German Company Signs First Carbon Finance Deal In Indonesia

German Company Signs First Carbon Finance Deal in Indonesia

The World Bank - News Release, Washington DC

July 9 2004

Transaction shows the possibilities of the cement industry for dealing with climate change

Cologne, GERMANY, June 9, 2004 ­ The Indonesian cement company Indocement majority owned by the Heidelberg Cement Group of Germany along with the World Bank and the group of six governments and the 17 companies that make up the Prototype Carbon Fund (PCF), today signed an agreement for the PCF's first cement sector project for reducing greenhouse gas emissions. The Sustainable Cement Production project is sponsored by Indonesia's second largest cement producer PT. Indocement Tunggal Prakasa Tbk (Indocement). The project plans to reduce greenhouse gas emissions by implementing technologies and techniques not yet applied in the Indonesian cement industry.

The PCF and Indocement will sign the emissions reductions purchase agreement today in Cologne Germany at the first Carbon Expo, a trade fair event for the global carbon market. Globally, cement production accounts for about 3-4% of total human caused greenhouse gas emissions. Considerable potential exists in developing countries to reduce such emissions by adopting new technologies, processes and methods in cement production. Indocement is intending to introduce new types of cement in Indonesia, as well as undertake fuel change projects in the companies' three Indonesian locations, namely, Citeureup (about 45 km south of Jakarta), Cirebon (about 300 km east of Jakarta) and Tarjun, South Kalimantan.

The project is intended for the Clean Development Mechanism (CDM) of the Kyoto Protocol, the 1997 international agreement to limit climate altering greenhouse gases. The CDM will allow industrialized countries and companies with greenhouse gas reduction commitments, to purchase some of their required reductions, in developing countries. The Indocement Sustainable Cement Project opens all kinds of possibilities for Indonesia and other countries, in which reductions in greenhouse gases are exchanged for development dollars. The project demonstrates the potential and value of the Clean Development Mechanism as a powerful development tool for these countries. The Indocement project will produce greenhouse gas emission reductions of three million tons.

"We are very happy to cooperate with the PCF for this project, says Mr. Oivind Hoidalen, Indocement's Technical Director. "We believe, that the combination of our expertise in cement technology and the PCF's knowledge about the CDM will lead us to success." Regarding the climate impacts and sustainable development aspects, Mr. Hoidalen said that "In addition to reducing greenhouse gas emissions, the use of bio fuels and other waste materials produced in the proximate areas of the sites, our project will contribute to sustainable development in a socially responsible way".

The driving force is the Kyoto Protocol, which commits industrialized countries to reduce their carbon emissions by 5 percent below 1990 levels in the period from 2008 to 2012. Companies can supplement their commitments at home by purchasing lower cost emissions in developing world countries. As a result, projects in developing countries will get a new source of financing for sustainable development in the energy, industrial and waste management sectors, land rehabilitation, and clean technologies. Industrialized countries can meet part of their Kyoto obligation, while the threat of climate change is reduced at lower overall cost.

Indocement is a leading example of the opportunities available through carbon finance. The project is part of the portfolio of the PCF. Six governments and 17 companies teamed up with the World Bank in 2000, and contributed $180 million to create the PCF. The carbon finance business has taken on a new sense of urgency in the face of mounting evidence that the Earth's climate is changing, which could have dire consequences for major parts of humanity. The main culprits are fossil fuels that are pumping heat trapping carbon dioxide into the Earth's atmosphere creating an invisible blanket around the planet. Climate change, and accompanying disrupted weather patterns could wreak havoc on the planet, particularly parts of the developing world.

The threat climate change poses to long-term development and the ability of the poor to escape from poverty is of particular concern to the World Bank. "The World Bank is catalyzing a market in which private capital can flow from OECD countries to developing countries for clean technologies and for development that is sustainable," said Ken Newcombe, World Bank fund manager for the PCF. "It is critical that projects such as the Sustainable Cement Project show the possibilities that exist under the CDM. There is a limited opportunity to get such projects in under the very real constraint that exists with lead time for the CDM. World Bank experience shows that projects can have a three to seven year project cycle, so the window is rapidly closing for projects to be accepted under the CDM for the 2012 deadline."

Five years after it started, the global carbon finance market providing credits for reductions in greenhouse gas emissionshas the possibility of becoming a US$10 billion a year market according to research by Point Carbon. Yet right now most developing countries are missing out on the benefits of carbon finance dollars. The Bank's responsibility is to make sure that an equitable share of this money, much of it private sector, ends up in the hands of the poorest, in the poorest areas of developing countries.