Changes in the Earth’s climate and the impact of human intervention that has driven this outcome are undeniable. Since the Industrial Revolution, the average yearly temperature has risen by little more than one degree Celsius. Between 1880, when accurate record-keeping began, and 1980, it climbed by 0.07 degrees Celsius (0.13 degrees Fahrenheit) on average per ten years. However, the rate of increase has more than doubled since 1981.
In the last 40 years, the annual global temperature has risen by 0.18 degrees Celsius (0.32 degrees Fahrenheit) every decade. Furthermore, nine of the ten hottest years have occurred after 2005, with five occurring since 2015. Bangladesh will experience the hottest summer in the country’s history in 2024. It is critical that global warming be kept to 1.5 degrees Celsius by 2040 to prevent a future plagued by devastating droughts, wildfires, tropical floods, storms, and other calamities that would wreak devastation worldwide.
Undoubtedly, one of the primary causes of climate change is the release of carbon dioxide (CO2) and other greenhouse gases and pollutants. As a result, stabilising global warming requires a quick and persistent reduction in greenhouse gas emissions and achieving net zero carbon dioxide status.
Carbon Trading: The Answer to Curb Greenhouse Gases?
Carbon trading is purchasing and selling credits that allow a firm or other entity to release a set amount of carbon dioxide or other greenhouse gases. Governments authorise carbon credits and the carbon trade to progressively reduce total carbon emissions and limit their impact on climate change.
Carbon trading is based on the cap-and-trade policies that effectively lowered sulphur emissions in the 1990s. This law created market-based incentives to decrease pollution. Rather than requiring particular steps, the programme rewarded corporations that reduced their emissions while imposing financial penalties on those that did not.
The Kyoto Protocol, a United Nations accord to address climate change that went into force in 2005, gave rise to using a cap-and-trade system to reduce carbon emissions. The Kyoto Protocol’s central assumption was that developed nations must reduce CO2 emissions. At the time, the proposed action was expected to cut global carbon dioxide emissions by around 5% below 1990 levels by 2012. The Kyoto Protocol had mixed outcomes, and an extension of its terms has not yet been accepted.
The idea is to encourage each country to reduce its carbon emissions so that it has more permits to sell. Larger, wealthier nations essentially finance the efforts of poorer, higher-polluting nations by purchasing their credits. However, over time, those wealthier nations are incentivised to cut their emissions so that they do not need to buy as many credits from the market.
Countries do not directly pay for the consequences of burning fossil fuels emitting carbon dioxide. They incur some costs, such as the price of the gasoline itself, but some expenses are not included in the fuel price. These are referred to as externalities. In the case of fossil fuel usage, these externalities are frequently negative, implying that the product’s consumption has a detrimental impact on third parties.
Carbon Trading 101
Initiatives have been launched to allow advanced nations to reduce their emissions by funding the development of carbon-reduction programmes in developing nations. However, the success of these projects has been called into doubt, with data showing that some have increased emissions rather than reduced them. The so-called cap and trade regimes at the regional, national, and international levels are more significant. They operate by establishing an overall limit or cap on the emissions permitted from major carbon sources such as the power industry, automobiles, and air travel.
The carbon trading market permits purchasing and selling greenhouse gas emission rights. Industrialised nations, who find it difficult to reduce emissions, acquire emission rights from countries whose industries create fewer pollutants. The carbon market is conceivable since the Kyoto Protocol aimed to cut emissions collectively.
On the one hand, carbon trading appears to be a win-win situation: greenhouse gas emissions may be decreased while certain nations profit economically. On the other hand, the theory’s detractors believe that certain nations misuse the trading system with harmful repercussions.
Carbon trading is conceptually analogous to trading equities or commodities in a marketplace. Carbon is economically valuable, allowing individuals, businesses, and governments to exchange it. When a nation buys carbon, it acquires the right to burn it, but when it sells it, it relinquishes its right. The price of carbon is determined by the country’s ability to store it or prevent its escape into the atmosphere. (The better you keep it, the more you can charge for it.)
After successful negotiations at the 2021 Glasgow COP26 Climate Summit, nations can adopt a more organised framework for global carbon trading. The agreed-upon principles establish clear standards for how the carbon market would operate under bilateral agreements between countries and in a United Nations-supervised marketplace.
Bangladesh’s Prospects to Break into the Carbon Market
Bangladesh’s first revenue from carbon credits – permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases – came in 2006, when the Infrastructure Development Company Limited (IDCOL) registered its first clean development mechanism project with the United Nations Framework Convention on Climate Change. Since then, IDCOL has sold a remarkable 2.53 million carbon credits, generating $16.25 million, or Tk170 crore at current currency rates.
If carbon reduction programmes are executed correctly, Bangladesh might earn a few billion dollars annually from global carbon trading. The global carbon trading industry was valued at $4.5 trillion in 2022 and might reach $8.98 trillion by 2050. However, Bangladesh is unprepared to enter this market because it lacks the necessary knowledge, legal structure, and skills for the public and private sectors. So far, Bangladesh has only received a few hundred million US dollars from carbon markets. However, because the country is one of the world’s lowest carbon polluters, accounting for only 0.5% of global emissions, it has the potential to earn much more.
Bangladesh has been actively researching renewable energy options. The government intends to meet 30% of its energy needs using renewable and clean sources by 2030 and 40% by 2041. According to the amended NDC, Bangladesh expects to cut carbon emissions by 22% by 2030, with the energy sector contributing 96.1%. 958.45 MW is generated from renewable sources, including on-grid and off-grid alternatives. The installed renewable energy sources have lowered carbon emissions by 4 MN MT CO2 and are predicted to reduce them by an additional 9 MN MT CO2 throughout their lifespan.
However, investing in renewable energy is costly, and adoption becomes much more difficult when industrial companies have access to cheaper captive power plants that run on petrol.
The worldwide energy price increase and Bangladesh’s decreasing gas supply have prompted larger businesses to use solar energy solutions to futureproof their energy sources. However, the significant initial expenditure makes many hesitant to take the plunge. Typically, a solar plant takes 5-6 years to break even. Investing in renewable energy will become more profitable if the market has access to carbon trading. Infrastructure Development Company Ltd. (IDCOL) has sold 2.53 million carbon credits for $16.25 million. These carbon credits have been accumulated since 2006, with revenue mostly coming from Improved Cook Stoves (ICS) and Solar Home Systems (SHS).
The price IDCOL received varied by location and organisation, ranging from less than a dollar to seven dollars per unit. Since a domestic carbon market has yet to be established and clean production has been in demand overseas, it is advisable for manufacturing-based industries, particularly the apparel sector, to become the primary curators of domestic demand for carbon credit, as this will help them attract more high-value orders.
On the other hand, it is critical to create quality carbon credits supported by rigorous baseline evaluation, project audits and verification, and approval from established agencies. This will provide more bargaining leverage and increase its overall effect. After creating a voluntary market driven by local demand, the government should take the actions required to build a compliant market. This would raise companies’ awareness of their carbon impact and motivate them to reduce it, such as using renewable energy and acquiring carbon credits.
Bangladesh extensively invests in renewable energy to lessen its reliance on fossil fuels. Hence, strict laws should be implemented to incentivise investment in the industry. It might entail correctly pricing fossil fuels, implementing carbon taxes, and promoting a carbon trading market. This will provide renewable energy efforts with a cost-competitive advantage over traditional captive power systems. Furthermore, carbon taxes will raise the country’s revenue, which can be utilised to fund clean technologies and infrastructure development.
Author: Amar Chowdhury
