isramart : Businesses still slow to embrace CDM projects

Isramart news:
Despite intense campaigns, Indonesia has been slow on the uptake of the clean development mechanism (CDM) program, with the UN only approving 23 projects so far, a far cry from China’s 422, India’s 395 and Malaysia’s 41.

One of the main reasons so few projects have been implemented in Indonesia is their small profit margin hovering around 10 to 15 percent, said Agus Purnomo, the secretary-general of Indonesia’s National Council on Climate Change (DNPI), the government-authorized body in charge of tackling the effects of climate change, particularly through the implementation of CDM projects in Indonesia.

“The business community tends to back businesses that promise margins of between 50 and 80 percent. So, most businessmen consider a profit of up to 15 percent too small an amount,” said Agus in an interview on Tuesday.

In addition to the small margins, CDM projects are still relatively unfamiliar to most businessmen.

Agus said the carbon market - where each ton of non-emitted carbon, which is also equivalent to a certified reduction emission (CER), is traded as a commodity - is relatively new and different from other commodity markets.

“Since it is new and different, many financial institutions find it difficult to make predictions.”

Agus, who is also an environment expert working with State Minister for the Environment Rachmat Witoelar, added that more campaigns were needed to deepen people’s understanding about the importance of environmentally sustainable business practices, and about the need to factor in the longer term when seeking profits.

Perhaps, he said, as most of Indonesian businessmen were only short-term investors, they were not interested in looking at the long-term benefits of projects.

Despite the small amount of benefits in the short term, projects under the CDM program will reap larger benefits over the long term.

“Let’s take the example of a CDM project involving a geothermal power plant. As a result of being geothermal, the plant can save up to 400,000 tons of carbon emissions per year, therefore trade 400,000 CERs on the carbon market. With a CER worth, let’s say, 10 euros per ton, the plant can make 4 million euros per year trading its non-emitted carbon.

“In 20 years, it can make a total of 80 million euros. That’s already far above the total amount invested *for implementing the scheme*.”

He added that businessmen were also discouraged by the many requirements and methodologies available.

“Making a decision when given so many choices requires a certain level of expertise. If they don’t have such expertise, they tend not to take on the project,” he said

Between 2008-2012, Indonesia has the potential to trade about 125 million tons of non-emitted carbon or 25 million tons per year from the energy sector, and up to 23 million tons per year from the forestry sector.