As news of some clean development mechanism projects initiated by the GCC governments begins to spread, funds managed by banks and financial institutions are descending on the region to tap CERs, or Certified Emission Reduction units, that can be traded on European climate exchanges.
The GCC as a source of CERs is still at a fledgling stage and cannot be compared to Europe or even to China and India.
"You have funds trying to tap into the CERs from the GCC. These funds are managed by professional bodies and they may have banks and financial institutions behind them," said Anthony M Dols, CEO, Avantis 4E, a member company of the Dubai Multi Commodities Centre (DMCC). The Dubai-based firm provides sustainable energy solutions and advisory services in the UAE.
Funds that collect CERs sell them on European exchanges that record the highest volumes of carbon trade in the world. The London-based European Climate Exchange sees 2.2 billion such units being traded as futures and options annually.
The carbon trade market in Europe is estimated to be worth €100bn (Dh448.54bn) and is expected to grow to €800bn by 2020.
A Standard & Poor's (S&P) report says a tougher European emissions target calling for a 30 per cent cut in emissions could double the price of CERs. One CER currently costs about €15 on the European exchanges. This price is expected to double to €30 by 2016, according to S&P.
The DMCC for long had carbon trading on its agenda.
"Globally, there are a lot of CER buyers who know when to buy and when to hedge," Dols said. Though yet to take off, the Middle East carbon trade potential is estimated to be worth about $5bn (Dh18.36bn) annually.
Traders are tapping into the Middle East markets but say there are not enough sources. They are, however, buoyed by the recent developments. Governments in Abu Dhabi and Oman have attracted independent power producers (IPPs) to produce renewable energy.
The governments have entered into power purchase agreements with these companies, and even though the terms of those agreements have not been disclosed, market insiders say the governments propose to buy power from renewable sources at attractive prices.
Shams 1, a flagship project of Abu Dhabi-based Masdar, is the first such example that analysts cite. The joint venture between Masdar (60 per cent), France's Total (20 per cent) and Spain's Abengoa Solar (20 per cent) will develop, build, operate and maintain the plant that will be located in Madinat Zayed, approximately 120km southwest of Abu Dhabi.
The project will be the largest concentrated solar power plant in the world, extending over an area of 2.5 sq km, with a capacity of about 100 MW and a solar field consisting of 768 parabolic trough collectors. Construction will begin in the third quarter and is expected to complete in about two years.
Oman recently floated a tender for a build, own and operate project for a 50 to 200 MW solar power plant that attracted huge interest. Several companies have reportedly purchased tender documents for a consultancy contract for Oman's first solar power project. Top banks in the region are also involved in the project.
Emirates Business had earlier reported that the Dubai Electricity and Water Authority (Dewa) could raise millions of euro annually from the sale of CERs starting this year. The utility plans to sell one to two million CERs a year from 28 projects. The government of Qatar, too, is actively considering clean development mechanism projects.
"Some are doing it for the fact that they are a signatory to the Kyoto Protocol. Some are doing it as a PR exercise. But things are slowly shaping up," a banker said.
But there are glitches in encouraging more companies to join the initiative. Market insiders say government regulations to control emission are absent in the region and this is a huge setback for the trade. Moreover, the region is yet to understand the concept of a carbon tax.
Each project that generates CERs has to be approved by the United Nations Framework Convention on Climate Change and the process at times takes as long as a year.
Sources say UAE companies are delaying their investments into green technologies by three years – till the end of 2012 – because it is not yet clear what will replace the Kyoto Protocol. However, the S&P report, which stresses carbon trade may become more lucrative, could spur them to continue with their investments.
