Carbon Trading and Indonesia’s Possibility as Trader

I’ve read once in some articles about carbon trading. It intrigues me, because carbon trading -or some would call it as emission trading or cap-and-trade, could support government funding on reforestation and land rehabilitation. Either way, as I browse the net, in Wikipedia, I learn that carbon trading works as follow;

1. A central authority (usually a governmental body) sets a limit or cap on the amount of a pollutant that can be emitted.
2. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount.
3. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level.
4. Companies that need to increase their emission allowance must buy credits from those who pollute less.
5. The transfer of allowances is referred to as a trade.
6. 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.

Thus, in theory, those who can reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest cost to society.

In Indonesia, carbon trading is a government program called: Clean Development Mechanism (CDM). From the Department of Forestry and Agriculture, I found out that CDM is a mechanism regulated under the Kyoto Protocol/UNFCCC. CDM is intended to help industrious country cut their Green House Gas (GHG) emissions and to help developing nation on their continual development and to contribute in achieving Climate Change Convention (UNFCCC) goal. For Indonesia, CDM was a chance to acquire foreign funding to support priority programs, creation of jobs and to support:

1. Land rehabilitation on forests
2. Rehabilitation on land damage by forest fire
3. Mangrove and peat moss rehabilitation
4. Agro-forestry
5. Reduced impact logging application
6. Natures rejuvenation
7. Forest reserve protection from over use
8. Forest protection from fire

Not to mention other benefits such as; technology transfers, capacity building, environment quality enhancement and competency improvements.

Even so, Indonesia does not have to oblige to the program because CDM is merely a chance for foreign investment. Indonesia’s obligation is not in CDM context, but as a nation that ratifies UNFCCC; oblige to give periodic reports on GSG inventory (energy or non-energy sectors) and in the effort to suppress the negative effect of climate change. While Indonesia is still a non-annex I (developing nation), Indonesia is not entitled to lower its GSG emissions and have the right for funding (i.e. from GEF, etc) used for capacity building and technology transfer in suppressing the negative effect of climate change.

There are terms and condition for CDM; first, it must be voluntary cooperation (between governments, between private sector, and between government and private sectors); second, it must be approved by both government and; third, the program must be measurable, have long term benefit, and improve several factors from its original state – such as GHG reduction, growing investment, funding, technology and regulations.

CDM is indeed a good chance for investment; however, since not all developed countries ratify the Tokyo Protocol, the law has yet been able to be implemented. Moreover, there are still issues concerning rules, procedures and methodologies for CDM implementation. There’s also a need for coordination between the involving parties –Department of Forestry & Agriculture with The Office of Ministry of Environment, the experts, and other agency & departments.

With the growing concerns on our environment, I believe that we should start preparing for all the supporting aspect regarding CDM. So when the time comes, we’ll be part of the solutions.