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Special report: Carbon capping

Special report: Carbon capping

The Middle East’s cap and trade system could mean big money for regional companies, but first both they – and governments – need to embrace it.

May 7, 2010 9:54 by

But the developing economies in the Middle East have been slow to take advantage of the business opportunities created by the cap and trade system. Established under the Kyoto Protocol, the system allows for companies in developed markets to gain carbon credits by paying for reduction programs in the developing world.

The highly regulated cap-and-trade system in Europe is what creates the market for Clean Development Mechanism (CDM) projects in the developing world. “When people talk about CDM, it has to be remembered again that 95 percent of the buying of CDM projects is coming out of Europe,” Birley says. Without the regulated cap-and-trade systems in Europe, that market would dry up. But at first the system was largely ignored, the origination manager for Masdar’s carbon management unit, Carlos Ospina, says. “In the early stages, they were a little reluctant, but after they understood that this could be a revenue potential then they started doing it, but it took a very, very long time.” Masdar, the Abu Dhabi based energy company that is involved in a variety of construction, finance, and development projects related to non-hydrocarbon energy production, has a division which helps develop CDM projects in the Middle East.

Under the CDM program of the Kyoto Protocol, a carbon reduction program must be vetted by a U.N.-approved body in the country and then submitted. Some of the region’s countries still lack the infrastructure to support CDMs. “Every country needs to have a designated national authority,” Ospina says. “These DNAs were not set up in the MENA region until very late. So we at Masdar have been providing development support here and in Oman, but this is more the work of the international organizations.”

Ospina says Masdar is working on projects in Saudi Arabia, Libya, Algeria, Kuwait, and Lebanon. “Formally, they have not submitted anything to the United Nations,” Ospina says. “Companies like Masdar have developed business models to bridge this gap, but the official policy making process takes a long time.”

The timeline for a project to gain approval is roughly 18 months long, and the Kyoto Protocol is set to expire in 2012. This leaves businesses with just a few months of guaranteed payoff from any CDM projects they may undertake now.

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