Cashing in on Kyoto?: Lessons from Indonesia for Emissions Offset Projects

　

Frank Jotzo, Agus P. Sari, and Olivia Tanujaya

　

Abstract

　

        In Chapter 12, Frank Jotzo, Agus P. Sari and Olivia Tanujaya use the case of Indonesia to demonstrate some possible fallacies in current thinking on international efforts to offset GHG emissions in developing countries. The Kyoto Protocol requires the developed industrialized countries to limit their GHG emissions as well as to enhance "sinks" for them (e.g., possibly including growing trees, which at least temporarily absorb carbon dioxide). One of the protocol's unique characteristics is the provision for carbon emissions-offset mechanisms, where countries can trade emissions quota permits. At present, the CDM is the only mechanism for this that can include developing countries. The issues under negotiation include potential restrictions on buyers and sellers, and the inclusion of sink projects (largely forestry programs) under the CDM.

 

        Using a quantitative model developed specifically for policy issues in the implementation of the Kyoto Protocol (the Pelangi Emissions Trading model), Jotzo, Sari and Tanujaya analyze the implications of including sinks projects under the CDM. They find that assuming these projects will increase the volume of the CDM may be incorrect. This is because the increase in low-cost sinks projects leads to a fall in the price paid for emissions credits, which can outweigh the quantity gains, and lead to lower revenue and lower financial gains for developing countries. However, equity between countries and between regions within countries may be enhanced by the inclusion of sinks, as shown by the authors' study of Indonesia. At the very least, their work shows that the "devil is in the details," and that proposals for dealing with climate change absent detailed analyses of their impacts may have unforeseen implications for social and international equity, as well as for the practical goal of reducing climate-changing emissions.