Carbon trade: Should we go and rush for it?

Stevie Emilia, The Jakarta Post, Jakarta

Now, it's the carbon trade era. Under the Clean Development Mechanism (CDM) of the Kyoto Protocol, developed countries are allowed to meet part of their carbon emission reduction commitments by carrying out reforestation and clean energy projects in developing countries.

The mechanism is supposed to have a dual goal: to achieve cost-effective greenhouse gas (GHG) mitigation for industrialized countries and on the other hand, to promote sustainable development in developing countries. In return for investing in a sustainable development project that cuts or avoids emissions in a developing country, companies will earn certified emission reductions (CER) that developed countries may use to meet their Kyoto commitments.

Some community groups have strongly decried the carbon trading idea, declaring during the recent climate conference in New Delhi that such a mechanism would constitute a worldwide strategy for expropriating their lands and territories and violating fundamental rights that would culminate in a new form of colonialism.

Many also have expressed doubt the value of carbon sinks. The process of carbon sequestration and the extent to which sinks can mitigate climate change remains uncertain.

But how much do we really know about CDM anyway?

Some experts suggested developing countries to use CDM for their own advantage, after all they will be "the host" of the projects and the fate of the projects are in their hands. Unfortunately, during the last round of climate conference, some fought among themselves to lure in the cheapest possible CDM projects thus waving goodbye to the sustainable development track.

With the lack of transparency and thick corruption practices in Indonesia should we rush for it?

Moekti H. Soejachmoen, deputy director of Pelangi - a research institute focusing on energy, forestry, transportation, air pollution and climate change issues, said that with its vast forest areas, Indonesia has a huge interest in observing how the forestry CDM revealed itself. She insisted that institutional feasibility studies would be crucial to CDM implementation - therefore one must assess how forests actually come to be degraded or disappear.

She cited a series of field studies conducted recently in Sumatra, Kalimantan and Sulawesi. The findings showed, among other things, increasing demand of forest products in the last three decades -- surpassing the capability of forests to provide supply commensurate with demand. The increase of the logging industry, both legal and illegal, the large pulp and paper industries and more area under plantations, have resulted in destruction and degradation of forest.

The findings also found worsening land-use conflicts and the decentralization process which began in 2000 has further cut down forest areas. It is no longer clear who has the authority and responsibility for the forest. In the end, the forest suffers.

"The big question is whether the implementation of forestry CDM which will primarily take the form of additional financial resources, will overcome those underlying causes - eventually stop deforestation in Indonesia, ultimately reduce emissions and increase the forests' sequestration capacity?

"Money, evidently, is not an independent solution to these concerns. CDM alone, therefore, will not reduce forest destruction and degradation in Indonesia. Not until there is, truly, institutional reform," she told The Jakarta Post during the climate conference.

She also pointed out that afforestation and reforestation in Indonesia is unlikely to survive illegal logging, forest fires or regulatory changes. "This makes investment in forestry CDM in Indonesia very risky indeed," said Moekti.

Even by applying an accounting system for temporary certified emissions reduction (TCER), she questioned the future existence of Indonesian forests. "Therefore, saving what's left of Indonesian forests, is perhaps best served by a mechanism other than the CDM," Moekti said.

The CDM might turn out to be hard to resist. At the moment, the price of carbon is determined by the market, which is currently estimated at between US$2 to $5 per ton of carbon dioxide.

According to Axel Michaelowa of the Hamburg Institute of International Economics, the Marrakesh accord defines three types of small-scale CDM projects: renewable energy projects below 15 megawatts installed capacity; energy efficiency improvements of less than 15 gigawatts per annum; and emitting less than 15 tons of carbon dioxide per annum.

The thresholds, however, are varied. For instance, a hydropower plant of 14.99 megawatts running 8,000 hours per year generates 108,000 CERs, while a wind power plant of the same size but only 2,700 hours just gets 36,000 CERs -- if it uses a coal baseline of 850 gram carbon dioxide/kilowatts.

Indonesia has also prepared several CDM projects, including two which will be implemented by Pelangi under the SouthSouthNorth (SSN) Indonesia. South Africa-based SSN, an International Trust has six operating centers - including Indonesia.

The projects, still in design phase, are greenhouse gas emission reduction program for urban buses in Yogyakarta and Sarulla Geothermal Development Project in Sarulla, North Sumatra, which is expected to start in 2007.

"Other CDM projects like renewable energy projects are okay but not forestry CDM," Moekti said.

An expert from the Bogor Agriculture Institute Rizaldi Boer said that like it or not the government should be ready to host CDM project. "But the government should keep in mind that as the host, we have the power and can use the projects for our own advantage," he said.

He insisted the need for "preparation" and "detailed and careful contracts and design plans" before approving any CDM projects.

"We should develop our people's negotiation skills, we need people who really understand about this carbon trade. Then, we should have strategy, criteria for initial screening process. So, if the proposals (for CDM projects) do not meet out criteria, we should say `No'," Rizaldi said, adding that as a new commodity, such projects would be risky considering Indonesia's weak regulations, ongoing decentralization process and poor state of the forests.

The executive in charge of foreign affairs of the Association of Indonesian Forestry Business (APHI) Robianto Koestomo, said Indonesia should fix many things at home, like providing legal certainties for investors, while at the same time, give the CDM projects a try.

"CDM is pure business. It's impossible if the deals do not involve business people. That's the way it is, no charity," he said.

Currently, APHI was preparing a CDM project:, to transform 5,000 hectares of land, which was formerly used as a resettlement area for transmigrants in Palembang or Jambi. The project, slated to start next year, is assisted by the International Tropical Timber Association (ITTO), which provides early financial and technical hand outs.