The market based mechanism will play significant role in the implementation of Paris Agreement. This presentation try to explore the potential of the market based implementation in Indonesia with Thailand and Chile as case studies.

1. Unveiling the Potential of
Market Based Mechanism
Implementation in
Indonesia
Thailand and Chile case studies
Dicky Edwin Hindarto
Indonesia JCM Secretariat

2. What happened in COP 21?
Parties of the UNFCCC pledged to curb its carbon
emission, strengthen resilience and joined to take
common climate action .
Paris Deal includes a temperature limit of “well below 2
C” and says there should be “efforts” to limit it to 1.5 C.
To do so requires 32 GtCO2e emission to be cut in 2050,
and around US$ 40 trillion additional investment to
transition to a global low-carbon economy.
To achieve long-term temperature goal or in another
word reaching net zero-emission after 2050.
Legal obligation on developed countries to continue to
provide climate finance to developing countries.
On mitigation, binds parties to prepare and regularly
update climate commitments and developing countries
are encouraged to move towards stricter goals.

3. The most important paragraphs…
PARIS AGREEMENT (article 2 para 1-2)
1.This Agreement, in enhancing the implementation of the
Convention, including its objective, aims to strengthen the global
response to threat of climate change, in the context of sustainable
development and efforts to eradicate poverty, including by:
1.Holding the increase in the global average temperature to well below 2O Celcius
above pre industrial levels and to pursue efforts to limit the temperature
increase to 1.5O Celcius above pre industrial levels, recognizing that this would
significantly reduce the risks and impacts of climate change;
2.Increasing the ability to adapt to the adverse impacts of climate change and foster
climate resilience and low greenhouse gas emission development, in a manner
that does not threaten food productions;
3.Making finance flows consistent with a pathway towards low greenhouse gas
emissions and climate resilient development.
2.This Agreement will be implemented to reflect equity and the
principle of common but differentiated responsibilities and
respective capabilities, in the light of different national
circumstances.

4. MBM in Paris Agreement: article 6
1. Parties recognize that some Parties choose to pursue voluntary cooperation in the
implementation of their nationally determined contributions to allow for higher ambition in
their mitigation and adaptation actions and to promote sustainable development and
environmental integrity.
2. Parties shall, where engaging on a voluntary basis in cooperative approaches that involve the use
of internationally transferred mitigation outcomes towards nationally determined contributions,
promote sustainable development and ensure environmental integrity and transparency,
including in governance, and shall apply robust accounting to ensure, inter alia, the avoidance of
double counting, consistent with guidance adopted by the Conference of the Parties serving as
the meeting of the Parties to the Paris Agreement.
3. The use of internationally transferred mitigation outcomes to achieve nationally determined
contributions under this Agreement shall be voluntary and authorized by participating Parties.
4. A mechanism to contribute to the mitigation of greenhouse gas emissions and support
sustainable development is hereby established under the authority and guidance of the
Conference of the Parties serving as the meeting of the Parties to the Paris Agreement for use by
Parties on a voluntary basis. It shall be supervised by a body designated by the Conference of the
Parties serving as the meeting of the Parties to the Paris Agreement, and shall aim:
1. To promote the mitigation of greenhouse gas emissions while fostering sustainable development;
2. To incentivize and facilitate participation in the mitigation of greenhouse gas emissions by public and
private entities authorized by a Party;
3. To contribute to the reduction of emission levels in the host Party, which will benefit from mitigation
activities resulting in emission reductions that can also be used by another Party to fulfill its
nationally determined contribution; and
4. To deliver an overall mitigation in global emissions.

5. 5. Emission reductions resulting from the mechanism referred to in paragraph 4 of this Article
shall not be used to demonstrate achievement of the host Party’s nationally determined
contribution if used by another Party to demonstrate achievement of its nationally
determined contribution.
6. The Conference of the Parties serving as the meeting of the Parties to the Paris Agreement
shall ensure that a share of the proceeds from activities under the mechanism referred to in
paragraph 4 of this Article is used to cover administrative expenses as well as to assist
developing country Parties that are particularly vulnerable to the adverse effects of climate
change to meet the costs of adaptation.
7. The Conference of the Parties serving as the meeting of the Parties to the Paris Agreement
shall adopt rules, modalities and procedures for the mechanism referred to in paragraph 4 of
this Article at its first session.
8. Parties recognize the importance of integrated, holistic and balanced non-market approaches
being available to Parties to assist in the implementation of their nationally determined
contributions, in the context of sustainable development and poverty eradication, in a
coordinated and effective manner, including through, inter alia, mitigation, adaptation,
finance, technology transfer and capacity-building, as appropriate. These approaches shall
aim to:
1. Promote mitigation and adaptation ambition;
2. Enhance public and private sector participation in the implementation of nationally determined
contributions; and
3. Enable opportunities for coordination across instruments and relevant institutional arrangements.
9. A framework for non-market approaches to sustainable development is hereby defined to
promote the nonmarket approaches referred to in paragraph 8 of this Article.
MBM in Paris Agreement: article 6

6. Some thinking of article 6 of Paris Agreement (PA)
1. Article 6 has a strong linkage with article 5 of the PA (REDD+).
2. Parties can develop voluntary cooperation (bilateral, regional, or
multilateral) to pursue their emission reductions.
3. The use of internationally transferred mitigation outcomes (ITMO’s) are
allowed to support the NDC’s.
4. New mechanism called “Sustainable Development Mechanism” will be
established under the PA.
5. The emission reduction that comes from the mechanism shall promote
sustainable development and ensure environmental integrity and
transparency, including in governance, and shall apply robust accounting
to ensure, inter alia, the avoidance of double counting.
6. Non market approaches (NMA) also allowed to be used in NDC fulfilment.
What else?
A lot of things have to be agreed in order
to develop technical elements for the
NDC implementations!

7. How to finance climate change mitigation?
• Indonesia has commited to reduce national emission up to 26% by
business as usual scenario by 2020.
• Indonesia climate change mitigation activities need market- and
non market-based financial system.
Mitigation
market based mechanism
carbon market
another
market
government
budget
central and
local
government
private
investment
public private
partnership
and purely
private
FDI
foreign private
and
government
investment

8. Why we need to put price on emission?
•Indonesia has targeted to reduce its emission by 26% in 2020 and
29% in 2030. In addition the reduction is expected to reach 41%
with the international cooperation
INDC Target
•Putting the price on emission will generate revenue that can be
used to transition to low-carbon economy
Source of
Government Revenue
•As the emission will become cost, companies will be triggered to
be more efficient in the production process
Product and Process
Efficiency
•The private sector will be interested to invest in the low-carbon
development as there is incentive for reducing emission
Scaling Up Private
Sector Fund
•By putting price on emission it is likely the price of energy will get
higher, thus changing behavior of the people to be more efficient
(demand side management)
Trigger Behavior
Change

9. Market Based Mechanism(MBM) experiencesin
Indonesia
• Total of 121 registered projects
• 2% of total global CDM registered projectCDM
• Total of 12 registered projects
• Project registered included forestry projectVCS
• Total of 28 projects in forestry, energy efficiency, and
renewable energy (in 3 years of its development)JCM
• Total of 19 projects in energy efficiency, renewable
energy, forestry, waste handling and disposalGold Standard
• Total of 6 projects in the forestry and ecosystem
sectorPlan Vivo
GS and Plan Vivo has lower degree of asurance compare to other schemes

10. Other Indonesia’s initiatives in market based
mechanism
• Indonesia was one of the first countries who join this initiative in 2010.
• Currently still in the implementation preparation stage.PMR
• Indonesia actively involved in Asia Pacific Carbon Market Roundtable initiated by New
Zealand.
• The roundtable is intended to seek the possibilities of regional market based cooperation.
APCMR
• The newest international initiatives on market based mechanism dialogue initiated by G7
countries.
• This is a high level dialogue and discussion intended to create common understanding in
the MBM implementation.
Carbon Market
Platform
• The declaration was made to support the Paris Agreement implementation.
• Support a strong role for carbon markets to enhance the ambition and facilitate the
delivery of mitigation under the Paris Agreement.
• Committed to environmental integrity, transparency and the avoidance of double counting
when market mechanisms are used
Ministrial
Declaration on
Carbon Market

11. Market based mechanism types
• Clean development
Mechanism (CDM)
• Joint Implementation
• Emission Trading
Scheme (ETS)
• Crediting scheme (VCS,
JCM, plan vivo, CCB)
• Carbon tax

12. To calculate the emission we use MRV
M is measurement
R is reporting
V is verification
National Sub-national / Scheme Project / Activity level
M R V
Scale
Some basic elements of MRV
1.Scope of MRV (and governance)
2.Methodology and baseline
3.Measurement system (qualitative and
quantitative)
4.Reporting
5.Verification (and third party entities)
6.Registry and issuance system.

13. Why we need to do the MRV?
• Many of emission reduction activities are very
difficult to be measured and recorded.
• To make climate change activities transparent
and accountable.
• To avoid double claiming, double registering,
double financing, and double counting.
• MRV is a term used to describe all measures to
collect data on emissions, mitigation actions
and support, to compile this information in
reports and inventories, and to subject these to
some form of international review or analysis.

14. Example: MRV in national level
What is measurement?
• GHG emission and removal by sink.
• Emission reduction associated with mitigation actions compared to a baseline scenario.
• Progress in achieving climate change mitigation and adaptation, achievement of
sustainable development goals and co-benefit.
• Support received (finance, technology, and capacity building.
• Progress with implementation.
What is report?
• Data on GHG emissions and removals by sinks.
• Data on emissions reductions associated with mitigation actions compared to a baseline
scenario.
• Progress with implementation of the mitigations actions.
• Key assumptions and methodologies.
• Sustainability objectives, coverage, institutional arrangements, and activities.
• Information on constraints and gaps as well support needed and received.
What is verification?
• All qualitative and quantitative information reported, in the BUR, on national GHG
emissions and removals, mitigations actions and its effects, together with support needed
and received.
• Data maybe verified through national MRV where appropriate.

15. How crediting work
• Emission reduction is the difference between emission scenario without project with
the actual emission after the project is being implemented.
• In crediting, each 1 ton of CO2 emission reduction is equivalent to 1 carbon credit
Emission before project
Emission after project
Carbon credit
before project after project
CO2
CO2
• To quantify emission reduction, methodology is needed.

16. Example of MRV crediting in JCM scheme
*PDD: Project Design Document
Submission of
Proposed
Methodology
Approval of
Proposed
Methodology
Development
of PDD
Validation
Registration
Monitoring
Verification
Issuance
of credits
Project Participant / Each Government
Joint Committee
Joint Committee
Project Participant
Third Party Entities
Joint Committee
Project Participant
Third Party Entities
Joint Committee decides the amount
Each Government issues the credit
CanbeconductedbythesameTPE
Canbeconductedsimultaneously
*
Measurement
Reporting
Verification
16

17. JCM Indonesia infrastructures development
Guideline:
1. Project Design
Document
2. Proposed
Methodology
3. Third Party Entity
4. Validation and
Verification
5. Sustainable
Development
Implementation Plan
and Report
(Indonesia’s specific
JCM guidelines )
Procedure: Project Cycle Procedure
Rules: 1. Rules of Implementation
2. Rules of Procedure for JC
Since JCM establishment in 2013, it has developed several guidelines,
procedure, rules, registry system and methodologies
Registry system:
We have developed the first climate change mitigation
registry system in Indonesia, and it is expected to
connect with the National Registry
Methodologies:
10 methodologies of energy efficiencies and
renewable energy have been developed
ISO14065based

18. How cap and trade/ETS mechanism work
Emissions trading or cap and trade is a government-
mandated, market-based approach to
controlling emission by providing economic incentives for
achieving reductions in the emissions of pollutants
By applying
cap and trade
policy,
quantifiable
emission
reductions
can be
delivered by
setting a cap.

19. What is carbon tax?
• Carbon tax is a form of explicit carbon pricing; it refers to a tax directly linked
to the level of CO2 emissions, often expressed as a value per tCO2 equivalent1
• With carbon tax, a ton of emitted GHG has a price according to the taxation
policy. Thus, creating incentives for emitters to shift to less GHG intensive
ways of production and resulting in reduced emission.
1 based on “Climate carbon – Aligning prices and policies,’ OECS Environment Policy Paper, October 2013 no01

20. Carbon market
Carbon market elements:
• Policy
• Setting environmental target goal
• Selecting appropriate policy instruments
• Sharing possible carbon revenues
• Policies to encourage pilot
• Technical
• Coverage
• MRV system
• Reference/baseline scenario
• Registry and transaction log
• Institutional and legal
• Issuance system
• Institutional for the verificatory
• Rules and regulation
Carbon market is a market that is created from the trading of carbon emission
allowances or credits to encourage or help countries and companies to limit their
carbon dioxide (CO2) emissions.
Why carbon market?
• Seller
• Profit
• Green incentives
• Co benefit
• Buyer
• Obligation to reduce
emission
• Cheaper and easier
• Guaranteed quality
• Voluntary
Cost Effective

21. Global carbon pricing instrument map

22. Carbon pricing instrument statistic
Jurisdiction
• 39 National
• 23 Sub-national
Instrument
• 38 carbon pricing instruments
(already implemented or
scheduled for implementation)
• 90% increased compare to 1st
January 2012
Coverage
• Around 12% of the global
emission or 7 GtCO2e
• ETS consists of 8% & carbon tax
consists of 4%
Price
• Ranging from US$ 1 – 130
/tCO2e

23. Coverage of the global GHG emission

24. Instrument Strengths Weaknesses
Cap &
Trade
• Assure the delivery of emission
reduction target through emission
cap
• The administrative costs are
generally low in relation to the
value of carbon pricing
instrument
• Uncertainty of the allowance price
• Implementation of ETS is
complicated as a result of
requirement to create a new
commodity, the allocation of these
commodity and the establishment of
a market for trading
Carbon
Tax
• Assure the price certainty, as it is
determined by the government
• Generally easier to implement, as
it can build on existing taxation
infrastructure
• Generally set by modeling the cost
of reducing emission to a certain
target. Inaccuracies in the model will
result actual emission reduction
which is different than the target
• The utilization of iterative approach
to set the tax rates resulted higher
administration cost and uncertainty
for low-carbon investment.
Currently several countries opted to combine these instruments to
mitigate its downside. The combine instrument is generally called
“Hybrid Instrument”
Cap & Trade, Carbon Tax, and Crediting

25. Cap & Trade, Carbon Tax, and Crediting
Instrument Strengths Weaknesses
Crediting • Flexible and easy to be
implemented
• The administrative costs are
generally low in relation to the
value of carbon pricing
instrument
• Most popular scheme in
developing countries
• Demand and carbon prices are
always the problems
• Most countries used crediting as their
complementary for green business
strategy implementation
Crediting not necessary done by country , but also can be
implemented trans boundary, by sectors, etc

26. List of Countries Implementing
Carbon Pricing Instruments
Carbon Tax
National:
Japan, Mexico, Chile, South Africa,
Costa Rica
Sub-National:
British Columbia, Alberta
ETS
National:
Liechtenstein, Austria, Belgium,
Bulgaria, Croatia, Cyprus,
Czech Republic, Germany,
Greece, Hungary, Lithuania,
Italy, Luxembourg, Malta, The
Netherlands, Romania,
Slovakia, Spain, Kazakhstan,
Korea, Taiwan
Sub-national:
RGGI, Tokyo, Saitama, Kyoto,
California, Quebec, Shenzhen,
Guangdong, Shanghai, Beijing,
Tianjin, Hubei, Chongqing
ETS and Carbon Tax
Iceland, Norway, Denmark, Estonia,
Finland, France, Ireland, Latvia,
Poland, Portugal, Slovenia, Sweden,
United Kingdom
The classification is excluded other policy instruments such as: removal of fossil-
fuel subsidies, infrastructure investment in transport and energy, renewable
energy portfolio standard, and energy efficiency standard
Crediting
National:
Costarica, Thailand

27. Case Study: How Do Countries
Choose Carbon Pricing Instrument?
• EU Legislative remit does not cover fiscal
policies such as carbon taxation
EU-ETS
• Concentrated nature of its energy
sector-marked by small number of
market participants and small trading
volumes
• Carbon tax could be built on the existing
infrastructure used for other taxes
South Africa
Carbon Tax
The choice of carbon pricing instrument is based on national
circumstances and political realities

28. World Bank and carbon market

29. Partnership for Market Readiness

30. Case Study of PMR countries: Thailand

31. Case Study of PMR countries: Thailand

32. Case Study of PMR countries: Thailand

33. Case Study of PMR countries: Thailand

34. Case Study of PMR countries: Thailand

35. Case Study of PMR countries: Chile

36. Case Study of PMR countries: Chile
Green taxes

37. Case Study of PMR countries: Chile
Carbon tax

38. Case Study of PMR countries: Chile
Carbon tax

39. Case Study of PMR countries: Chile
Carbon tax

40. Case Study of PMR countries: Thailand TVer

41. Case Study of PMR countries: Thailand TVer

42. Case Study of PMR countries: Thailand TVer
Status 16 Jun 2016

43. Case Study of PMR countries: Thailand TVer
8 projects were issued 339,000 ton CO2 in March 2016

44. Case Study of PMR countries: Thailand TVer

45. Conclusion
• Market based mechanism implementation is “a must do”
action if we want to reduce emission in an effective and
cost efficient way.
• Country may choose their preferences of the market based
mechanism scheme that can be implemented in their
region.
• Carbon tax is the most feasible to implement in Indonesia
as it does not require complicated infrastructure
• The implementation of the taxes, however have to be done
gradually to increase the reception from all sectors
• It is required to provide assistance for the energy intensive
industry as it will be hit the hardest by the implementation of
carbon tax
• Crediting scheme can be the second choice to be
implemented.
• Indonesia can start the crediting scheme by implementing
domestic scheme.
• The biggest challenge for crediting is to create the
demand.

46. References
1. Atika, Ratu Keni, MRV in MBM presentation 2016
2. Chile delegation presentation at APCMR Meeting Santiago,
2016
3. Setiawati, Rini, Carbon Tax presentation, 2016
4. Thailand delegation presentation at APCMR Meeting
Santiago, 2016
5. World Bank PMR Annual Report 2015