ICETS (Indonesia China Emission Trading System): A Bilateral Agreement to Reduce Global Warming
Global environmental issue is not entirely new. Nowadays, it just becomes a serious attention in almost all countries, especially at the aspect of law and policy. Environmental problems do not only occur in developed countries, but also in developing countries. Climate change is a global phenomenon caused by natural variability or as a result of human activities such as fossil fuel use in large scale (coal, oil and natural gas), land use change (clearing land for logging, farming and agriculture), activity over land uses and forestry, and consumerism. Time of taking and using these resources, greenhouse gases released massively into the atmosphere due to industrial processes. Other gases are also released and polluting the atmosphere, such as carbon dioxide, and methane. All these gases are called “greenhouse gases”. Human activities are a major source of greenhouse gases (GHG) and the biggest factors of climate change, especially carbon dioxide; the largest contribution coming from industrial countries. Carbon dioxide has the ability to absorb heat coming from solar radiation re-emitted by the earth. The absorption has led to the atmospheric warming or rising temperatures and climate change.
There are some efforts made by the international societies in environmental protection today, namely repressive and preventive efforts. The preventive measures carried out by reducing the activity that produces greenhouse gases (GHG) and reducing the use of ozone depleting substances; maintain the existance of green open areas, in order to maintain the presence of water catchment areas as well as carbon sinks; raise awareness of the environmental data of sea, land and air; undertake spatial planning that combines marine, coastal and land spatial planning; and increase public awareness of the effort to prevent the escalation of global warming. Whereas, the repressive efforts to do among others by improving facilities and infrastructure for flood prevention and drought; rehabilitate degraded land by way of promoting the planting of trees (reforestation) as an effort to absorb the carbon gases, and increase the availability of water reserves; improved handling of environmental and coastal habitat; society health services; and emissions reductions through carbon trading.
To cope with climate change, the international community formulated and adopted the United Nations framework convention on climate change and the Kyoto protocol under the framework. In this context, as a major carbon emitter, China is facing an unprecedented pressure to reduce it is carbon dioxide emission. In order to ease the pressure of China, emissions trading scheme (ETS) is thought to be an effective measures. It is also considered an important mechanism to address climate change, and an effective measure to reduce global greenhouse gas emissions. States should implement the reduction of greenhouse gas emissions, and developing countries are initiatives take an action to reduce the emissions. One way is to increase the ability of the land and forests, because land and forests can absorb greenhouse gases. Indonesia has the potential for it, because Indonesia is a country with tropical forests. Indonesia is the third largest country that has the largest tropical forest in the world and got first ranked in Asia-Pacific. The width of Indonesia’s tropical rain forest estimated to 1.1484 million square kilometers.
Indonesia and China get a chance to build strong network in this fields. We know that China nowadays become the home of industry through developed country. But, China also becomes the biggest supplier of GHG. China promised in the Conference of Parties to reduce their carbon intensity per unit of GDP by 60–65% by 2030. To achieve this, they decided to use market-based mechanism by using Clean Development Mechanism. But that is not enough to pursue the target. So we need to gain bilateral relations between Indonesia and China using ICETS. A carbon trade system between developing and developed country to reduce global warming.
Implementation of ICETS
Building the unified carbon emission trading system is a long-term process, which can be divided into four stages. The first stage is preparation, which means to complete the construction of carbon emission quota cap-and-trade system at the local level by the end of 2015. The second stage is the improvement for operation during the period from 2016 to 2020. The target of this stage is to accomplish the construction of carbon emission quota trading system at the national level, which requires to convert from the intensity target to the total amount control target. The third stage is the expanding stage, which covers the period from 2020 to 2030. The main objectives are to build the carbon trading system under the absolute amount at the national level and the institutional, regulatory and market operation will be mature. The fourth stage is the deepening stage with the target of building the trading system under the aim of absolute quantified emissions at national level. Besides, this system has the capacity of connecting with other countries and dominating the international carbon market. Till now, China’s carbon trading system is gradually established and improved, which realizes the development from the local trial market to national unified market and then to the global market.
This kind of system always intersects with economic analysis. The scheme set the initial carbon allowances to 3–5 billion tonnes per year. Comparing this to the EU (European Union)-ETS scheme, it is almost twice as much as the EU allowance. By the time of July 2016, EU-ETS is the world’s largest carbon trading system, with a carbon market of two billion tonnes per year. The National Development and Reform Commission (NDRC) announced that eight sectors would be included in this market, these eight sectors are petrochemicals, chemicals, building materials, steel, ferrous metals, paper-making, power-generation and aviation. The companies that participate in this market are compulsory to use more designated amount of energy. The current number is 10,000 tonnes of standard coal equivalent of energy per year. According to seven pilot cities (7 trial carbon market in China) average price, the launch price would be set to be around 5 dollars per ton, which would generate a revenue of $0.17 to $1.16 billion in the first trading year. The expected carbon trading volume would increase to 7–58 billion dollars per year after 2020 since more market would be introduced to the carbon trading system. To enhance it, we should analysis INDC or Intended Nationally Determined Contributions.
From that map, we can see that Indonesia and China as a part of different. China as Annex country becomes Emissions Intensity that needs another country to be a BAU (Business as usual) target like Indonesia as non-Annex country. In the presence of vast tropical forests, Indonesia has the potential to utilize carbon trading schemes. In addition to being able to increase the country’s foreign exchange from the environmental preservation sector, this carbon trading has also indirectly played a role in maintaining biodiversity and the preservation of tropical forests in Indonesia. The potential income to be earned by Indonesia can be described as follows. The price of carbon per ton on ordinary world markets is determined by agreement. It usually ranges from 5 to 40 US dollars per ton. The price will continue to fluctuate and increase along with increasingly fierce climate change. The ability of forests to absorb carbon per hectare varies. If the forest is still natural, its absorption will be better than artificial forests. If there is 1 million ha of forest, the total income that Indonesia will get is around 750 million US dollars, from the environmental sector. Indonesia itself has forests with millions of hectares. Not to mention the added peat swamp forest whose carbon sequestration capacity reaches 4000 tons of carbon per hectare, so it can produce approximately 20,000 US dollars per hectare. So, it can be imagined how much income the Indonesian government will get if it succeeds in releasing its forests. This is a moment to make Indonesia more advanced in controlling the environment. If in the past Indonesia lost the forest to get money, now Indonesia only needs to preserve the forest and get income.
Conclusion
ICETS (Indonesia China Emission Trading System) is a green cooperation. Teamwork between Indonesia and China has a noble goal, to reduce global warming. Start from China promised in the Conference of Parties to reduce their carbon intensity per unit of GDP by 60–65% by 2030. They have carried out many trials to build carbon markets. Just like making several cities as pilot projects at carbon trading. But it cannot be denied, foreign policy related to the policy of cooperation between countries is also very necessary. With the potential of large carbon sinks, Indonesia can establish cooperation with China in the field of carbon trading to overcome the problem of air pollution levels in China. Through ICETS, it is hoped that China can still control the rate of carbon production under the Kyoto protocol decision. And Indonesia continues to strengthen cooperation with China as a carbon sink area.
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