Emissions trading and sustainable development: a case study of the Libyan oil and cement industries

Concern has been growing about global warming and climate change phenomenon caused by greenhouse gas (GHG) emissions. Many experts have discussed and warned against the risk of global climate change deriving from the increase of GHG emissions in the atmosphere. The well-defined emissions reduction policies and environmental regulations are one of the major elements that can positively treat the problem of climate change. The debate has asserted that the impact of a changing climate will affect economic, social and environmental sustainability. In light of this, global efforts have been made to discover potential policies to limit and mitigate GHG emissions and contribute towards sustainable development. Despite the fact that the problem of climate change, in particular air pollution (the emissions of GHG) is often considered to be a contemporary phenomenon, Libya as a developing country has not undertaken any steps towards the reduction of its GHG emissions, particularly carbon dioxide (CO2) emissions. Libya has recently been emerging from the extended period of isolation from the international community and seeking to address the very real environmental, social and economic concerns which affect its sustainable development. The study aims to investigate the ‘organisational or corporate context’ surrounding the potential adoption of emissions trading policy in order to reduce GHG emissions in Libya, particularly CO2 emissions and then contribute towards sustainable development. This research objective has not been empirically investigated in any depth and there has been a dearth of prior research related to the developing countries, notably Libya. The focus was on Libyan oil and cement industries. A number of previous contributions to the literature state that only when income grows can the effective environmental policies be implemented (Coondoo & Dinda 2002; Dinda 2004). In addition, clearly before adopting a policy, it is important to understand the nature of any causal relationship between economic growth and environmental quality. As a developing nation, the economic development of Libya is proceeding quickly as the country moves towards the development of its infrastructure. Environmental pressure increases with the economic development. In order to achieve the research objective, the following research questions have been identified: RQ1: What is the relationship between environmental quality and economic development in the case of Libya? (This sets the scene for the main research question). RQ2: How and to what extent can the implementation of an emission trading policy help to promote the reduction of GHG emissions, particularly CO2 emissions and contribute towards sustainable development in Libya, particularly in the oil and cement industries? RQ3: Does the use of an emissions trading policy have the opportunity to stimulate innovation to address emissions problems in Libya, particularly oil and cement industries? RQ4: What are the environmental and economic implications of adapting an emissions trading program in the case of Libya? The research method used in this study was based on a combination of quantitative and qualitative techniques, in response to the objective of the research and questions to be answered. In this regard, a mixed research approach was adopted. Firstly, based on the environmental Kuznets curve (EKC) hypothesis, a regression analysis was conducted to examine the nexus between environmental quality represented in CO2 emissions and economic development represented in income per capita GDP, in the case of Libya. The quantitative data was collected from a number of government and non-government annual reports. Secondly, to gain in-depth understanding of the phenomenon that has been investigated, the target population included both Libyan and foreign companies operating in the oil sector, as well as Libyan cement companies operating in the cement sector. 37 interviews were conducted. These interviews involved senior decision-makers (general managers) and managers of several functional departments such as production, environment, energy, sales and finance. In addition, experts and consultants working for the companies were involved in the interviews. Data collected from the interviews has already been analysed in order to investigate the research objective and answer each of RQ2, RQ3 and RQ4. Based on the EKC analysis, the results of this study indicate that the Libyan economic system is located on unfavourable part (position of the inverted-U shape). The study demonstrates that, income growth is significantly related to the emissions of CO2. Due to the lack of implementing such environmental regulations and the use of technological innovations, the analysis does not clearly reflect the existence of the turning point (inverted-U shape) in Libya. Therefore, the implementation of environmental regulations in Libya may improve the environmental quality in the long-run and in this regard developed nations can play a fundamental role by transferring their technologies in order to protect the environment. The outcomes of the interviews revealed that the selected Libyan industrial companies are ill-equipped in handling environmental issues with respect to environmental conservation. The political ecology of Libya’s potential engagement in carbon markets through the implementation of emissions reduction policies, such as an emissions trading system, is currently complex. It was obvious that adopting an emissions trading policy is constrained by the lack of institutional capacity and a stable investment environment. This is in addition to the absence of the vital governmental role to regulate those organisations by enacting and enforcing appropriate environmental legislations to be well activated in related fields. Despite the obstacles in respect to the potential implementation of the emissions trading policy in the case of Libya, the results indicated that Libya still has a great opportunity to implement the emissions trading policy in the country. A key focus is on the oil and cement industries which have a dominant role in the country’s economic growth because of various kinds of usage of fuels as energy input in the cement industry, this in addition to the important role of the oil industry and its major contribution to Libyan revenues and the GDP. Therefore, adopting emissions reduction policies in both the oil and cement industries and their potential for economic development will make a major contribution to the sustainable growth in Libya, while protecting the environment from degradation.