Challenges of CDM Implementation in Indonesia Architrandi Priambodo

Contents Ratification of KP and DNA Capacity building program CER Purchase CDM project pipeline challenges on CDM projects perceived by project developers

Ratification of KP and DNA Ratification of Kyoto Protocol by Indonesia: July 2004 Establishment of DNA: officially in July 2005 Comply with sustainability criteria Take minimum 6 weeks of project approval

CDM Capacity building initiatives in Indonesia Raising awareness in private sectors and other stakeholders  Capacity Building on Development of GHG Emission Reduction Projects in Indonesia with industrial sector (USAID, );  CDM ASEAN skill share workshop in Indonesia (EC-ASEAN)(2004);  Capacity Building for Indonesian Local Stakeholders on Development of GHG Emission Reduction Project IGES), ( ).  ADB TA: Institutionalizing CDM in Indonesia (2005)  Worldbank GGFR CDM capacity building: Carbon credits (2005)  Other CDM capacity building as one of the element in energy efficiency/renewable energy initiatives Efforts to CDM Implementation (3)

Indonesian CDM projects? UNFCCC websites: Indocement sustainable cement’s production Darajat III gothermal project Integrated Solid Waste Management in Bali Some other projects in the pipeline  Methane capture in Palm Oil mill (PT. SMART Tbk) Other waste mangement projects DNA has not yet approved a single project No Indonesian CDM project has been registered

CER Purchase Bilateral Certified Emissions Purchase Agreement (Dutch), 2005 (2Mton) Danish CDM facility (Bilateral), 2005 Private institutions (Private Carbon Fund), PCF Japan Carbon Fund (through various Japanese institutions/scheme, e.g., Japan Kyoto Mechanisms Acceleration Programme)

Challenges to CDM Implementation(1) Project developers’ perspective Potential project developers are not aware that their projects can generate emission credits; Up-and down enthusiasm on CDM (KP Ratification in 2004 and DNA in 2005 Technical issues: CDM project development involves jargons and conditions (such as additionality, baseline scenario, boundaries) which are not practical and time consuming to project developers; Although consolidated methodologies are built to address this technical issues, data needs may not be easily available Weak understanding of CDM modalities and procedures Little information on and contacts with emission credit buyers

Lack of “CDM Awareness” of related institution that may help the project developers The institutions supposed to support the project developers (financial institutions, local consultants, local designated operational entities, business associations, local media/press) are not aware of CDM and its opportunities/advantages “Those who are aware do not have clear understanding on CDM  CDM provides incentives but not project financing “CDM Brokers” Challenges to CDM Implementation(2)

Risks and uncertainties Complicated process and continuous development of the CDM procedures, and unavailable support from local institutions (intermittent” awareness and effort) Some project risks undermine CDM attractiveness  Obtaining PPA in power projects to secure underlying financing) CER ownership: in some sector CER ownership will be an issue due to national policy/regulation  in oil and gas sector, share of CER that could be claimed by the project developer and that should be transferred to BP Migas are still unclear. Challenges to CDM Implementation(3)

Lessons learned from project developers Experience from two project proponent that currently develop CDM projects: Despite several capacity building to encourage development of CDM project by local project developers, those that have taken major steps in CDM are subsidiaries of multinational companies that have enough credibility and capital to invest in a long and tedious process The emissions credit generated are > 500,000 tonnes/year Time and costs: before submittal of the PDD to the EB for new methodology approval, significant time (about 2 years) and cost (more than US$ 100,000) were spent. Attracting buyers:  Use approved methodology (or the combination of them)  Secure underlying finance  Secure legal and contractual issues of the project

What needs to be developed to facilitate CDM projects? Consistent commitment from related government agencies More activities and encouragement in CDM Project identification/preparation among local project developers Contacts and information dissemination to industry associations National clearinghouse? Capacity development in other institutions that will support CDM project development, particularly for local project developers that may not have much resources to spent In-country CDM project finance capacity to address project financing & risk management Local DOE and consultants