Bureauracy, rules delay Indonesia CDM projects

Reuters
Thursday October 23 2008

By David Fogarty, Climate Change Correspondent, Asia

SINGAPORE, Oct 23 (Reuters) - U.N.-backed carbon-offset projects in Indonesia are taking at least two years to yield saleable credits because of bureaucratic delays and complex rules, a manager at a global carbon project developer said.
A weak economy, limited government backing for projects under the Kyoto climate pact's Clean Development Mechanism, and lack of local knowledge about the scheme had also limited the number of projects in Southeast Asia's largest economy, which is running out of time to get projects approved under Kyoto.
"It's completely bureaucratic," said Renat Heuberger, managing partner of South Pole Carbon Asset Management told Reuters in Singapore on Wednesday.
"In addition to the complex rules, there are unnecessary delays at the host country level, validator level and at the U.N. level," said Heuberger, who spends much of his time based in Asia, particularly Indonesia.
He said his company could live with the rules.
But the recent changes in staffing and regulatory procedures at the CDM's Executive Board had led to months of delays this year for projects awaiting approval, at times over something as simple as a misformatted document.
"There are unbelieveable delays. It has become a complete gamble on when you get an answer after submitting documents," Heuberger said, adding it was damaging the reputation of the CDM.
The Executive Board has so far approved 1,186 CDM projects globally, most of them in Asia. India has 358 projects approved, China 282 and Indonesia 17.
But about 3,000 projects are awaiting approval by the board and changes in rules, tightening verification standards, have led to further delays.
Under the CDM, rich nations can offset their greenhouse gas emissions by investing in clean-energy projects in developing countries, yielding carbon offsets called CERs for the project developers.
Benchmark December 2008 CERs are currently trading around 16.65 Euros, off a year high of 23.38.
Under the CDM, project developers only receive their first batch of CERs from the date of registration, meaning the longer the approval time, the shorter the period for return.
The Kyoto Protocol's first phase ends in 2012 as does the CDM, but U.N.-led talks that conclude at the end of next year aim to broaden and extend Kyoto from 2013, despite growing uncertainty whether those talks will succeed.
Adding to the unease, the tightening credit crisis has slowed purchase of secondary carbon offsets and threatens to stymie financing for CDM projects across Asia, throwing in doubt the future flow of credits. About 70 percent of CERs originate from projects in Asia.
"BIG POTENTIAL"
He said South Pole Carbon, a carbon project developer and advisory firm headquartered in Zurich, had nearly 20 CDM projects in Indonesia that he hoped would all be approved by the CDM Executive Board by the end of next year.
The largest of these was a natural gas power plant on Java island, where dirtier coal-fired power stations generate most of the electricity. The project would yield 700,000 CERs a year.
Other projects included small hydro-power plants, biogas from tapioca processing and the reduction of the use of powerful greenhouse gas PFC in an aluminium smelter in Sumatra. Most of these would yield between 50,000 and 70,000 CERs per year.
Heuberger said voluntary carbon-offset projects, which don't require U.N. approval, had also attracted interest from companies wanting to meet corporate social responsibility programmes.
He said Indonesia had huge amounts of biowaste from farming that could be used in biogas projects to generate electricity or create compost.
"The potential is big. But the projects aren't going to be massive," he explained, given Indonesia's decentralised governing structure and under-developed power network that made it hard to feed the national or regional grid from the biogas power plants.
He said South Pole Carbon had about 20 voluntary carbon-offset projects under development, and these usually took only about six months to yield offsets called VERs.
The first of these, a geothermal plant and hydro-power project, were set to deliver VERs later this year, in a range of 3 to 7 Euros, he said. (Euro=$1.283) (Editing by Jonathan Leff and Clarence Fernandez)