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Jakarta Post

Carbon trading and its challenges for Indonesia

  • Warief Djajanto Basorie

    The Jakarta Post

Jakarta   /   Sat, August 31, 2013   /  01:08 pm

'€œCarbon offsetting is a false solution.'€ That was the message in bold print on tarpaulin hanging on the back wall of a stage where an Indonesian environmental NGO was hosting a public discussion on climate change.

Carbon offsetting relates to carbon trading, an idea that has stirred controversy as a means of reducing carbon emissions in the atmosphere, which fuel global warming.

Carbon trading is the transaction of verified carbon credits whereby a company can buy greenhouse gas credits when its carbon emissions quota is totally spent. These credits are bought in a government-created carbon market by fossil-fuel-based industries to offset the carbon they emit in excess of their carbon allowance.

Essentially, firms that yield less carbon than the amount they are allowed to emit can sell credits to companies that exceed their carbon emission limits.

Carbon trading comes in two varieties: compliance-based and voluntary. The first type is for nation states and companies to comply with the emission reduction rules of the 1997 Kyoto Protocol. The second type is for voluntary offsetting. Even individuals who are frequent flyers can buy credits to offset their carbon footprint.

Industrial Organization for Economic Cooperation and Development (OECD) countries, particularly in the European Union (EU), as ratifiers of the Kyoto Protocol, are legally bound to reduce their collective carbon emissions by 5.2 percent from 1990 levels.

A cap or government-imposed limit is placed on the amount of carbon an industrial plant can emit in a given trading period. With a cap and trade mechanism, however, industries can get around this limit through offsetting excess carbon by buying carbon credits.

As an apparent escape hatch for pollution-prone businesses, carbon offsetting has been accused by environmental NGOs like Greenpeace and the Indonesian Forum for the Environment (Walhi) of being a false solution. It allows mainly Western industries to emit carbon gases in excess and not reduce them, thus defeating the intent of the Kyoto Protocol, they argue.

Arguments aside, for Indonesia, carbon trading is an incentive to save its carbon-rich forests. By protecting its vast tropical forests and peatland, Indonesia can earn a lot of carbon credits it can sell. One way Indonesia can conserve its forests and become a carbon vendor is through its REDD initiative to reduce emissions from deforestation and forest degradation. REDD is a major climate mitigation scheme that compensates countries like Indonesia to avoid deforestation and degradation.

The 13th United Nations Conference on Climate Change in Bali in 2007 produced the Bali Action Plan (BAP). This is a long-term process for a global, legally binding climate strategy. Its outcome replaces the Kyoto Protocol, which ends on Dec. 31, 2020. One measure recognized in the BAP is the REDD initiative.

For a REDD scheme to work, CIFOR, the Bogor-based Center for International Forestry Research, identifies four challenges: measuring carbon, making payments, accountability and funding.

Measuring carbon is at the core of carbon trading. Accuracy in calculating the carbon content in a forested area is imperative. This is why a REDD activity must comply with measuring, reporting and verifying (MRV) standards. High technology tools such as satellite imaging and computer modeling are used to measure carbon stocks.

After measuring reduced emissions, also called '€œavoided deforestation'€, credits can be counted. Those credits can be sold in an international carbon market. The credits can also be taken to an international fund that provides financial compensation to countries that conserve their forests.

Whatever outlet is used, REDD projects still have to compete on economic terms with the drivers of deforestation, CIFOR contends. Economic drivers that destroy forests and peatland are businesses involved in land use changes. They convert forests to livestock pasture, extractive mining and oil palm estates, to name just three enterprises. Thus, for a carbon market to function viably, the carbon price must be high enough to dissuade investors from pursuing ventures that raze forests and peatland.

Internationally, carbon markets are known as emissions trading schemes (ETS). The EU is one of a dozen recognized markets. The EU-ETS started in 2005 with 31 participating countries and applies the cap and trade system. It covers more than 11,000 factories and installations.

In Asia, Japan and Korea have established ETS. Indonesia sells carbon credits in the European and Japanese markets. Given the economic downturn in Europe that caused an oversupply of allowances, the carbon price in the EU-ETS has dropped from ¤30 per ton of carbon dioxide in April 2006 to ¤6 in December 2012.

Meanwhile, Indonesia'€™s own domestic ETS is in the concept stage. The Carbon Trade Mechanism Division of the National Council on Climate Change (DNPI) is working on an ETS that it calls the Skema Karbon Nusantara (SKN, Archipelagic Carbon Scheme). The SKN makes it a condition that for a project to qualify for carbon credits, it not only has to reduce greenhouse gas emissions but must also prove it serves sustainable development.

Proof of that contribution to sustainable development is determined in five aspects. The project must meet requirements tied to natural resources and the environment, human resources, economic affairs, social affairs and technology.

As credit, compliance can earn the project one UKN (Indonesian carbon unit) for every 1 ton of carbon dioxide it saves from emission. On its website (, the SKN working group has posted two draft documents on the SKN concept for public comment.

How successful Indonesia'€™s ETS will be rests on several factors: the SKN'€™s institutional setup, the methodology adopted, economic stability to ensure a desirable carbon selling price, the competition from economic drivers for land use change investments '€” albeit for shorter-term profit, and the arguments against carbon offsetting from vocal NGOs.

The writer teaches journalism at Dr. Soetomo Press Institute (LPDS), Jakarta.

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