Preparing for Emissions Trading Schemes in Indonesia and Thailand: Progress and Challenges

Both Indonesia and Thailand are in the process of developing voluntary Emissions Trading Schemes (ETS) as one of many potential methods for mitigating the countries’ increasing greenhouse gas (GHG) emissions. Indonesia aims to launch its voluntary ETS by the end of this year while Thailand plans to commence voluntary emissions trading in 2015. Depending on the experiences of these voluntary ETS – as well as the progress of other GHG emissions reduction programs – Indonesia and Thailand will further assess the potential for implementing mandatory ETS.

In Indonesia, the National Council on Climate Change (DNPI) is preparing a domestic Nusantara Carbon Scheme (Skema Karbon Nusantara) which grants 1 UKN (Indonesian carbon unit) per ton of CO2 reduction to qualifying projects. A separate Joint Committee in Jakarta is responsible for developing a Joint Crediting Mechanism (JCM) with Japan, which contributes technical assistance to Indonesian JCM projects that can thereafter generate emissions credits to sell to the Japanese market. Indonesia has also joined the World Bank’s Partnership for Market Readiness (PMR)to explore various carbon market designs and instruments that may influence the country’s decision to engage in a multilateral carbon market.

In Thailand, the Thailand Greenhouse Gas Management Organization (TGO) has partnered with the World Bank to develop a trading scheme for energy efficiency certificates in an Energy Performance Certificate Scheme (EPC). TGO has also launched a Thailand Carbon Offsetting Program (T-COP) and a Thailand Voluntary Emission Reduction (T-VER) Program, both of which aim to encourage private sector and individual participation in emissions reduction initiatives.

While the scope of the voluntary ETS – whether it concerns sector or jurisdiction – has yet to be defined in either country, what is clear is that the governments of Indonesia and Thailand are already working alongside local and international organizations on a number of carbon market-readiness activities that can help pave the way for a voluntary or mandatory ETS.

However, many challenges remain for ETS development in Indonesia and Thailand. Firstly, in these countries where economic growth, poverty reduction and income inequality dominate development priorities, ETS will not jump to a higher rung on the national agenda unless the market becomes more stable. Skeptics questioning the value of carbon markets point to the oversupply and low prices of certified emissions reduction (CER) credits that have been generated from Clean Development Mechanism (CDM) projects, along with questionable emissions reductions and pervasive uncertainties about the future of the international carbon market following the end of the latest Kyoto commitment period in December 2012. While Indonesia and Thailand have opted to explore the potentials of carbon trading regardless, they still require greater technical support and stronger regulatory environments to build and sustain domestic carbon markets.

Research conducted under the ASEAN-Canada Research Partnership examines a range of government policies and programmes that are intended to bolster carbon market development in Indonesia and Thailand and potentially support a voluntary or mandatory ETS in the near future. Using ETS as a framework, the study aims to contribute to discussions about the prospects and challenges of creating and sustaining carbon markets in Indonesia and Thailand in the wake of post-Clean Development Mechanism (CDM) pessimism and uncertainties about the future of carbon markets more generally.

The outcomes of Indonesia and Thailand’s ETS have significant implications on regional and international carbon markets. Successful programs in Thailand and Indonesia can complement carbon market developments in Malaysia and Vietnam, and potentially generate greater interest in carbon trading among other ASEAN countries.

This blog post has been written by Shelly Hsieh. Shelly is a post-graduate Research Fellow at the Asia Pacific Foundation of Canada, and Junior Fellow (2013-2014) under the ASEAN-Canada Research Partnership. For more information on the ASEAN-Canada Research Partnership, please click here.