Businesses consider future of carbon trading

Businesses consider future of carbon trading

30 January 2006

published by The Jakarta Post

Indonesia — Like other businessmen, Bowo Widjaja, the finance director of power supply firm PT Napalima, believes in the basic economic principle of “maximum profit, minimum spending”.

He has also been wondering if he could benefit from the Kyoto Protocol’s Clean Development Mechanism (CDM) — the name for a system in which wealthy emission-producing countries help finance clean energy projects in developing countries. Bowo’s factory uses natural gas to power generators.

“I’ve learned something about CDMs, and I’m curious as to how I could benefit from them,” he said at a training program for government and industry on CDMs here on Wednesday.

Through CDMs, more than 30 wealthy countries — all signatories to the 1997 Kyoto Protocol — fulfill their commitment to reducing world greenhouse gasses by an average of 5.25 percent by financing carbon emission reduction projects in developing countries. This mechanism is also known as “emission” or “carbon trading”.

The target is to reduce the main greenhouse gasses — carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride — in the air between 2008 and 2012, a time span called the “first commitment period”.

The U.S., which generates one-fifth of the world’s greenhouse gases, and Australia have refused to sign the protocol on the grounds that global warming has not been scientifically proven to be caused by human emissions. They say any premature restrictions on emissions would endanger their nations’ industries.

Three Kyoto signatories, Austria, Denmark and Japan, on Wednesday expressed interest in funding Indonesian carbon emission projects as soon as they were given certified emission reduction (CER) status. “The main aim of our CDM program is closing the gap between the Austrian Kyoto target and our national emission reduction potential,” Austrian Ambassador to Indonesia Bernhard Zimburg said, adding his country was obliged to reduce 7 million tCO2 (ton carbon dioxide equivalent) annually.

This year, his country allotted 36 million euros (about US$396 million) for the direct purchase of CERs internationally. Under the mechanism, each ton of CERs is priced at between $1.5 and $7.

Soeren Varming of the Danish Embassy said his country preferred to buy Indonesian CERs rather than other projects in Southeast Asia because the country already had the institutions to police the project. “You have a designated national agency to verify every project being proposed. That’s why we are optimistic that this year the CDM market will show its potential,” he said.

Late last year, the government opened the National Commission on CDMs, the designated national authority with the sole right to propose CDM projects. These projects are later ratified by an international executive board.

Japanese Embassy counselor Michihiro Kishimoto said the Japanese were taking CDM issues seriously. He foresaw many Japanese businesses participating in carbon trading with Indonesia this year.

A deputy to the state minister for the environment, Masnellyarti Hilman, said Indonesia had the potential to reduce carbon emissions by up to 180 million tCO2, an amount worth almost $1 billion to the country.

So far the National Commission on CDMs has approved five projects to be submitted to the international board. “For Indonesia, CDMs are an opportunity to cash in and also show our commitment to protecting the planet,” she said.

State Minister for the Environment Rachmat Witoelar stressed that CDMs were not just good business sense, they were also about saving the planet from harmful global climate change. “As an archipelagic country with the world’s second-longest coastline, Indonesia is vulnerable to global climate change,” he told training participants. Rising sea levels caused by global warming threaten fishermen’s livelihoods and the country’s ecosystem, he said.

However, some businesspeople and environmentalists are skeptical the Indonesian private sector will embrace the idea of trading carbon emissions because of the high cost of certification.

According to the commission, each company applying for a CDM project has to spend more than $50,000 for validation, registration and verification fees.

World Bank environment specialist Josef Leitmann said his office would help every business interested in offering CDM projects. However, it could not afford to pay their fees, he said. “We will give them free technical assistance in analyzing their potential for carbon reduction emission and in formulating the applications. We also invest in CDM projects here,” he said. Leitmann said the bank had already invested $11.5 million in an Indonesian project to replace fossils fuels with renewable energy sources. 


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