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.