Tapping tradeable emission credits

Tapping tradeable emission credits

Hana Anwar Makarim, Jakarta

In the past decade, we have seen the destabilizing effects of
extreme weather patterns across the globe. The need to control
climate change and mitigate global warming brought about 160
countries together in 1997 to institute an international treaty
called the Kyoto Protocol.

With Russia's recent ratification of the Protocol, 128
industrialized countries are now legally bound to reduce their
carbon emissions starting Feb. 16 this year by investing in
technologies that minimize them, especially in developing
countries. This is a momentous opportunity that Indonesia must
seize.

The Kyoto Protocol will have a tremendous economic impact on
Indonesia because it creates a new market for tradable emission
credits called Carbon Emission Reductions ("CER"). CERs are
essentially measurable units of the amount of greenhouse gas
emissions reduced.

One example: As a tree grows, one can scientifically measure
how many tons of carbon it absorbs from the atmosphere per year.
These measured tons of CERs can be sold to governments and
companies worldwide, in order to comply with their Kyoto Protocol
emission reduction targets. There are a variety of other methods
to generate CERs other than reforestation, but the concept
remains the same.

Just as Saudi Arabia accumulates enormous revenues and
dominates the direction of world energy markets through its oil
reserves, Indonesia has the potential to become the "Saudi
Arabia" of the Kyoto Protocol's CER market. Governments and
businesses are only now beginning to realize that they must
incorporate sustainable development strategies to secure long-
term growth.

In Indonesia, these strategies are largely ignored because
they have always been considered too costly to adopt and
unfortunately, a bureaucratic nightmare to implement. However,
with global demand for CERs rapidly expanding to a multi-billion
dollar market, Indonesia cannot afford to overlook this new
revenue stream.

The Indonesian government must make a strong push to publicly
introduce the Kyoto Protocol's concepts and articulate the
economic benefits that its mechanisms could reap, especially to
the private sector. There may be many existing medium-sized to
large businesses that have invested in cleaner technology and
therefore qualify for CER credits, but are unaware of it.

Today, the price of CERs ranges from US$5 to $20 per ton,
illustrating how such market prices could add real income to the
bottom line of many Indonesian businesses. Of course, companies
must get undergo CER certification before cashing in.

Just as in the case of oil for Saudi Arabia, CERs in Indonesia
are in a potentially dominant position due to the country's
unique mix of primary industries and its location in the tropics.
In terms of generating CERs through forestry, countries like
Brazil and Indonesia are the most obvious candidates. Even here,
Indonesia has an advantage because its many islands are more
reachable, as opposed to Brazil's one large but more inaccessible
mass of Amazon land.

While this is a broad overview, the fact is, we should not
just look at the Kyoto Protocol as simply another environmental
issue. It is a tremendous opportunity for new job-creation and
revenues of which Indonesia is best placed to take advantage. The
Kyoto Protocol offers Indonesia the chance to "do good" for the
environment by mitigating global warming and "do good" for the
pocketbook with more cold hard cash.

The writer is Deputy Director of Byun & Co, a consulting
service company that is currently developing a Biomass Renewable
Energy Project in Bali, aiming to convert rice husks into
electricity, under the framework of the Kyoto Protocol.