Wednesday, 6 April 2011

Carbon credits run aground on UN bureaucracy

South China Morning Post

Joe Cochrane in Jakarta

5 April 2011

Every day, Joseph Hwang leaves his home in Jakarta and travels to one of the filthiest places in Indonesia.

Off a highway in West Java, and up a winding bumpy two-lane road past rice fields and a shanty town of garbage scavengers, lies the Sumur Batu landfill. The 10-hectare site is the final resting place for about 500 tonnes of garbage hauled daily from Bekasi, a city of 2 million people south of Jakarta. To call it a landfill is a stretch: Sumur Batu consists of mountains of garbage, the older ones overgrown with grass and weeds, the fresh ones emitting a vomit-inducing reek.

Local scavengers including children jump onto the trucks as they approach Hill Number 4 and fight each other for plastic and metal they collect for a small recycling operation that pays them the equivalent of US$35 a month. In 2006, a garbage landslide killed 24 people.

"It's a dirty and dangerous place," says Hwang, a British citizen of Chinese descent. But Hwang also knows there is proverbial gold in these hills, which is why, as the production manager of Gikoko Kogyo Indonesia, an engineering and manufacturing company, he chooses such an unsavoury workplace.

Beneath the garbage hills are countless tonnes of methane, a greenhouse gas 20 times more effective in trapping heat in the atmosphere than carbon dioxide. Bacteria that eat the organic refuse create the methane, which, despite being extremely hazardous to the environment, is a potential energy source.

Gikoko runs a methane flaring plant that sucks more than 17,000 tonnes of gas out of the hills per day using a web of hoses and burns it.

There is an added bonus: the plant can use the methane it burns to generate up to 2 megawatts of power, which Gikoko plans to sell to the state power utility Perusahaan Listrik Negara. Hwang's company will also provide lighting to the landfill as well as sorting equipment to make the scavengers' jobs safer and more efficient.

"This is a good example of how CDM can contribute to sustainable development," he said, referring to the Kyoto Protocol's Clean Development Mechanism, which allows countries to earn carbon credits through cutting emissions. These credits can then be sold to other countries or companies to help them meet emission reduction targets.

However, Hwang's story is not totally a happy one. His company has been waiting two years for United Nations-appointed auditors to sign off on Gikoko's flaring operation so it can begin selling its certified emission reduction credits to European Union governments. The process is only supposed to take six months.

"It's a long process and frustrating," Hwang said. "There are a lot of obstacles, problems and difficulties."

And Gikoko is not the only clean energy company stuck in limbo. The snail's pace of the UN verification process is a persistent problem globally, according to sector players, who say the much-touted carbon credit scheme is less of a godsend than is fashionable to admit right now.

"Globally, the verification process is an impediment for any kind of carbon reduction programme," said Agnes Safford, co-founder of Greenworks Asia, which does carbon financing. "There is no commercial sense over at the UN Framework Convention on Climate Change.

"They get hung up on little things like checking boxing. The whole thing is bureaucratically constipated. I think carbon credits are a great concept, but they don't work because of the whole system that's been put in place."

A running joke among carbon credit players is that CDM actually stands for "complicated, difficult mechanism".

But it is no laughing matter for Hwang. His company has received US$1.5 million in loans from the World Bank and Asian Development Bank, and has not been able to sell a single credit. Gikoko, which has flaring projects at landfills in Palembang, South Sumatra and Makassar, South Sulawesi, expects to produce 40,000 tonnes worth of carbon credits a year from the Bekasi landfill once it is certified by UN-appointed auditors.

And Gikoko cannot begin earning revenue by selling electricity now because it would have to submit an entirely new application to the UN, which could take another two years.

Hwang acknowledged that the company is having cash flow problems. "Everyone is under pressure," he said. "I'm sure the UN is under pressure to go faster."

Ina Binari Pranoto, who works in the environmental unit at the World Bank in Jakarta, said the UN-backed carbon credit scheme was not as simple as people might think.

"If they are not giving the certification, then it won't move. Then they won't issue the CER [certified emission reduction], the certification for the credit," she said, "and then the buyer won't pay for the credits."

Gikoko also has problems closer to home, namely getting the Indonesian government and Bekasi administration to practise better landfill management. "It's a fight against time," Hwang said. "If they don't move quickly, there will be less gas from which to create credits and to fight global warming."

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