The case of unburnable carbon-8202-News

The case of unburnable carbon-8202-News-SDPI

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The case of unburnable carbon

The opportunity cost of tapping into Thar coal isn’t straightforward. It’s not just about digging up the coal and cashing in; it’s also about what we give up in the long run by going down that road. Pakistan is standing at a crossroads. We can choose either the short-term boost that coal promises or look beyond that and see a bigger, greener picture.

The idea of leaving fossil fuels in the ground and earning carbon credits instead is now looking like a strategy. Global energy markets and climate policies are evolving.

The choice with regard to Thar coal is between immediate economic benefits and a more sustainable future. Burning the coal limits our chances of participating in the upcoming global carbon markets and avoiding environmental costs of coal extraction and use.

One of the primary opportunity costs of extracting Thar coal is the potential to earn carbon credits by not exploiting this resource. In global climate policy, the concept of “unburnable carbon” has gained traction, suggesting that a significant portion of fossil fuel reserves must remain unextracted to keep global warming within the limits set by the Paris Agreement.

For countries like Pakistan, this presents an opportunity to monetise its fossil fuel reserves without extracting them through mechanisms, such as “avoided emissions” credits. Under this framework, Pakistan could negotiate with international climate finance mechanisms or carbon markets to receive financial compensation for its decision to keep its coal in the ground.

The revenue from such carbon credits could be invested in renewable energy development, energy efficiency and other sustainable projects, thereby contributing to a more resilient and sustainable energy system.

The potential revenue from carbon credits must be analysed in comparison to the expected economic gains from coal extraction. Thar coal promises a reduction in energy costs and a decrease in reliance on imported fuels. On the other hand, the global price of carbon emissions is increasing steadily.

Under the European Union Emissions Trading System (EU ETS), carbon border adjustment mechanism (CBAM) and other regional carbon markets, the price per tonne of carbon dioxide equivalent (CO2e) has seen significant growth in recent years.

If Pakistan were to secure agreements to earn carbon credits for keeping its coal reserves untouched, the financial return could be substantial. This opportunity could become even more lucrative if a global carbon market emerges, providing a broader platform for trading such credits. Additionally, avoiding the negative externalities of coal extraction — such as health costs, environmental degradation and water resource depletion — would enhance the net benefits of this approach. The funds generated from carbon credits could also support Pakistan’s transition to cleaner energy sources, improving energy security while adhering to its international climate commitments.

The opportunity cost includes the long-term environmental and health benefits of not extracting Thar coal. Burning lignite coal like that found in Thar emits significant amounts of greenhouse gases, contributing to climate change and associated costs such as extreme weather events, agricultural productivity loss and health crises.

By leaving the coal in the ground, Pakistan can avoid these externalities, which have tangible economic costs.

Protecting the region’s ecosystem, particularly its scarce water resources, will maintain livelihoods of local communities that rely on agriculture and pastoralism. The societal cost of environmental degradation and water scarcity is often difficult to quantify, but it is clear that preserving these resources holds substantial value for Pakistan’s long-term sustainability.

A decision to leave Thar coal unextracted could also align with the evolving global regulatory landscape, particularly the implementation of the European Union’s CBAM. As the EU and other major economies move towards carbon neutrality, they are introducing measures that penalise carbon-intensive imports.

Pakistani industries that rely on coal-fired power for production, such as textiles, cement and steel, could face additional costs when exporting to markets that enforce strict carbon regulations. This can not only reduce the competitiveness of Pakistani exports but also discourage foreign investment in sectors reliant on coal-based energy.

By not developing Thar coal and instead pursuing cleaner energy options, Pakistan can avoid future regulatory and market risks, positioning itself as a producer of low-carbon goods. This could enhance its trade prospects, attract green investment and strengthen its participation in global value chains that prioritise sustainability.

The opportunity cost includes the potential for investing in renewable energy and sustainable development. The funds earmarked for the development of Thar coal infrastructure, including power plants, mining operations and transport, could be redirected towards scaling up renewable energy sources like solar and wind through modernisation of transmission system.

Pakistan has significant renewable energy potential, with high solar irradiance and favourable wind conditions, particularly in the southern regions. Investments in these sectors could provide a sustainable and decentralised energy supply, reducing transmission losses and enhancing energy security.

Renewable energy development aligns with global climate finance initiatives, opening access to international funding sources, including the Green Climate Fund and bilateral climate aid, which often support projects that facilitate transition to low-carbon economies. By focusing on renewable energy, Pakistan could build a diversified energy mix resilient to external shocks, such as fluctuations in fossil fuel prices and geopolitical tensions affecting energy imports.

The strategic choice of not exploiting Thar coal could position Pakistan as a responsible actor in the global climate narrative, potentially leading to diplomatic and economic advantages. As countries around the world ramp up their climate ambitions, Pakistan’s decision to forgo coal extraction could enhance its standing in international climate negotiations and partnerships. This could translate into greater influence in multilateral climate funds, technical assistance and capacity-building support for its sustainable development agenda.

By making a commitment to climate action, Pakistan could also attract multinational companies and investors seeking to invest in countries with strong environmental credentials. A new financing mechanism under consideration is Coal to Clean Credit Initiative.

The CCCI offers a pathway for developing countries to move away from coal without compromising economic growth. According to the Rockefeller Foundation, the CCCI enables these countries to generate jobs and electricity while avoiding a climate crisis.

With more than 90 percent of coal plants locked into long-term, profitable contracts, the CCCI proposes a methodology to accelerate the phase-out of coal by creating coal-to-clean credits. These credits provide financial incentives for plant owners to transition to renewable energy and support communities impacted by the shift.

The initiative aims to start transactions by 2024, helping avoid millions of tonnes of CO2 emissions. It emphasises a just transition, working with local communities to create new job opportunities and ensure that workers’ needs are met.

With partnerships in countries like Indonesia, the CCCI sets a new benchmark for carbon-financed projects, aligning immediate project-level actions with broader system decarbonisation. By doing so, it opens a practical route for countries to shift from coal to clean energy, driving both environmental and social benefits.

However, the feasibility of this approach depends on several factors, including the ability to secure sufficient compensation through carbon credits. The capacity to scale up renewable energy to meet domestic energy demands, utility scale as well as off grid solution can also be explored. Given the readiness of the global carbon market to value “avoided emissions” from unburned fossil fuel reserves, Pakistan can be the leader in propagating the idea of economically feasible and equitable fossil fuel phase out.

The socio-economic impact on communities that would have benefitted from the direct economic activities associated with coal mining and power generation in Thar must be addressed through alternative development strategies. These could include investment in green industries, vocational training for renewable energy jobs, investment in indigenisation of renewable technologies and innovations, and community-based projects that improve livelihoods while preserving the environment.

The opportunity cost of exploiting Thar coal is substantial considering the potential benefits of earning carbon credits, avoiding environmental and health externalities and aligning with global climate objectives. While the immediate economic and energy benefits of coal extraction are compelling, the long-term advantages of leaving Thar coal in the ground could outweigh these benefits, once global carbon pricing mechanisms and regulatory frameworks evolve.

The idea of monetising Thar coal reserves through carbon credits offers a pathway for Pakistan to simultaneously achieve climate mitigation goals and promote sustainable development. By reframing its energy strategy to prioritise renewable energy and environmental conservation, Pakistan could mitigate the risks of a carbon-intensive future and embrace a development trajectory that is economically, socially and environmentally sustainable.

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