Carbon trade: Should we go and rush for it?

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.