Joint Crediting Mechanism: A More Pragmatic Approach to Developing Emerging Carbon Markets

Beyond developing voluntary Emissions Trading Schemes (ETS), Indonesia and Thailand are simultaneously exploring other market readiness initiatives to address the multifarious challenges that lay ahead on the road to successful carbon markets.[1] The Joint Crediting Mechanism/Bilateral Offset Credit Mechanism (JCM/BOCM), by which the Japanese government helps hosting developing countries set up carbon offset projects whose credits can be applied towards GHG reduction targets in Japan, is emerging as a more pragmatic – and increasingly appealing – approach to developing nascent carbon markets in Indonesia and potentially later in Thailand.

Through the JCM, Japan contributes funding and technical assistance to approved carbon-offsetting projects in eleven developing countries on the condition that these projects will generate emissions credits for the Japanese market.[2] In other words, the JCM extends from the lessons of Clean Development Mechanism (CDM)to not only help hosting developing countries invest in carbon reduction projects that can generate emissions credits to supply the carbon market, but even guarantees that market by ensuring demand.

According to the JCM Secretariat in Jakarta, a key strength of the JCM is that it is simpler to implement than any other carbon market mechanism in the sense that it has a lower criteria for qualifying projects. As of 2014, Indonesia’s JCM program has already begun piloting feasibility studies, implementation projects and supporting programs with the expectation that the JCM will be in full force in 2015. The private sector is expected to be the main actors of the JCM.

Thailand is also interested in potentially joining the JCM. An interview with a Senior Policy Officer at the Thailand Greenhouse Gas Management Organization (TGO), which is responsible for developing the voluntary ETS, reveals that political disruptions in the country have been a cause of delay in the signing of the JCM agreement with Japan.

Quite significantly, the JCM appears to be gaining traction in Indonesia as an alternative approach to contributing to the ultimate UNFCCC objective of facilitating global emissions reductions, but in a more straight-forward bilateral cooperation that supports the full-cycle supply and demand flow of carbon credits between two countries. Compared to the EU ETS, which has witnessed multiple carbon market stakeholders oversupply the European market with low-priced credits, or the CDM which has imposed high qualifying criteria that developing countries have struggled to meet, a relatively simpler two-way crediting mechanism such as the JCM has high potential to wedge its influence on emerging carbon markets by helping developing countries build up capacity where autonomous emissions trading may not yet be technically or economically viable.

Of the ten ASEAN member states, four are already signatories to the JCM: Indonesia, Vietnam, Laos and Cambodia. If Thailand joins too, half of ASEAN will be building their carbon markets with assistance from Japan. Closer scrutiny of the development of the JCM and its appeal to Indonesia and Thailand in my research fieldwork reveals a more promising uptake of this bilateral crediting mechanism relative to the slower-coming ETS in these two countries as well as across the ASEAN region more broadly.

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[1]In a previous blog post titled “Preparing for Emissions Trading Schemes in Indonesia and Thailand: Progress and Challenges”, I suggest that in order to developing well-functioning carbon markets, Indonesia and Thailand must overcome a number of hurdles including but not limited to: restoring industry interest in carbon markets, garnering sufficient political support, bolstering the regulatory environment, and enhancing technical capacity to conduct rigorous MRV.

[2] As of June 2014, the 11 partner developing countries involved in the Japan-led JCM are: Mongolia, Bangladesh, Ethiopia, Laos, Indonesia, Costa Rica, Kenya, Maldives, Vietnam, Palau and Cambodia.

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.