Role of carbon credits and carbon footprints in the Middle East

Introduction

Many organizations across the world have improved efforts geared towards ensuring social responsibility and business ethics are followed when undertaking organizational activities. Consumers are now aware of the ethical and social responsibility which business organizations have towards society. Due to the effects of environmental destruction, consumers are inclined to associate themselves with firms which manufacture products while following environmental conservation criteria. Recently, adverse effects of environmental destruction such as climate change and global warming has increased demand for green products or firms which observe environmental regulations. In the Middle East and especially the UAE, there is a demand for products which conserve energy and which are reusable or can be recycled (Anderson et. al., 2006). This explains the increased demand in the UAE for products such as hybrid cars, green building materials, recyclable bags and others.

Carbon footprints and credits are two common forms of measuring the impacts which organizations have on the environment. Carbon footprints are emissions of greenhouse gases which are attributed to a product or an organization (Wiedmann & Minx, 2008). These gases are emitted due to consumption of fuel and fuel products, materials, manufactured goods and fuel sources such as coal and wood. Carbon credit on the other hand represents permits or certificates by business organizations allowing them to emit carbon dioxide or carbon equivalent to one tonne. It is a form of mitigating carbon emissions by international and national markets. Already, Qatar and the UAE implement the carbon credits as a form of reducing carbon emissions.

This paper will discuss carbon footprints and emissions as far as the social responsibility and ethical role of business is concerned. The paper will also discuss how carbon footprints and credits work in order to understand their benefits. Their relevance to business planning for sustainability and environment in the Middle East will also be analyzed. The paper will restrict research to the UAE and other countries in the Middle East. The discussed issues will be summarized at the end of the paper.

Carbon footprints

Carbon footprints have been defined as emissions of greenhouse gases which are attributed to a product or an organization (Wiedmann & Minx, 2008). Greenhouse gases arise from consumption of fuel and fuel products, materials, manufactured goods and fuel sources such as coal and wood. The term originated from ecological footprints in environmental studies. In order to measure the carbon footprints of organizations, an assessment on emissions known as the GHG is undertaken. This measurement determines the levels of carbon emitted by businesses in a region. Once this information is known, it is possible to develop a strategy aimed at mitigating carbon footprint levels (Wiedmann & Minx, 2008). Such strategies include use of alternative energy sources such as wind and solar or implementation of strategies to conserve the environment such as planting trees.

In the Middle East economies, there are certain factors which affect the levels of carbon footprints. These include economic output, population, carbon intensity and energy in the economy (Beaumont et. al., 2008). Businesses and regions which aim at reducing carbon footprints target these factors. Generally, in order to effectively reduce carbon footprints, countries and businesses should either strive to reduce reliance on carbon fuels or reduce energy levels used in production.

Carbon credits

Carbon credits have been defined as permits or certificates by business organizations allowing them to emit carbon dioxide or carbon equivalent to one tonne (Wiedmann & Minx, 2008). It has been recognized that carbon emissions are some of the most harmful gases to the environment and carbon credits aim at mitigating their release into the atmosphere. Carbon trading is form of trading in emissions. In order to implement carbon credits, carbon levels in the atmosphere are measured and capped to determine the most sustainable levels which will lead to minimal damage to the environment. After this is performed, the capped levels are allocated to regulated sources in the various markets.

The major objective of carbon credits is to encourage markets to emit less carbon emissions when undertaking commercial and industrial processes. Since the carbon credits are sold, the revenue generated can also be used to fund environmental conservation efforts, including carbon emission reduction indifferent parts of the world. There are many firms which have specialized in selling carbon credits. These credits are sold to businesses voluntarily and these businesses strive to reduce carbon emissions in their activities. Demand for carbon credits in the Middle East has begun to rise and there is an increase in firms selling carbon credits to businesses. This has seen positive impacts as far as reduction of carbon emissions is involved. Further analysis of the effects of carbon credits and carbon footprints in the Middle East will be discussed in the following section of the paper.

Kyoto protocol and the Middle East

The Kyoto protocol is an agreement amongst some countries which are members of the UN to take measures to mitigate the adverse effects of climate change. The major goal of this framework is to stabilize greenhouse gases and reduce their effects on the environment. There are over 190 states which have ratified and signed the protocol including Middle East countries such as Yemen, Qatar, Saudi Arabia, UAE, Kuwait and others (Daya & Carr, 2010). Various countries have undertaken to reduce these emissions by more than 5% as at the levels present in 1990. Middle East countries such as UEA, Saudi Arabia and Qatar are some of these countries. Several initiatives are taken to achieve the objectives of climate change by member countries and these include clean development mechanism and emissions trading.

Each of the Middle East countries which ratified the Kyoto Protocol has some assigned units of carbon emissions which are entered in individual country registries (Daya & Carr, 2010). In line with the protocol, these countries including Qatar and the UAE have assigned the allowed emissions to businesses and organizations and put quotas on the emissions which each business should release into the atmosphere. This is undertaken through the sale of carbon credits where businesses in these Middle East countries are allowed one tonne of carbon emission. Businesses which have not exhausted their quotas near the end of their financial year may sell their remaining quotas to those which are about to exhaust their limits in order to ensure that all businesses observe the allowable limit in emissions. Businesses which have exhausted their quotas are also allowed purchase extra quotas in open markets or private enterprises.

Although there is an increased demand for energy from consumers, business organizations and countries such as Qatar and UAE which have ratified the Kyoto Protocol, have to ensure that the carbon emissions do not exceed the allowable limits. Business owners are therefore forced to invest in alternative energy sources in order to meet the demand for limiting emissions. Others prefer purchasing modern machinery which has lower emission rates. This will ensure that adverse effects of climate change are mitigated not only in the Middle East but across the world.

Flexible mechanisms

The challenges of maintaining the agreed carbon emissions by countries which have ratified the Kyoto Protocol have been recognized by member countries. There are certain countries or businesses which may be unable to retain the allowable limits and achieve their growth and development objectives and goals. There are also countries and businesses which use resources which have high level of carbon emissions and which make it difficult to remain within the allowable levels. For instance, Saudi Arabia is an oil producing country which releases high levels of carbon emissions when processing oil. Due to these challenges, the Kyoto Protocol members have introduced certain flexible mechanisms which may help these countries deal with the challenges. These are tradable credits which may be traded within countries or regions. There are three ways in which such countries may trade their carbon credits regionally (Daya & Carr, 2010).

The first is the joint implementation strategy where countries which are about to undertake projects which would lead to high level of carbon emissions are allowed to undertake these projects in other countries. Such an agreement allows countries with higher emission to transfer these emissions to countries with lower emission for a consideration. Both countries would mutually benefit and the global environmental conservation efforts are achieved. Few countries in the Middle East have taken advantage of this approach. The second strategy is the clean development mechanism. Under this strategy, developed countries are allowed to fund carbon emission reduction efforts in developing countries at lower costs. Countries such as Saudi Arabia may use this strategy to fund developing countries such as African countries in carbon reduction efforts. This would cost lower amounts compared to the cost of such a strategy in developed countries. However, the benefits of environmental conservation in such cases would not only be enjoyed by the developing countries but by the world at large. The developed countries would benefit from increased credits due to achievement of its emission reduction initiatives while developed countries would benefit from clean technology and capital investment. The UAE currently is developing plans to implement this strategy in developing countries.

Finally, the third strategy aimed at meeting the challenges of carbon emission strategies is emission trading between countries. Just as how businesses can trade emission credits, countries are also able to trade these credits. Countries which are about to exhaust their allowable limits may trade credits with those with sufficient allocations and vice verse. In most of these cases, operators are licensed by individual countries to sell such carbon credits as opposed to direct government to government transactions

Carbon footprints and credits in Middle East

Due to the effects of environmental destruction including carbon emissions, climate change and global warming, consumers in the Middle East have began associating themselves with firms which manufacture products in environmentally friendly ways. There has been an increase in reusable products and energy saving products including hybrid vehicles (Daya & Carr, 2010). This move has forced many manufacturers to adapt to the needs of the market in order to maximize sales revenues. Retailers who have not embraced environmentally friendly ways of producing goods have begun experiencing shrinking sales volumes and a decrease in consumer goodwill.

Qatar

There are many businesses in the Middle East and especially in Qatar and the UAE which have embraced the use of carbon credits to reduce their carbon footprints. One of these businesses is a renewable energy company called Masdar which is based in the UAE. Masdar has plans to acquire carbon credits for waste heat and solar projects from the UN in order to conform to the goals of the Kyoto Protocol of which the UAE is a member. Another firm which is keen on acquiring carbon credits is the Qatar Petroleum which is the national oil firm run by the Qatar government. The UAE and Qatar are the largest carbon emitters in the world per capita and their strive to join the Kyoto Protocol and apply for carbon credits makes them the first countries in the Middle East to take such initiatives. Qatar also has a project at Al-Shaheen, a natural gas manufacturing plant, and it is intending at applying for carbon credits for this plant.

Abu Dhabi

Abu Dhabi has already been granted access to carbon credits by UN in the form of offsets which are initiatives which encourage developed countries to support carbon reduction initiatives in developing countries. This is similar to the clean development mechanism earlier discussed as one of the Kyoto Protocol’s attempts to deal with challenges facing implementation of the carbon reduction efforts. Already, two projects commissioned in Abu Dhabi will receive 2.5 million credits between the current year and 2018. Currently, the credits which have been advanced to the UAE are valued at over 29 million euro. In addition, Abu Dhabi is in the process of constructing nuclear and solar plants which will meet power demands and by 2015, the Abu Dhabi is targeting its renewable energy sources to form over 7% of its overall energy source.

Challenges of acquiring carbon credits in the Middle East

Business people in the Middle East are acknowledging that a serious challenge facing many oil firms is justifying the need for carbon credits. Although most firms which manufacture oil and its products in the Middle East have high carbon footprint emissions, it is challenging to prove that oil projects require carbon credits and additional income earned from it. The UAE is among the countries making the greatest efforts to reduce carbon emissions in the Middle East and the development of carbon capture technology is a milestone towards attaining the goals of reducing emissions. Carbon capture technology is technology which captures carbon emissions and directs them underground before they are released into the atmosphere.

Another challenge faced by firms in Middle East relating to acquiring carbon credit relates to cost. There is a high cost which is incurred upfront before a firm can register for carbon credits (Hansen, 2000). For small firms in the Middle East, this cost may be prohibited towards registering for carbon credits and reducing the carbon footprints. A solution to this problem lies with the bundling of many small projects to form a larger one. When many small firms bring together their projects and form a larger one, they may jointly incur the cost of carbon credits thereby reducing their overall costs. They will also be able to reduce their carbon emissions.

Relevance to business planning for sustainability and environment in Middle East

Carbon footprints and credits are very useful to the modern business environment not only in the Middle East but across the world. There is a move towards environmental conservation efforts and businesses which support this cause have been seen to attract goodwill form consumers. Those which do not have recorded lower sales revenues due to their inability to be in touch with causes which the market relates to. In the Middle East, it has been discussed that consumers are moving towards environmental conservation efforts by purchasing energy saving products, reusable products and supporting firms which produce goods in environmentally friendly means. It is therefore clear that for any business to meet its objectives, it has to operate within environmentally friendly ways. It also has to support causes which are similar to those supported by consumers including corporate social responsibility and ethical practices. The relevance which carbon footprints and carbon credit has on the Middle East business environment regarding sustainability will be briefly discussed below;

Consumer behavior

It has been discussed that due to the adverse effects of environmental destruction, consumers are aware of the need to carry out environmental conservation. The effects of destruction of the environment including global warming, climate change, shrinking of ice caps and others have become a reality which threatens the survival of mankind (Changnon& Bell, 2000). Most consumers have therefore embraced environmental conservation concerns and demand products which are produced through environmentally friendly ways. In the Middle East, there are many environmental groups which lobby for firms to embrace environmental conservation strategies which manufacturing goods. These groups which include the Global Footprint Network encourage consumers to shun products which are developed by firms which pollute the environment. As a result, firms are forced to adopt the use of clean technology and carbon emission reduction strategies such as carbon credits.

Manufacturers in the Middle East and other parts of the world have therefore been forced by the changes in consumer behavior and market trends to embrace carbon credits strategy. Consumers have access to a wide variety of products due to technological change and innovation and they therefore have a bargaining power. Middle East firms which do not produce goods in environmentally friendly ways such as through use of carbon credits risk being shunned by consumers who will opt to purchase substitutes from manufacturers who support their cause for environmental conservation. Carbon credit strategies are therefore very relevant to the business environment in the Middle East for firms keen on increasing sales revenues and developing customer goodwill and loyalty. Businesses which are keen on developing long term sustainable practices should therefore develop an environmental conservation plan which may include the carbon credit strategy in order to meet their objectives.

Kyoto Protocol

The Kyoto Protocol is another initiative which makes carbon credit strategy relevant to the business environment in the Middle East. It has been discussed that several Middle East countries have ratified the Kyoto Protocol and these include Yemen, Qatar, Saudi Arabia, UAE, Kuwait and others. These countries are bound by resolutions made to reduce their carbon emissions by more than 5% of their 1990 emission levels. Since the countries voluntarily ratified the protocol, many are keen to follow it. The most effective way of reducing these emissions is reducing emissions by firms, particularly those in the manufacturing industry. Countries such as Saudi Arabia and the UAE are some of the largest global emitters and the only way they can achieve the goals of the Kyoto Protocol is to ensure that firms and particularly those in the oil industry reduce their emissions. Businesses which operate in the Middle East are therefore forced by the government to reduce their emissions in order to achieve the goals of the Kyoto Protocol. The Middle East governments are bound by the ratification of the Protocol and they have begun introducing carbon credits to businesses as strategies aimed at reducing carbon emissions.

Countries including Qatar and the UAE have assigned the allowed emissions to businesses and organizations and put quotas on the emissions which each business should release into the atmosphere. Many other countries in the Middle East are likely to follow the trends taken by Qatar and the UAE. Businesses therefore have no choice if they are to operate in the Middle East business environment. They are bound by any international agreements which their countries enter into. Failure to observe carbon reduction strategies such as purchase of carbon credits may be deemed as unethical practices which may be punished by the governments, environmental protection agencies or financial regulators. The Kyoto protocol has therefore made carbon credits an essential part of business operation since firms have been forced to purchase them and be in line with the desired objective of Middle East and global governments of reducing carbon emissions into the atmosphere.

Corporate social responsibility

Businesses have corporate social responsibility towards communities and the society at large. Any business has a social responsibility of empowering local communities through corporate responsibility programs which use different strategies to achieve this objective. Consumers are also aware of the social responsibility which firms have towards them and their local communities and they have begun associating themselves with firms which play important social roles in the community. In line with this, the business organizations which operate in the Middle East and other countries have a responsibility of socially empowering communities and operating in environmentally friendly ways (Ruddiman, 2005). This duty is not vested in the Kyoto Protocol, it is a duty expected from corporate bodies across the world. Firms are expected to operate in ways which do not pollute the environment and which socially uplift the standards of living of local communities.

Due to the importance of corporate social responsibility and operating in environmentally friendly ways, many firms have strived to achieve these objectives. One of the common strategies include funding community projects, research and increasing awareness on social concerns. Other strategies include funding education, training, offering employment, sponsorships and donations. In addition, the goals of environmental conservation are achieved through use of clean technology, reducing energy use and reducing carbon and other harmful emissions to the environment. Carbon credits have gained demand for achieving the environmental conservation goals. The demand for social responsibility by consumers has therefore made carbon credits relevant to the business environment in the Middle East. Firms which do not observe this social responsibility role risk losing customers to competitors who embrace these causes.

Reduction in production costs

Recent research has shown that the use of clean technology can help reduce the production costs by as much as 20% in firms in the manufacturing industry. Research in developed countries such as China has shown that if used effectively, clean technology reduces the production cost by 20% for capital intensive activities (Lerner & Wilmoth, 2006). Reduction of the production cost is a major goal for any business. This is because reduction in production leads to reduction in the overall product price and this attracts consumers to these relatively cheaper products. The benefits of clean technology apply to firms in the manufacturing industry. In the Middle East, there are many firms which operate in this industry and especially due to the presence of oil manufacturing firms. The use of clean technology would offer massive benefits to this industry.

Although not many firms in the Middle East have realized the potential benefits of cost reduction due to embracing clean technology, there has been increased demand for this technology over recent months. Firms which have benefited from the clean technology have acted as case studies and more and more Middle East firms have begun embracing clean technology in order to reduce production costs. Such firmsd have embraced carbon credits as some forms of implementing the clean technology strategy. For instance, a renewable energy company called Masdar which is based in the UAE has plans to acquire carbon credits for waste heat and solar projects in order to reduce production costs and gain other benefits. Two projects commissioned in Abu Dhabi will receive 2.5 million credits between the current year and 2018. the potential benefits of production cost reduction will therefore make carbon credits popular clean technology strategies in the Middle East in the near future according to the current trends by Middle East firms.

Summary and conclusion

The role of carbon credits and carbon footprints in the Middle East business environment has been discussed in detail. Carbon footprints have been defined as emissions of greenhouse gases which are attributed to a product or an organization while carbon credit on the other hand represents permits or certificates by business organizations allowing them to emit carbon dioxide or carbon equivalent to one tonne. Carbon footprints determine the levels of carbon emitted by businesses in a region. Once this information is known, it is possible to develop a strategy aimed at mitigating carbon footprint levels. Such strategies include use of alternative energy sources such as wind and solar or implementation of strategies to conserve the environment such as planting trees. Carbon credits aim at reducing carbon emissions. Carbon trading is form of trading in emissions. In order to implement carbon credits, carbon levels in the atmosphere are measured and capped to determine the most sustainable levels which will lead to minimal damage to the environment. After this is performed, the capped levels are allocated to regulated sources in the various markets.

The carbon credit strategies are implemented under the ratification of the Kyoto Protocol. The Kyoto protocol is an agreement amongst some countries which are members of the UN to take measures to mitigate the adverse effects of climate change. The major goal of this framework is to stabilize greenhouse gases and reduce their effects on the environment. There are over 190 states which have ratified and signed the protocol including Middle East countries such as Yemen, Qatar, Saudi Arabia, UAE, Kuwait and others. Each of the Middle East countries which ratified the Kyoto Protocol has some assigned units of carbon emissions which are entered in individual country registries. The challenges of maintaining the agreed carbon emissions by countries which have ratified the Kyoto Protocol have been recognized by member countries. The joint implementation strategy allows countries which are about to undertake projects which would lead to high level of carbon emissions are allowed to undertake these projects in other countries. The clean development mechanism allows developed countries to fund carbon emission reduction efforts in developing countries at lower costs while emission trading allows countries which are about to exhaust their allowable limits to trade credits with those with sufficient allocations and vice verse.

Due to the effects of environmental destruction including carbon emissions, climate change and global warming, consumers in the Middle East have began associating themselves with firms which manufacture products in environmentally friendly ways. Other factors which have contributed to the increase of use of carbon credit strategies by UAE firms include the Kyoto Protocol which forces businesses to undertake carbon reduction strategies, corporate social responsibility roles which dictate for operation of firms in environmentally friendly ways and reduction in production costs attributed to use of clean technology. Although not many firms in the Middle East have realized the potential benefits of cost reduction due to embracing clean technology, there has been increased demand for this technology over recent months. It is important for UAE firms to embrace reduction of carbon emission through carbon credit strategies among other environmentally conservation strategies in order to develop customer loyalty and reduce the global emission of carbon into the atmosphere. This will be beneficial to the businesses as well as to humanity whose survival is threatened by environmental destruction.