Exercises on carbon trading continue

Exercises on carbon trading continue

After Singapore, more countries are expected to buy carbon credits from Bhutan

Bhutan has made its foray into the carbon market and is a milestone achievement for the country when the entire world is grappling with climate change issues and the ways and means to tackle it. The use of carbon markets is one of the least cost methods to reduce emissions while meeting development aspirations for the Bhutanese people.

Ever since the Paris Agreement was adopted in 2015, Bhutan has been active in the Article 6 (carbon markets) negotiations under the Paris Agreement. Under the Paris Agreement, all countries have obligations to reduce emissions and in Bhutan’s case remain carbon neutral.

“We have no Article 6 projects under Article 6 and have applied for transition of our registered Clean Development Mechanism (CDM) projects namely Dagachhu, Mangdechhu and Punatsangchhu 1 hydropower projects,” Director General (DG) of the Department of Environment and Climate Change (DoECC) under the Ministry of Energy and Natural Resources (MoENR), Tashi Pem said.

According to the Department of Energy, Dagachhu generated 3.1 Million tons CO2e (MtCO2e) credits and sold 0.7 million MtCO2e CERs generating approximately USD 7.7 million until 2018.

“We have experience from the past through a limited number of CDM projects under the Kyoto Protocol (KP). These projects were in the energy sector and the Dagachhu hydropower project was the world’s first transboundary CDM project,” said Tashi Pem.

Dagachhu generated credits and were sold in the market. These credits are known as Certified Emission Reductions. During the KP era, developing countries did not have obligations to reduce emissions and Bhutan traded emission reductions for offsets in the industrialized countries to help meet their emission reduction targets.

In May last year, Bhutan and the Government of Singapore signed a Memorandum of Understanding (MoU) to collaborate under Article 6. During COP28, Singapore and Bhutan jointly announced the substantial progress being made towards finalizing the implementation agreement.

“Negotiators from both the countries meet every fortnight to progress the agreement and we are soon expecting a delegation from the Government of Singapore to familiarize themselves with mitigation opportunities in Bhutan”.

This cooperation stands to benefit both countries because we need investments in mitigation projects as part of our economic development needs while the Government of Singapore needs high quality carbon credits to meet its net zero emissions target. Investments from Singapore in carbon projects will also contribute to increasing the FDI inflows into the country and create jobs and other economic opportunities for our people.

“Initial discussions have also taken place with the Government of Japan to initiate similar cooperation under the Japanese Joint Crediting Mechanism,” the DG said. “The Ministry is also exploring how the non-market mechanism or the voluntary carbon market can be promoted. For instance, we could support as an example the tree planting initiatives in the country to help a large industry outside the country to fulfill its climate targets”.

Further, the Department built carbon registry with the World Bank and DHI, and soft launched the Bhutan Climate Fund to aggregate and monetize mitigation results/emission reduction/removals as well as ensure compliance with the Article 6 rules.

Participation in the carbon market is important to keep abreast of developments that affect Bhutan’s trade and industry as there is convergence of trade and climate.

“The carbon markets allow countries to explore the most cost effective ways and means to develop projects. While developing projects we need to ensure that mitigation co-benefits are sustainable and take place in the communities where the projects are located. The carbon markets also help make unavailable projects viable for investors. We must see carbon markets as an integral part of an industrialization strategy. Investments in green projects are also expected to spur adoption and innovation of climate friendly technologies,” the DG added.

Tashi Pem said that Bhutan should not look at carbon trading as a trade off with other economic sectors. “The development of the carbon markets will be an integral part of the development of our trade, industry, energy and mining sector, including addressing adaptation in some cases like Nature Based Solutions.”

She further added, “We have committed to remain Carbon Neutral for all times and mitigation will be a key strategy to maintaining this global pledge we have committed”.

Carbon trading will help make more projects viable in the country, lead to development of non-hydro energy where investment costs are very high but are important to help move away from fossil fuels, and positioning the country as a source of high quality carbon credits, should drive more investments and contribute to the country’s economic transformation.

Regarding the net zero pledges of countries and sustainability of carbon market in the future, experts agree that the only way to achieve net zero by 2050 is through the operationalization of the market mechanisms. In some countries, the mitigation cost is very high and this is where Bhutan and other developing countries could help the industrialized or industrializing countries with their hard to abate sectors and thereby meet their climate targets.

In accordance with the Article 6 rule book, the National Environment Commission (NEC) adopted the Carbon Market Rules in 2023 and communicated that the DoECC under the MoENR as the Designated National Authority for Article 6 with UNFCCC.

By Sherab Dorji, Thimphu