Carbon credit boom in the offing for Indonesian firms

Andi Haswidi, The Jakarta Post, Jakarta

Companies in developing countries engaging in carbon credit sales are likely to increase their earnings significantly this year as the global value of the market, which reached about US$30 billion in 2006, is expected to double, an analyst says.

"The market value of carbon credits is likely to again increase in very, very significant percentages. It could be double again," Jotdeep Singh, Rabo India Finance's head for renewable energy and carbon credits in Asia Pacific, told The Jakarta Post.

Rabo India Finance is a subsidiary of Rabobank International.

Singh said that as carbon credit trading itself only commenced in October 2005 following the ratification of the Kyoto Protocol, more countries had been entering the market recently.

"You have a few countries that have taken the lead in terms of volumes and projects, such as China and India. Therefore, Indonesia does not want to be left behind. More and more companies need to find this out, what the opportunities are for them."

What is of concern to developing countries, like Indonesia, Jotdeep said, is how to promote the Clean Development Mechanism (CDM).

The CDM is an arrangement under the Kyoto Protocol allowing industrialized countries, also called the Annex 1 countries who signed quantitative limits to their gas emissions, to buy carbon credits from other countries -- mostly developing countries -- who did not sign up to poverty reduction goals under the Protocol.

Last year, CDM projects contributed about $5 billion to the total world market value, and is also expected to double this year.

"These non-Annex 1 countries still have the challenge of addressing poverty. That is why they were exempted from taking on emission reduction targets, because it was seen that the targets could harm their economic growth and therefore their poverty reduction efforts."

With that advantage in hand, companies in developing countries can reduce their gas emissions and obtain carbon credit certificates, called Certified Emission Rights (CERs), from the United Nations, which can later be traded.

A one-ton carbon dioxide reduction is estimated to be worth $13.

So far, Indonesia has only registered nine CDM projects, which delivered over one million tons of CO2 reductions. Another nine are still in the pipeline, Jotdeep said.

Indonesian Chamber of Commerce and Industry (Kadin) chairman Muhammad Hidayat admitted that the participation of local companies in mechanism was still as most businesses still had little idea of what it was all about.

"Indonesia has a big potential. I have received offers from Northern European countries that want to trade carbon credits with Indonesian companies. I've also met the Norwegian prime minister, who wanted to discuss a couple of projects, with one of them located in Bali," Hidayat said.

Companies planning to reduce their greenhouse gas emissions should prepare a document outlining their plans and hire a consultant to prepare a carbon credit proposal for submission to the UN. These proposals are known as Project Design Documents (PDD), which must be validated by UN Designated Operating Entities (DOEs).

Consultation and validation combined can cost from $30,000 to $50,000, Jotdeep said.

Those firms that cannot afford consultancy or validation can avail of the Verified Emission Reduction (VER) mechanism, which also involves a form of tradable credits, but which entails a lower cost compared to the CER.