing
mechanism or With Carbon Pricing the cost of doing business and services increases incentivizing to
shift the business to low emissions options
Emission
Reduction Targets
CO2
2
Renewable and low energy options becomes more competitive and cheaper and
ultimately leads to low emissions
1
From Kyoto to Paris – Success and Lessons Learnt from
CDM
• Articles 6, 12 and 17 of the Kyoto Protocol (1997) established
the global carbon market
•
• CDM established the rules and methodologies for GHG
emission reduction quantification, baselines and protocols for
monitoring and verification
• Emissions trading systems facilitated the trading of carbon
credits and established the billion dollar global carbon market
• Success of CDM shows the potential for Article 6 in
contributing to the target of Paris Agreement
Voluntary & Compliance Market Specifications
Compliance Market Voluntary Market
Shifting to low emissions Emission reductions for
Objectives compliance voluntary commitments
Market Based Market Based
Carbon Pricing Price Range: Price Range: 1$ to 60$
Certified Emissions Voluntary Carbon Units
Product Reductions (CERs) VCUs/VERs
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Growth of Carbon Markets in Numbers!
73 Initiatives 39 National Initiatives
Carbon Prices Initiatives Covered in these initiatives
Implemented Globally implemented
11.66 GtCO2e of Emissions
Representing 23% of global GHG emissions
1; 1%
7; 7% 16; 15%
35; 33%
30; 28%
17; 16%
North America Europe and C. Asia Latin America
East Asia & Pacific Middle East & Africa South Asia
Evolution and Comparative Size of National Carbon Markets
Mitigation Share of Carbon Markets 8,000 7.800
• Plethora of national carbon markets
emerging globally seeing the promise and 6.000
potential for climate action
4.500
• EUETS is the worlds first functional
emissions trading system & 2nd largest 4,000
system after China
• Chinese Carbon Market is already largest of
the world in terms of GHG emissions 2,000
covered and set to grow exponentially 1.500
580
320
• Pakistan can benefit by interlinking with 140
Chinese carbon market 0
UK S. Kores California EU ETS China China
Current Projected
Carbon Credit Prices Trajectory
100
Carbon Prices as Economic Incentives
•
80
As of April 1, 2023, around 20 % of global
greenhouse gas emissions are covered by a direct
carbon price or some carbon pricing mechanism 60
• Current carbon prices do not represent the actual 40
price of climate induced impacts – Externalities
20
• Carbon prices remain too low over a long period of 2017 2018 2019 2020 2021 2022
time for inducing effective climate action
• With the Paris Agreement becoming effective and
demand for global carbon credits increasing the
price for the carbon credits shown an increasing
trend and likely to increase in future
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Advantages of Carbon Markets
Flexibility
Allows flexibility and choice for the industry to cut
their emissions in a cost effective manner
Additionality
Regulatory requirements compels additional reduction
and filters out business as usual scenario
Measurability
Methodological requirements ensures credibility and
measurability through monitoring, reporting and
verification
Innovation
Economic Incentives foster technological innovations
for reductions
Typical Cycle of Carbon Reduction Project
01 02 03 04
Scoping Designing/Validation Implementation MRV
Target Area Assessment Secure funding Register project with Implement MRV system
Technical and Financial Select carbon assessment suitable international as per the registered plan
Feasibility studies methodology and regime carbon standard Measure, report and
Project boundary & GHG Develop Project design Setup project
verify Carbon
accounting documentation including management structure Trading of carbon and
Ecosystem (ESG) services baseline setting Implement MRV system
monetization
Monitoring and Secure more funding for Sharing of revenues
assessment
Evaluation framework implementation
Carbon Market - Potential for Pakistan
• Pakistan has substantial potential for emission
reductions in energy, transport, industry, agriculture
and other sectors
• Marginal abatement cost in Pakistan considerably
lower than many other parts of world
• Committed to reduce 50% of its overall projected
emissions by 2030
• Substantial needs for Financing both for mitigation as
well as adaptation purposes
• Article 6.4 can translate the financing through
transaction of untapped emission reduction
• Pakistan needs to set-up institutional and procedural
frameworks
Potential in Corporate Sector
• 24 Companies voluntarily declared to become NetZero by
2030 or 2050
• Vibrant Sustainability objectives set by Corporate Sector
where reducing carbon footprints is one essential goal
• Export oriented companies shall have to comply with a range
of international standards – such as CBAM
• Energy Sector alone offers a substantial potential for
emissions reduction – currently represents nearly 40% of
Pakistan GHG emissions
• Carbon financing can provided the much needed financing
for the corporate sector
NDRMF Role & Support
• Supporting Carbon Markets in country part of NDRMF Strategic Framework
and mid to long term Strategy
• Assist and support Government Bodies for establishing policy and regulatory
frameworks for integrating carbon markets as part of climate action program
• Working with private sector and assisting in aligning their Sustainability and
Carbon Emissions goals with international regulatory requirements
• Develop guidance tools and instruments for different industries on technical
aspects of Carbon Markets
• Facilitate hands on training on Methodologies for Carbon Quantifications,
develop projects and assist in Sale of Carbon Credits
• And much more…..
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Questions & Discussion
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