INDONESIA'S POSITION IN GLO- BAL CDM MARKETS
3. THE INSTITUTIONAL SETTING FOR THE CDM
At the international level, there is a growing consensus on the institutional structure for the CDM and the definition of a CDM project cycle.
However, no blueprint exists for domestic institu- tional setting. The twin goals of emission reduc- tion and sustainable development have to be taken into account.
If the CDM is viewed as foreign investment that produces CERs as its exportable commodity, existing institutional arrangements for investment in host countries can be used. However, CERs are not a tangible product; consequently a proper certification process is imperative. This study recommends establishing a Designated National Authority for the CDM, comprising of a national CDM Board and a national CDM Clearinghouse.
3.1 International institutional setting Article 12 of the Kyoto Protocol suggests that the CDM shall be subject to the authority and guid- ance of the Conference of the Parties serving as the meeting of the Parties (COP/MOP) to the Protocol and be supervised by an Executive Board of the CDM (paragraph 4). Operational entities, accredited by either the COP/MOP or the Execu- tive Board, will be designated to undertake the validation, verification, and certification of the CDM projects and CERs.
3.2 Different CDM transaction types The CDM may be implemented under a number of different structures: unilateral, bilateral and multilateral. Under a bilateral arrangement, both
private and public entities in Annex B countries and developing countries (non-Annex B) can make a bilateral agreement to implement a CDM project. The share of costs, profits and CERs would be a matter of negotiation between the two parties.
A multilateral funding mechanism would allow several public and private entities in Annex B countries to invest in CDM projects through brokers, such as an international development agency.
Under a unilateral arrangement, the host country develops a project and obtains necessary financ- ing independently. Transaction costs are low and the host country takes on the full risk burden of the project but also keeps the profits. A unilateral arrangement may also overcome barriers to investment in CDM projects, particularly in coun- tries where perceived investment risk is high or where the investment regime is otherwise dis- couraging to foreign investors. Unilateral CDM projects may thus be in Indonesia’s interest.
3.3 National institutions and the legal framework
For Indonesia the domestic institutional CDM arrangement should be relatively independent from the political situation and associated uncer- tainties. This would mean emphasizing the role of the private sector and non-governmental entities, while limiting the role of governmental agencies to the minimum necessary for CDM implementation.
Capacity building for the private sector and non- governmental entities is therefore crucial.
A Designated National Authority (DNA) for the CDM, established by Presidential Decree and comprising two units - a national CDM Board (the
‘Board’) and a national CDM Clearinghouse (the
‘Clearinghouse’) - is proposed. The members of the Board will represent as wide a range of
stakeholders as possible. The likely composition would include officials from the State Ministries for Environment, Energy and Mineral Resources, Forestry, Transportation, and Finance, representa- tives of local government and relevant representa- tives from the private sectors, non-governmental organizations (NGOs) and community groups. The Board would act as a focal point for the national CDM program, define national sustainability criteria and approve nominated CDM projects.
The appraisal process would require an Environ- mental Impact Assessment (EIA), which includes a Social Impact Assessment (SIA). The Clearing- house would be responsible for day-to-day operations such as operating an internet-based database for the CDM and capacity building activities. It would also ensure public accessibility to the CDM process, including holding public hearings to discuss proposed projects and supporting a public appeals process. The Clear- inghouse would evaluate the validity of the appeal.
If the appeal were considered valid, the Clearing- house would re-evaluate the project proposal and implementation plan, and assess any new facts revealed during the appeal process. Should the appeal be upheld, the project could be halted or modified. Ultimate decision-making authority in the appeals process would rest with the Board.
Indonesia has recently become more open to foreign investment, which makes it more condu- cive to CDM investment. Many of the institutions involved in foreign and domestic investment processes can be used in the CDM context.
However, local autonomy and the participation of representatives of local government must be fully considered.
3.4 Stakeholder views
As part of this study a survey was conducted amongst a range of CDM stakeholders in Indone- sia. Of 150 questionnaires sent out, 52 were
Source: The First National Communication under the UNFCCC, October 1999 , and project documents available from State Ministry of Environment
* : Ministry of Industry and Trade Indonesia
Table 6. Current AIJ projects in Indonesia
Title and Location Method Emission
reduction Funding Cooperation and
Implementation Status Renewable Energy Supply
Systems (RESS)East Nusa Tenggara (NTT) and South Sulawesi
Installation renewable energy-based electricity supply units SHS/
Photovoltaic, Micro Hydro, Wind Turbine, SCADA)
1230 t CO2/year US$ 3.5 million grant from E7Local provision: c.a. US$ 0.1 million
E7 In operation since October 1998, handed over to GOI in March 2001
Paper Sludge and Solid Waste Recycling for Steam
GenerationPT. Fajar Surya Wisesa, Bekasi, West Java
Installation of incinerator with capacity of 100 BD ton/day
91,000 t CO2/year US$8-9 million grant worth of technology and supervision from NEDO JapanLocal provision: US$ 3.3 million for site and EPC costs
NEDO (Japan) and MOIT*/PT Fajar Surya WisesaConstruction was completed in January 2001
Eastern Indonesia Hybrid
Energy ProjectSouth Sulawesi Design, install, and monitor the performance of solar/
diesel hybrid power system in 14 villages in South Sulawesi
1046 t CO2/year US$ 4.2 millionLocal provision: costs other than equipment cost
AESL/IGPO/EFIC/AAID (Australia) and BPPT/LEN (Indonesia)In operation
Renewable Energy Training/Demonstration ProjectKemiri, Irian Jaya (Papua)
Installation of renewable energy based electricity systems (SHS, Mini Hydro, Hybrid System)
64 t CO2/year US$ 234,000 CASE/IGPO/AAID (Australia) and LIPI (Indonesia); Scheduled to finish in December 2000 Reduction of GHG through
Landfill Resource Recovery and UtilisationUjung Pandang, South Sulawesi
Provision of a
demonstration system to capture and utilize methane from a landfill to generate electricity for use at the landfill site
4,790 t CO2/year US$ 290,000 CASE/IGPO (Australia) and Municipality of
Ujungpandang/PT. Sumber Daya Internusa
(Indonesia);In operation
The Project for Power Plant Thermal Efficiency Improvement / Recovery through Enhanced Operational
ManagementSuralaya Power Plant, West Java
NA NA NA CEPCO MITI (Japan) and
PLN PJB 1/Min.of Energy and Mineral Resources (Indonesia); Status NA
Reduced Impact Logging for Carbon SequestrationEast Kalimantan
Implementation of Reduced Impact Logging techniques to reduce GHG emissions associated with logging practices
134,379 t CO2 throughout 40 years period
NA CI/COPEC (USA) and
APHI/IPB (Indonesia); Not yet implemented
Demonstration Study on Carbon Fixation Forest Management in
IndonesiaBogor, West Java
NA NA NA JICA (Japan) and Ministry
of Forestry
(Indonesia);Status NA
New Cooling System in Cement ClinkerPT. Semen Cibinong, Narogong, West Java
Installation of new cooling system, high performance kiln burner, and total advanced control system
52,000 t CO2/year Grant from NEDO JapanLocal provision:
costs other than equipment cost
NEDO Japan and MOIT/PT Semen
Cibinong;Suspended
returned. Sixty-five percent of responses came from government departments/institutions; 27 percent from the business sector, including Pertamina and the state electricity company (PLN); and the balance from universities, NGOs, and representatives of local government. The stakeholders were asked to rank various indica- tors in respect of CDM projects in order of impor- tance. The indicators were grouped under four headings as follows:
Ä Sustainable development indicators
Ä Sector priority
Ä Project type
Ä Institutional design for CDM
Except for the sustainable development indica- tors, on which most respondents agreed as regards priorities, responses were skewed,
seemingly towards the field of expertise of respon- dent. Stakeholders ranked sustainable develop- ment indicators in order of importance as follows:
1. No adverse environmental impact
2. Environmentally sound technology transfer 3. Stakeholder participation
4. Socio-economic consideration 5. Capacity building improvement 6. Local economic benefits
7. Community development program 8. The market openness of CER to Annex 1
countries
9. Increased employment
10. Equitable distribution of benefits 11. Respect of ulayat’s right (land tenure) 12. Use of implementable technology 13. No net increase in external debt burden 14. Increase in foreign currency reserves