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Dateline Ukraine: Investing in Climate Change

Do the “haves” of the world consider the environmental well-being of the “have nots” to be distinct from their own?

December 13, 2007

On a clear day, you can see the Ukrainian city of Rivne — located some 300 kilometers west of Kiev, the capital city — from atop an enormous landfill. The crows have a field day.

Hundreds of them feast on over four million metric tons of waste that have been compacted over 17 hectares, now 30 meters deep. Methane gas seeps out of the organic material in the landfill at a rate of about five million cubic meters a year — the equivalent of over three million metric tons of carbon dioxide since the landfill opened 48 years ago.

A half-hour drive outside the city are two pig farms. They house 31,000 swine that someday will wind up at a slaughterhouse. In the meantime, they produce 190 metric tons of excrement a day, which are stored in open-air lagoons before being taken to dry in fields and be sold as organic fertilizer.

Methane gas seeps out from the manure in these lagoons at a rate of over two million cubic meters a year, or 32,000 metric tons of carbon dioxide equivalent (tCO2e).

At the landfill, it would be possible to install a gas collection system and generator to capture the methane gas and produce heat and electricity — and at the pig farms, to use biodigesters with generators to produce heat and electricity from the animal waste. A few million dollars are required for each of these investments, but they are only profitable if the emission reductions can be sold over a sufficiently long period.

In the city center, the district heating system supplies heat and hot water to residential, municipal, industrial and commercial buildings.

Consuming natural gas and power, inefficiencies exist at every stage of the process — from boiler houses to transmission pipelines to buildings that are not properly insulated and have no control systems for tenants to regulate the supply of heat. Efficiency improvements with an investment of about $20 million could generate emission reductions of about 90,000 tCO2e a year.

On another order of magnitude, across Ukraine in the eastern Donbas region, 164 coal mines produce 80 million metric tons of coal a year, which provide fuel for the country’s power generators and its industry.

In the course of mining, about two billion cubic meters of methane gas a year are vented into the atmosphere, which could otherwise be captured and used to produce heat and electricity — thereby generating emission reductions of 32 million tCO2e.

Ukraine’s emission-intensive economy is part of the industrial heritage of this former Soviet country. Beyond its landfills, animal farms and coal mines, Ukraine’s industrial sector also requires efficiency measures to reduce energy consumption and greenhouse gas (GHG) emissions — in particular, the 400 enterprises in its metallurgical sector that are fueled by natural gas and coal.

Of the world’s 20 leading emitters of greenhouse gases, Ukraine has the highest carbon intensity: With 2,600 tCO2e of GHG emissions per million U.S. dollars of GDP in 2000, Ukraine edges out Russia. But Ukraine is just the tip of the iceberg, so to speak — representing just 1.4% of the world’s GHG emissions, which in 2000 totaled 38 billion tCO2e.

Emissions from GHGs, such as carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O) remain in the atmosphere and trap the sun’s heat, thereby contributing to global warming and upsetting the delicate equilibrium that allows mankind to call our planet “home.”

On top of the GHG emissions from industrial processes, feedback processes occur — where warming temperatures result in the evaporation of water from the world’s oceans and the thawing of permafrost, releasing more carbon dioxide and methane into the atmosphere, which results in yet more warming.

The longer we wait to take action, the more challenging and costly it will be to reverse the warming process and to restore our planet’s environmental balance.

So what are we to do?

UN Secretary-General Ban Ki-Moon calls climate change “the greatest challenge of our time. Nothing less than the future of our planet, and the well-being of all its people,” he says, “hangs in the balance.”

In the lead up to the first commitment period of the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC), which runs from January 1st, 2008 through 2012, projects are being developed all over the world to reduce GHG emissions.

A global carbon market has burst forth: New projects capture methane gas from landfills, animal waste and coal mines and use that “bio gas” for the clean production of heat and electricity. They also improve energy efficiency at industrial enterprises and implement new technologies for clean energy production, such as the use of renewable energy.

From 2002 to 2006, projects have been transacted for 2.4 billion tCO2e, of which 1,440 million tCO2e were within the European Union and another 960 million tCO2e were in developing countries.

Among the industrialized countries, the EU countries and Japan have accepted firm commitments to reduce their GHG emissions from 1990 levels. They can meet these commitments by investing at home or abroad in developing countries or countries with transition economies that have also ratified the Kyoto Protocol.

Although Canada has ratified the Kyoto Protocol, it has not followed up on its commitment to reduce its GHG emissions by 6% from their 1990 level.

Australia’s newly elected prime minister, Kevin Rudd, ratified the Kyoto Protocol in his first day in office, reversing the policy of the previous government. That leaves the United States — the world’s leading emitter of GHGs — as the only industrialized country not to have ratified the Kyoto Protocol.

While the EU countries and Japan take action on climate change, the United States and Canada are holding out for a better deal. The U.S. and Canadian governments are calling for the developing countries that are also the world’s leading emitters of GHGs — such as China, Russia, India, Brazil, Indonesia and Mexico — also to bear part of the cost of taking action on climate change.

They want them to join the industrialized countries in accepting firm commitments to reduce their GHG emissions.

The developing countries counter that since the onset of the industrial age, for the last two centuries, the industrialized countries have had a free ride — developing their economies at the expense of the world’s climate.

Developing countries such as China and India point out that on a per capita basis, their emission levels are much lower than those of industrialized countries, reflecting their lower levels of GDP per capita. Before they pay the economic price for addressing climate change, they first want to catch up and lift their populations out of poverty.

As the United States and other industrialized countries stare down the leading developing countries across this precipice, the window for developing projects under the Kyoto Protocol is closing.

Reducing emissions from landfills, animal waste, district heating facilities or industrial processes requires investment. According to a November 2007 report by French bank Caisse des Dépôts, 58 public- and private-sector investment funds have raised capital of €7 billion ($10.5 billion) to invest in projects that reduce emissions and to purchase carbon credits that these projects generate.

However, the report states, “In anticipation of negotiations of a post-Kyoto agreement, the future of the carbon market is uncertain.”

For carbon projects to be viable, they must generate sufficient cash flow from the sale of carbon credits from emission reductions to justify the upfront investment. Projects typically take at least a year to implement, so any projects that are initiated now will only begin generating emission reductions in 2009.

Four years of cash flow, until year-end 2012, is a tight time frame to justify the investment in most projects. A post-Kyoto agreement that provides certainty through 2020, for example, would breathe new life into prospective carbon projects, by according project developers and investors with at least 12 years of cash flow from emission reductions.

As the world’s nations wind their way through negotiations at a UNFCCC summit this week in Bali, investors and project developers around the world who are taking action on climate change stand in waiting for a compromise to be forged.

There has been much scientific debate over climate change — whether global warming is caused by humans or natural phenomena, such as sunspots. The principal debate should be over values: Do we continue to dump waste in uncovered landfills or open-air lagoons, to vent methane gas from coal mining — and consume energy in ways that harm our environment?

Or do we take responsibility for the impact of our lives on our planet? Do the “haves” of the world consider the well-being of the “have nots” to be distinct from their own? Or do we live in a world where the well-being of one is dependent on the well-being of all?

Climate change is indeed “the greatest challenge of our time.” The challenge is not only to mobilize the world’s resources of capital and intellect to roll back the damage that two centuries of industrialization is doing to our planet’s climate.

The foremost challenge is to bridge the great divide that separates the one billion people who live in industrialized countries from the over five billion people who live in the developing world. We need to forge common ground where disparate interests might otherwise prevail — and we need to build a world of shared values in this 21st century, where everyone can call our planet “home.”

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