When Will We Cash In on the Carbon Trade?

August 31, 2011

By Fidelis E. Satriastanti

Indonesia’s lush forests could help it turn a huge profit in carbon trading, but a lack of clear regulations means the country is not ready for this step, a senior official has warned.

Iman Santoso, the Forestry Ministry’s director general for forestry business, said much of the policy framework necessary for Indonesia to benefit from its forests’ capacity to function as a carbon sink was not yet in place.

“First, we need to have a fixed price [for carbon] so that we can benefit from a carbon-trading scheme,” he said during a recent discussion about the low-carbon economy.

“Second, we still don’t have regulations, for instance about the distribution of the money,” he said. “Who’ll get what? And how much?”

Iman added that while the Forestry Ministry had drafted several policies on the carbon trade, they were still under review because the Finance Ministry had differing opinions.

In 2009, Indonesia announced that it was the first country prepared to host pilot projects to reduce emissions from deforestation and forest degradation, or REDD schemes.

These projects involved figuring out how to calculate and distribute the payments for the carbon dioxide sequestered as a result of easing back on logging and other environmentally degrading activities.

With at least 20 REDD pilot projects in place, Indonesia is expected to generate billions of dollars from the carbon trade.

“It’s not that the carbon market isn’t filled with prospects for the future,” Iman said.

“It’s also about communicating [the benefits of the carbon trade] with other stakeholders and departments.”

Without the legal framework for carbon transactions in place, he added, it will be difficult to see any financial benefits.

He said that while current projects could move forward, it was advisable that no new agreements be signed on carbon trades.

“Carbon is not a typical [forestry] commodity, so there are lots of political and moral implications involved in setting a price for it,” he said.

Heru Prasetyo, secretary of the country’s carbon task force, said that REDD went beyond just carbon trading because it also involved preserving biodiversity, the environment and indigenous people’s rights.

“We may not be ready as yet to go into carbon [trading], but we still have the opportunity to prevent emissions and earn revenue from that,” he said.

“We’re in a phase where we’re changing our paradigm on forests from one of exploitation to preservation.”

Iman said that while in the short term, carbon trading might not seem as lucrative as palm oil production or mining — activities that would be curbed under REDD schemes — the long-term benefits were greater.

“This is especially true if we have a healthy economy,” he said. “Why would we sideline it for other investments that have worse [environmental] impacts? We might not see the benefits of carbon trading immediately, but it’s much better for the environment in the long run.”

Mubariq Ahmad, a senior adviser for climate change policy and the low-carbon economy, said the mechanisms for the carbon market would be the same as for any other commodity. Once in place, the market would be ruled by the laws of supply and demand.

“While it will be subject to market forces, we still need clear regulations in place to give investors certainty about the carbon market,” he said.

He added that the low-carbon economy was just part of a wider green economy, which aims to sustain economic growth while reducing the amount of carbon dioxide emitted through commercial activities.

As with markets for any other commodity, he said, the carbon market could be prone to “carbon cowboys,” or rogue brokers pretending to act on behalf of the state while offering investors a slice of the country’s carbon market.

“We need to stay alert to these operators, but we can’t worry too much about them,” he said.

Link: http://www.thejakartaglobe.com/nvironment/when-will-we-cash-in-on-the-carbon-trade/462631

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