Dubai in 2007 launched a bid to become a centre for trading greenhouse gas emissions permits, diving into a fast-growing market and the potential to turn the region's sizeable carbon footprint into cash.
Nearly two years later, Dubai Multi Commodities Centre (DMCC) – the firm that oversees the green goal – is still collaborating with a number of companies in the region.
"Many people are asking when we are going to start the carbon trading," says Tilak Doshi, Executive Director, DMCC-Energy. "To start with, you have to generate carbon credits. Our role is to assist and advise clients – like cement, aluminium, and waste disposal plants – on how to reduce their emissions."
"Once they agree, then DMCC and Ecosecurities do all the documentation work required to get those carbon credits registered to the UN committee involved in the Kyoto Protocol. When the project is established, and greenhouse gas emission is reduced, those credits are registered. Then we get those carbon credits and only then we can trade them. It's a long process," he said.
DMCC nevertheless is upbeat that they will finalise a major deal within the first quarter of this year and receive its first cash flow by next year.
Can you update us on DMCC's carbon trading project?
The UAE is part of the Kyoto Protocol's non-Annex 1 countries, which means that they can reduce carbon emissions and get credit, which they can then sell to people who need those countries in the Annex 1 countries. Our role is to assist and advise clients on how to reduce their emissions. Once they agree, DMCC and Ecosecurities do the documentation work required to get those carbon credits registered to the UN committee involved in the Kyoto Protocol. When the project is established, and the greenhouse gas emission is reduced, those credits are registered. Then we get those carbon credits and only then we can trade them. It's a long process to (get to) the point where you can actually trade carbon.
In which stage are you now?
We are in process of discussing with a range of companies across the sectors in the Gulf, North Africa and the wider region such as Pakistan, Egypt, Kazakhstan. The list of active discussions is in the range of 15 to 20, of which we have only announced two or three to the press because many companies would rather not announce it until they have agreed to go ahead with the project. Half of them are in the UAE.
Are you making money from "collaboration"?
Not yet because we haven't signed any contracts with regard to carbon emission reduction. We hope that one of the companies – a large UAE-based company – that we have been negotiating for the last six to nine months will be signed it in the first quarter of this year.
When do you expect to receive revenues then?
It could be one year after signing the agreement. Hopefully by 2010 we can get revenue.
What are your targets?
We really don't have numerical targets. Our target is to complete our discussions with the companies. We are targeting all sectors that have got potential to cut carbon emissions – cement factory, aluminium plants, oil and gas companies and waste disposal plants. The Middle East is at early stages unlike China, Latin America, India, the Philippines, which have got many projects on the road. The UAE is still in early stages where we educate the people in this process.
Are you collaborating with Masdar?
Masdar is very much doing what we are doing because they have got a much larger budget, they've got a bigger mandate by the Abu Dhabi Government. There is competition but we see it as healthy competition.
There are already six projects registered to sell carbon credits in the Middle East and North Africa, the largest being Qatar Petroleum's Al Shaheen Oil Field Gas Recovery and Utilisation programme, which is set to generate about 14 million tonnes of carbon dioxide reductions by 2012. But there is no carbon trading activity as yet. When can we see this happening?
It could be somewhere in mid-term to long-term, which means three to five years. The most immediate issue is education and promoting actual projects that reduce carbon emission. There is no reason to be in a rush; let's put the horse before the cart and the horse is creating those carbon credits.
What is the profitability prospect of a carbon trading project?
It is profitable and feasible otherwise companies won't be doing it.
We know that the Kyoto Protocol will be extended beyond the 2012 period. All the countries are now negotiating for the next phase beyond 2012 and we know that the US will participate in it, under the new Obama administration. Most people are very confident that the business will be there. The cost is on a per-project basis. Current crisis means getting money or loans is difficult but these (carbon trading projects) are all positive revenue generating profits, so if you have the money you would do it because it makes sense to do it.
PROFILE: Dr Tilak Doshi Executive Director, DMCC–Energy
Doshi is an industry expert with over 15 years of international experience in leading oil and gas companies. Prior to joining DMCC, he worked as a consultant for Saudi Aramco in its crude marketing and corporate planning department. He has also held senior positions as Director of Industry Analysis at the Atlantic Richfield Company in Los Angeles, and has worked as the Chief Energy Economist at the Unocal Corporation's Asia office in Singapore. As DMCC's Executive Director for the energy sector, Doshi serves to intensify links between DMCC and the energy industry. He is in charge of creating industry-specific physical and market infrastructure products for DMCC while providing innovative concepts to facilitate the growth of the energy business in Dubai.
Doshi is also leading the development and launch of energy contracts for the Dubai Gold and Commodities Exchange – Dubai's new electronic commodities derivatives exchange – in association with key players across the energy sector.