Thursday, 16 April 2009

Rainforests Key to Carbon Trading

April 15, 2009

Kafil Yamin, The Jakarta Globe

Bogor. For the past decade, forestry has been categorized as a sunset industry, although forests themselves have now taken on a new economic value — not from exploitation but from protecting them.

With 75.27 million hectares of rainforest, according to Ministry of Forestry data, Indonesia could earn billions of dollars in carbon trading if it were able to protect and properly manage its forests.

In fact, Frances J. Seymour, director of the Center for International Forestry Research, or CIFOR, which has its headquarters in Bogor, West Java Province, said Indonesia could earn at least $1 billion a year.

At the top of the agenda at the international convention on climate change in Copenhagen, Denmark, in December this year, will be deliberation about the standard to be used in the carbon trade mechanism.

Seymour sees the convention as an opportunity for Indonesia to show the world its carbon potential and its significance in lowering greenhouse gas emissions, and in so doing, slowing the rate of global warming. But to do this, Indonesia will need to overcome all the problems related to its forest management.

The assumption of $1 billion in carbon revenue is no exaggeration when looking at the country’s large potential for emission-reducing projects, estimated conservatively at 250 million to 500 million tons of carbon a year.

The Copenhagen gathering will set a new mechanism for carbon trading, and international standards to limit carbon emissions by industry.

The mechanism will require corporations and countries exceeding a carbon-credit cap to buy carbon credits from other countries. And with 75 million hectares of forested area, Indonesia has everything it takes to become a major player in the scheme.

One response to this was President Susilo Bambang Yudhoyono’s establishment of the National Commission on Climate Change in 2005, which has so far approved 24 carbon trading projects.

Among them are a small-scale hydroelectric power plant in South Sulawesi Province, with an expected emissions reduction of 68,238 tons a year; a biomass electricity plant in North Sumatra Province, at 1.1 million tons; and a waste-handling and disposal operation in West Kalimantan Province, saving 1.9 million tons. Nine of the 24 projects have been registered with the United Nations.

Approved carbon-reduction projects receive Certificates of Emissions Reduction, or CER, from the United Nations, based on the tonnage of carbon emissions offset.

The CER allows carbon trading with 38 industrialized nations that have committed themselves to cutting their greenhouse gas emissions to 5.2 percent below 1990 levels. A ton of reduced carbon dioxide is currently priced at between $5 and $10.

EcoSecurities Indonesia alone has set sales targets for next year as high as 25 million tons worth of carbon credits. The carbon credit volume is valued at between $250 million and $300 million.

Assumptions of $1b in carbon revenue is no exaggeration when looking at the country’s large potential

“The 25 million tons of carbon credits is just our target. If other companies or organizations develop these kinds of projects, the figure could be much higher,” said Agus Sari, country director for EcoSecurities Indonesia.

EcoSecurities is an international trader in carbon credits from greenhouse gas emission reduction projects. It established its Jakarta office in Septemer 2006.

The Kyoto Protocol’s Clean Development Mechanism allows emission reductions achieved in developing countries to be bought by developed and industrialized countries struggling to meet their own compliance targets.

Currently, the carbon market is voluntary, based on the Kyoto Protocol, but after 2012, the market will become compliance based.

Seymour said the compliant carbon market would be a blessing to Indonesia if the country could meet some conditions. It would need to develop a more transparent forest management regime, including management of funds raised from forestry, and the government would have to ensure better coordination between institutions — between government institutions themselves and between the government and community groups.

“Indonesia should also find what is the best way of spending money earned from the carbon trade,” Seymour said.

She said the toughest job would be how the government deals with disputed claims on forested areas between the central and local governments; disputes between local administrations, local communities and forest concession holders; and disputes stemming from state law and traditional law, or hukum adat , on forest ownership.

Seymour said the issue was complicated, with many technicalities, and the way in which carbon values and prices were calculated still unclear.

Deliberations will focus on how to set a clear mechanism of mandatory carbon payment.

The compliant carbon trade market will require companies and countries to hold an equivalent number of allowances, or credits, which represent the right to emit a specific amount of carbon dioxide. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emission allowance must buy credits from those who pollute less. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed.

According to Bruce Usher, EcoSecurities’ chief executive, clean development projects in Indonesia are coming along slowly compared to India, Malaysia and Brazil, even though the country possesses 10 percent of the world’s carbon credit supplies.

“Such dawdling is mostly caused by unclear government regulation,” Usher said.

He said he believed Indonesia could take a leading role among countries with large areas of forest to push the process of carbon trading and bring advantages to all parties involved: industry, local communities, government and Mother Earth.

New Mechanisms to Help Developing Countries Protect Forests

Twenty percent of the carbon dioxide released into the atmosphere comes from global deforestation and forest degradation, and 30 percent of this world volume comes from Indonesia.

Since the 1997 Kyoto Protocol, carbon trading has been conducted on a voluntary basis, with developed countries and international corporations that release unacceptably high levels of carbon dioxide financing emission-reduction projects in developing countries.

One example of the voluntary mechanism is Norway, which pays $1 million a year to Brazil to encourage protection of its rainforests.

In the United States now, carbon trading is conducted voluntarily through the Climate Action Reserve, a new set of standards meant to bring transparency and accuracy to the US carbon reduction market.

The reserve is a division of the California Climate Action Registry, a nonprofit public organization started by the state of California to serve as a voluntary registry that verifies and tracks emission reduction projects and their inventories of gas reduction tonnage.

It sets project protocols for specific industry sectors based on best practices, as determined by stakeholder work groups representing industry, government, science and environmental sectors.
Owners and developers of emission reduction projects can register their projects and the associated inventories as Carbon Reduction Tons, or CRTs, pronounced “carrots,” on the reserve’s Web site.

After that, a project is verified by an independent third party to ensure the project has met the protocol standards and to accurately quantify the greenhouse gas reductions.

The Kyoto Protocol will end in 2012. Over the last five years, green activists and scientists have been involved in a joint effort to bring forward a new emission-reduction scheme called REDD, an acronym for Reducing Emissions from Deforestation and Forest Degradation.

The name suggests that this scheme’s base is in areas or countries with large tracts of forested land, which obviously includes Indonesia.

If carbon dioxide emission rates reach “red,” or dangerous levels, REDD is expected to bring them back into green levels.

The scheme essentially brings in mechanisms for developed countries to pay developing countries for reducing emissions from deforestation.

The basic principle of REDD is that rich countries finance poor countries to build their capacity to protect their forests.

The book “Moving Ahead with REDD,” published by CIFOR in 2008, explains that the core issue for REDD is to create multilevel payments, both national and international, for environmental services.

The mechanism is still being deliberated, but there are two basic systems: voluntary-based and compliance-based.

At the Copenhagen convention in December, the United Nations Framework Convention on Climate Change will decide whether or not REDD will be included in the post-2012 global framework.