Draft Market Readiness Proposal (MRP) Presentation Country: Indonesia Responsible agency: Indonesia National Council on Climate Change (DNPI) Date of submission: May 13, 2013
Outline of Presentation Overview MRP Objective(s) and Focus MRP Development Process Market Readiness Proposal 1. Policy Context and the Big Picture 2. MRP Target Areas: Assessment and Rationale 3. Core Technical and Institutional Readiness Components, including Regulatory Components 4. Planning for a Market-based Instrument 5. Organization, Communication, Consultation and Engagement 6. Schedule and Budget 2
Overview 3
MRP Objectives The Long Term Goal: The establishment of new market mechanisms or market based instruments to scale-up mitigation actions in Indonesia based on country-specific conditions and international carbon market situations. The Objectives: To understand and determine the type and scope of appropriate marketbased instruments; to prepare supporting draft regulation as needed; to design and establish market infrastructures; to build required capacity of participating institutions and individuals. The objectives will be achieved through inclusive process to secure political support and commitment; and to enhance knowledge, competence, and intellectual contribution of key line ministries and other stakeholders. MRP Focus Core Technical and Institutional Readiness Components in Power and Industry Sectors: Emission profile and baseline setting MRV system development and piloting Planning for a Market-based Instrument: Technical assessment and policy consultation on market instrument Piloting the instrument 4
MRP Development Process Indonesia s MRP has been developed from intensive and extensive consultation process involving key stakeholders to ensure consensus and commitment for future implementation. 5
MRP Development Process 6
Market Readiness Proposal 7
1. Policy Context and the Big Picture Geographical and demographical conditions present unique climate challenges. Archipelago of 13,700 islands, of which 2,000 islands inhabited and 81% of total area is sea: enourmous challenges to support people s mobility and goods distribution. 237.6 million population with >50% population live in Java island and electrification ratio 73%: efficiency vs equality issues in development. 8
1. Policy Context and the Big Picture Economic and GHG emissions growth are still coupled. 2011 GDP: USD846 billion with income per capita of USD3,500 Average economic growth: 6% Energy elasticity: >1 Source: WRI 9
1. Policy Context and the Big Picture Historical Projection 2005 GHG emissions: 1,791 MtCO 2 e 2020 emissions projected to reach 2,950 MtCO 2 e LUCF and peat major sources of emission until 2020 Energy-related emissions will be the fastest-growing Source: Second National Communication 10
1. Policy Context and the Big Picture Emissions reduction commitment in 2009 devised from LULUCF and energy mix policies, setting targets of 26% with own resources and additional 15% with international support, by 2020 against BAU scenario. Source: BAPPENAS Key emissions reduction areas: 1. Sustainable peat land management 2. Reduction of deforestation and land degradation 3. Carbon sequestration development 4. Promoting energy saving 5. Alternative and renewable energy resource development 6. Solid and liquid waste reduction 7. Shift to low-emission transport modes Reduction beyond unilateral and supported NAMAs is possible to be credited. 11
1. Policy Context and the Big Picture The 26-41% targets have been translated into an indicative list of activities in the Presidential Regulation on National Action Plan for GHG Emission Reduction (the RAN-GRK). Sector Forestry and Peatland Emission Reduction (MtCO 2 eq.) Unilateral Supported 672 1,039 Agriculture 8 11 Energy and Transport 38 56 Industry 1 5 Waste 48 78 TOTAL 767 1,189 Activities Forest and land fire control, network system management and water management, forestry and land rehabilitation, HTO (Industrial Plantation Forest), HKm (Community Forest), illegal logging eradication, deforestation prevention, community empowerment, etc. Introduction of low emission paddy varieties, irrigation water efficiency, organic fertilizer use, land use optimization, waste utilization, etc. Bio-fuel use, engines with higher fuel efficiency standard, improvement in TDM (Transportation Demand Management), quality improvement of public transport and road, demand side management, energy efficiency, renewable energy development, post-mining replanting, etc. Process modification and clean technology implementation, energy management in energy-intensive industries e.g. cement, ozone-depleting substances eradication, etc. Waste management by 3R, and urban integrated waste water management Responsible Ministry(ies) MoFor, MoPW MoA, MoPW MEMR, MoT, MoF, MoT, MoSOE, DKI, MoPW MoI MoPW 12
1. Policy Context and the Big Picture Various policies have been issued to support GHG emissions reduction targets and low-carbon development. Policy Name Targeted Outcome Applicability Presidential Regulation 61/2011 Presidential Regulation 71/2011 Presidential Regulation 5/2006 Government Regulation 70/2009 MoI Regulation 12/2012 MEMR Regulation 4/2012 MEMR Regulation 14/2012 National Action Plan on GHG Emissions Reduction (the RAN-GRK) National GHG Inventory National Energy Policy 26%-41% emissions reduction below 2020 BAU Periodic updated information of emissions and emissions reduction Optimal energy mix (17% new and renewable energy) and <1 energy elasticity in 2025 Various sectors All sectors Energy sector Energy Conservation Energy management and conservation Energy users >6000 TOE/y Roadmap of CO2 Emission Reduction in Cement Industry Electricity Purchasing Price of Small-medium Renewable Power Plant and Excess Power Energy Management 2% voluntary and 3% mandatory reduction in 2011-2015 and 2016-2020 below 2009 emission intensity Energy security and encourage renewable energy development Clear guideline on energy conservation options and management All cement producers Power sector Energy users >6000 TOE/y 13
1. Policy Context and the Big Picture: Role of Market Instruments Market instruments, e.g. CDM, proved to be effective to spur emissions reduction by industries. Clean Development Mechanism Total 212 CDM projects approved by Indonesia DNA, 128 projects registered, mostly of methane avoidance projects, and 28 CDM projects issued their CERs worth 7.9 million ton CO 2, mostly of geothermal. Increasing opportunity from voluntary carbon market 11 VCS projects have been developed, including 1 REDD+ project in Central Kalimantan, Six of them have already produced 2,2 million ton VER. 14
1. Policy Context and the Big Picture: Role of Market Instruments Indonesia highly considers further utilization of market instruments. Multilateral carbon market Bilateral and regional carbon market Domestic carbon market Depends on UNFCCC negotiation outcomes Need balance between robust and flexible methodology Require international environment and SD criteria Between Indonesia and developing countries, e.g. JCM with Japan Could be an international carbon offset scheme Start from facilitating voluntary offset (the NCS) Developed and traded in Indonesia Simple yet robust Could be linked to wider mechanisms 15
1. Policy Context and the Big Picture: Role of Market Instruments Market-based approaches are to enhance the effectiveness of climate change/low carbon development policies. Development of market readiness, including market elements and infrastructure, aimed to encourage adoption of market approaches to scale-up implementation of existing/future mitigation activities. Vision of Market Instrument Development Building readiness Map policies and actors Develop market elements Develop market infrastructure Establishing instruments Implementation Options identification, assessment and review Policy consultation Test instruments Establish regulatory framework Start with domestic instrument Continuous review and improvement Seek international linkage 16
1. Policy Context and the Big Picture: Role of Market Instruments Due to uncertainties in UNFCCC-led market mechanism(s), discussions and works on market mechanisms at bilateral and regional levels becoming more important to scale-up mitigation actions in developing countries. Joint Crediting Mechanism Indonesia - Japan Bilateral agreement is under finalization A mechanism to support emission reduction targets in both countries and strengthen bilateral investment cooperation 57 Feasibility Studies already conducted by Japan in Indonesia Asia Pacific Carbon Market Roundtable An initiative led by New Zealand Provide a discussion forum for possible market cooperation among Asia Pacific countries 17
1. Policy Context and the Big Picture: Role of Market Instruments The Nusantara Carbon Scheme (NCS) is an example of market element now under development. NCS is a domestic voluntary GHG reduction certification and registration scheme based on SNI ISO 14064/14065. Current works on NCS: Website is online, http://skn.dnpi.go.id Second draft of the general rules & requirement and SD guidelines online for public comments Six methodologies on RE, EE, A/R, Waste, are now under review Guidelines for V/V and LULUCF projects under drafting Pilot project is planned this year Envisioned role of NCS: Provide GHG offset to interested parties Raise market awareness Encourage local capacity improvement in carbon management When linked to wider policy, e.g. sector-wide, will serve as damper as well as bridging with ER activities outside the sector 18
1. Policy Context and the Big Picture: Role of Market Instruments 19
2. MRP Target Areas: Assessment and Rationale 11 GoI initiatives of low-carbon development identified having potentials for scaled-up implementation if supported by market instruments. Criteria applied for further selection: 1. Existing Laws, Policies and Regulations: Are they capable of sustaining a market instrument? 2. Potential for GHG emission reductions: Is there significant potential for GHG emission reduction in the activity? 3. Replicability: Is the emission reduction mechanism transferable across sectors? 4. Technology: Does it employs proven technology; not a technology being developed? 5. Return on Investment (ROI) for cost savings. 6. Industrial and Stakeholder Supports 7. Experience in MRV: Does the entities covered in the initiative has experience in MRV or data management? 8. Existing standardized methodology for calculating the GHG emission reduction 9. Sustainability: Would the presence of a market instrument make the activities sustainable? 10. Initial investment: Does it have its own initial capital investment or expect private sector participation to fund the activity? 20
2. MRP Target Areas: Assessment and Rationale Scoring results: No Sector I II III IV V VI VII VIII IX X Total Score 1 Biofuel 5 3 5 5 3 3 3 5 5 5 42 2 Renewable Energy 5 5 5 5 5 5 5 5 5 1 46 3 Energy Conservation 5 5 5 5 5 5 3 5 5 3 46 4 Flaring 3 5 1 5 5 1 5 1 3 1 30 5 Cement 5 5 5 5 5 5 3 1 5 3 42 6 Solid Waste 3 3 1 3 1 1 1 1 5 3 22 7 Liquid Waste 3 1 1 3 1 3 1 3 5 1 22 8 Peat land 5 5 1 3 1 3 1 1 3 1 24 9 Palm Oil 5 5 3 5 5 3 5 3 5 3 42 10 Air Transportation 1 5 1 5 5 1 5 5 5 1 34 11 Land Transportation 3 3 1 5 1 5 1 1 5 1 26 21
2. MRP Target Areas: Assessment and Rationale Further process in assessing target areas: NCM 2: Established five important criteria for final selection of activities: 1. GHG emissions reduction potential, 2. Industrial and other stakeholders support, 3. Methodology for calculation of GHG emission reduction, 4. Initial investment requirement, 5. Government regulation and policies. Three initiatives selected: 1. Renewable energy 2. Energy conservation 3. Cement production NCM 3 and subsequent consultations: Regrouped into two broader classifications considering that energy conservation policy covers both the power and the cement sectors as energy-intensive industries and that the renewable energy contribution to energy provision will mostly be materialized in the form of electricity. Two target areas: 1. Power sector 2. Energy-intensive industries 22
2. MRP Target Areas: Assessment and Rationale Overview of Energy Sector Fossil energy reserve is limited! FOSSIL ENERGY TYPE RESOURCE RESERVE PRODUCTION PRODUCTION/ RESERVE RATIO (YEAR) Oil 86.9 billion barrel 9.1 billion barrel 387 million barrel 23 Gas 384.7 TSCF 185.8 TSCF 2.95 TSCF 62 Coal 58 billion ton 19.3 billion ton 132 million ton 146 There is room to improve renewable energy utilization! No NEW/RENEWABLE ENERGY RESOURCES INSTALLED CAPACITY IC/RS RATIO 1 Hydro 75,670 MW 6,654.29 MW 8.79% 2 Geothermal 29,038 MW 1,226 MW 4.22% 3 Mini/Micro Hydro 769.69 MW 228.983 MW 29.75% 4 Biomass 49,810 MW 1,618.40 MW 3.25% 5 Solar 4.80 kwh/m2/day 22.45 MW - 6 Wind 3-6 m/s 1.87 MW - Source: Blueprint PEN - MEMR 23
2. MRP Target Areas: Assessment and Rationale Overview of Energy Sector Presidential Regulation 5/2006 mandated RE portion to 17% of energy mix The 2025 energy vision requires more RE and EE Source: MEMR 24
2. MRP Target Areas: Assessment and Rationale Overview of Power Sector Electricity consumption grows 7.4% per year in the last 5 yrs. Estimated emissions from power sector is 74 MtCO 2 e in 2005. Industrial electricity demand is projected to increase 9.1% per year between 2010-2030. 25
2. MRP Target Areas: Assessment and Rationale Overview of Power Sector Energy Mix of Power Sector Use of coal will inevitably increased. Ways to incentivize clean energy are continuously sougth. 26
2. MRP Target Areas: Assessment and Rationale : Pilot Area-1 : Existing transmission line : Planning transmission line : Power generation SUMATERA : Power Generation : 7,420 MW (17%) 275 kv : 1.028 kms 150 kv : 8.597 kms 70 kv : 332 kms MV : 79.472 kms LV : 88.024 kms Status: May 2013 JAMALI : Power Generation: 31,609 MW (71%) 500 kv : 5.052 kms 150 kv : 12.977 kms 70 kv : 3.474 kms MV : 143.941 kms LV : 237.297 kms KALIMANTAN : Power Generation: 1,949 MW (4%) 150 kv : 3.028 kms 70 kv : 528 kms MV: 24.384 kms LV : 23.382 kms JAMALI Grid INSTALLED CAPACITY : 44,346 MW TRANSMISSION LINE: - 500 KV : 5.052 kms - 275 KV : 1.510 kms - 150 KV : 26.282 kms - 70 KV : 4.457 kms DISTRIBUTION LINE: - MV : 294.167 kms - LV : 396. 568 kms SULAWESI : Power Generation: 2,318 MW (5%) 275 kv: 482 kms 150 kv : 2.988 kms 70 kv : 528 kms MV : 24.925 kms LV : 27.284 kms MALUKU : Power Generation: 286 MW (0,6%) MV : 4.813 kms LV : 2.718 kms Nusa Tenggara: Power Generation: 514 MW (1%) MV : 8.468 kms LV : 8.362 kms PAPUA : Power Generation: 251 MW (0,6%) MV : 2.718 kms LV : 3.637 kms The Java-Madura-Bali or JAMALI grid is the biggest interconnected electricity system in Indonesia, and comprises more than 60 power plants including 38 coal-fired power plants. Estimated emission generation from the JAMALI grid is 86.9 MtCO 2 (2010) or around 20% of the year s national energy-related emissions. 27
2. MRP Target Areas: Assessment and Rationale Overview of Industry Sector Process-related-emissions is 48 MtCO 2 e in 2005, 60% of it is from cement production. Estimated energy-relatedemissions is 32 MtCO 2 e in 2005. Cement production consumes around 15% of industrial energy consumption (excl. grid electricity). Ways to incentivize clean energy are continuously sougth. 28
2. MRP Target Areas: Assessment and Rationale: Pilot Area-2 Currently there are 14 plants of 9 cement companies in Indonesia. GHG emissions is projected to increase from 37 MtCO 2 e in 2009 to 60 MtCO 2 e in 2030. Cement is the first sector in Indonesia that has GHG emissions reduction policy, i.e. 3% under 2009 emission intensity in 2020. 29
3. Core Technical and Institutional Readiness Components, including Regulatory Components Emission Profile and Baseline Setting Objectives To estimate the emission reduction potentials and abatement cost of mitigation actions in the target areas. To calculate/review/estimate baseline emission of the target areas. Deliverables A comprehensive carbon abatement cost curve in the two target areas. Calculated, reviewed or estimated sectoral baseline emissions of the target areas. Parties Responsible for the Activities MEMR, MoI. 30
3. Core Technical and Institutional Readiness Components, including Regulatory Components MRV System Development and Piloting The objectives of MRV are to: Support GHG reporting, management, and ultimately mitigation Improve data accuracy, quality and consistency Support related policies, programs, and strategies Provide information to stakeholders Support implementation of market-based instruments. Serve as a benchmark for other sector. The MRV system will be implemented at both the level of individual installations and the level of governance (i.e., the policy framework for installation level activities). Thus the development works will be divided into Governance Track and Piloting Track. This MRP proposes to develop and pilot MRV systems for: electricity generation with the JAMALI interconnected grid as the pilot sector; and energy intensive industries with cement production as pilot sector. 31
3. Core Technical and Institutional Readiness Components, including Regulatory Components Envisioned Works in Governance Track Determine risks/incentives for misrepresenting data Identify potential ways to address misrepresentation Discuss different options for oversight/verification Identify data access, confidentiality, management issues Discuss incentives for compliance/sanctions for non-compliance Decide on sanctions for non-compliance Select appropriate verification and data management approach for Indonesia Capacity building for verifiers, oversight organisation Development of data management/storage/tracking system Development of regulation to establish obligations, incentives & sanctions, institutional mandates Revision of regulation if required 32
3. Core Technical and Institutional Readiness Components, including Regulatory Components Objectives Discuss and develop rules, regulations and procedures on MRV, which will cover monitoring procedures and guidelines, validation and verification procedures and guidelines, incentives and disincentives, reporting period etc. Discuss and develop institutional set up for MRV, which includes institutions overseeing MRV and its mandates, scope of work and obligations, institutions for implementing validation and verification, aggregated data management, etc. Increased capacity and awareness of MRV system stakeholders. Deliverables Rules, regulations and procedures on MRV. Institutional set up for MRV. Capacity building and awareness raising activities. Parties Responsible for the Activities MEMR, MoI, DNPI. 33
3. Core Technical and Institutional Readiness Components, including Regulatory Components Envisioned Works in Piloting Track Mapping MR(V) activities in Indonesia Compare existing monitoring protocols for identified purpose Determine applicability of existing protocols for Indonesia and need for adjustments Define data that need to be gathered by MR(V) system Industry consultations on monitoring rules & templates Revision of reporting template (if necessary) Capacity building with industry on implementing an installation-level monitoring & reporting system Testing of MR(V) system Industry review of data requirements Review of MR(V) rules and practices Development/establishment of monitoring & reporting rules Revision of monitoring & reporting rules and templates Development/establishment of a reporting template Adaptation of installation-level MR(V) systems 34
3. Core Technical and Institutional Readiness Components, including Regulatory Components Objectives Map MRV activities in Indonesia, including coverage, protocols, verification requirements, etc., especially within the target areas. Determine applicable monitoring protocols for the pilot areas. Establish data management systems at the installation level. Piloting MRV systems in the power sector and cement sector. Deliverables Map of MRV activities at the installation level of the pilot area Monitoring protocols that will be developed by comparing and assessing existing protocols, making them applicable to Indonesian conditions where necessary and by developing monitoring rules and templates. Data management system at the installation level. GHG emission data and review on the MRV system at both the installation and the aggregated data management level. Parties Responsible for the Activities MEMR, MoI, DNPI. 35
4. Planning for a Market-based Instrument Envisioned Works in Planning for MBI In-depth technical assessment of market options Policy consultations with key line ministries Design and set-up the necessary institutional framework, including draft policies as needed Further assessment for short-listed market options Conduct gap and cost/benefit analysis Select priority market options Preliminary design of MBI (type, coverage, incentive/disincentive, etc.) Capacity building for involved parties Pilot the instrument(s) in smaller coverage Mainstreaming market options into mitigation actions/policies Summarize lessons learned and formulate action plan toward full implementation Consultation with wider stakeholders and industries 36
4. Planning for a Market-based Instrument Objectives 1. Review of existing regulatory approach, MBI and their implementation for GHG mitigation in various countries; 2. Selection of MBI that is suitable for Indonesia; 3. Review various aspects that need to be considered for a proper implementaion of MBI; 4. Selection of sector for pilot study; 5. Gap analysis in general and for selected sector toward implementation; 6. Concept design of suitable MBI for Indonesia; 7. Action plan and road map for MBI implementation, which includes development of required policies and institutional arrangements, and other required aspects for successful MBI implementation. Deliverables 1. A comprehensive assessment report on MBI options for Indonesia. 2. Design of selected market-based instruments for the selected sector. 3. Draft policy(ies) required for the establishment and implementation of MBI. 4. Piloting of the designed instrument(s). Parties Responsible for the Activities MoF, DNPI. 37
5. Organization, Communication, Consultation and Engagement Objectives To integrate all activities in the MRP implementation phase into a seamless program toward MBI implementation. To communicate results to stakeholders. To engage stakeholders during all stages of the implementation phase of the MRP. Deliverables PMR implementation report, that contain of policy direction and decision, guidelines for implementation, organizational structure, time schedule, and budget among others. Stakeholder consultations and capacity building reports. 38
6. Roadmap, Schedule and Budget Other Related Policies MRV System MBI Study Market Readiness NCS offset scheme New Market Based Financial System for Climate Change Mitigation Action 39
6. Roadmap, Schedule and Budget PMR Activities Profiling Emissions A comprehensive carbon abatement cost curve in the two target areas. A calculated / reviewed / estimated sectoral baseline emission of the target areas Year-1 Year-2 Year-3 Year-4 MRV System Development (Gov't Track) Rules and regulations on MRV Institutional set up for MRV Capacity building and awareness raising activities MRV System Development (Piloting Track) Map of MRV activities at the installation level in Indonesia Monitoring protocols Data management system at the installation level GHG emission data and review on MRV system at installation level and at aggregated data management level Sectoral Readiness Framework for MBI A comprehensive assessment report on MBI options for Indonesia A design of selected market-based instrument for selected sector Draft policy(ies) required for the establishment and implementation of MBI Piloting the market-based instrument in the selected sector Understanding of MBI Options Market Readiness 40
Terimakasih! 41