Lots of benefits can be derived from clean development mechanism projects
10/03/2009 (The Star Online) - IT is sad to note that many Malaysian companies are still reluctant to develop the clean development mechanism (CDM) projects under the Kyoto Protocol despite its good prospect in providing steady income streams via sales of energy generated and certified carbon emissions (CERs) or “carbon credit”.

The CDM projects in Malaysia that has potential to reduce the green house gas (GHG) emissions that promote global warming include:
·Renewable energy projects, including hydro and biomass from palm empty fruit bunches (EFB);
·Landfill management (flaring or landfill gas to energy);
·Combined heat and power projects; fuel switch to less carbon intensive fuels (for example, from coal to gas or biomass);
·Biogas to energy (from palm oil mill effluent (POME) or other sources); and
·Land-use, land-use change and forestry projects (afforestation, reforestation, forest management, cropland management, grazing land management and re-vegetation).

For Malaysia, one of the world’s largest producers of palm oil, it is actually easier for its oil palm plantation companies and millers to get actively involved in CDM projects i.e. biogas and biomass plants given the whole-year round availability of POME and EFB.

To date, it was reported that only 20 out of 406 palm oil mills nationwide are involved in CDM-related projects. This was deemed by Plantation Industries and Commodities Minister Datuk Peter Chin as “unsatisfactory”.

He wants to see the number growing to at least 300 millers with CDM projects in the foreseeable future.

From the perspective of Malaysia, the success of CDM rests upon the contribution it may make to national sustainable goals.

Whether this can be achieved will largely hinge on the Government, because only projects that have national host country approval can be officially registered as CDM projects and generate CERs.

Assuming an annual potential of 18 million CERs per year in 2010, there is substantial CDM potential in Malaysia of up to 100 million tonnes of carbon dioxide equivalent for the period 2006 to 2012.

At prices between US$3 and US$10 per tonne, this corresponds to a total capital inflow to Malaysia from sales of carbon credits in the range of between RM1.14bil and RM3.8bil.

On the other hand, how much need a CDM operator fork out before tradable CERs can be generated?

To register as a CDM project, an operator has to bear such costs as transaction cost which could vary from RM2mil to RM10mil per project depending on the scale and capacity output.

So, is the high capital intensive nature of the business the crux to most local players’ reluctance to venture into CDM projects?

Perhaps this is true but only to a certain extent. Lately, there is growing interest among foreign investors, mainly from the developed countries who are mostly buyers of carbon credits.

Many of these investors are keen to become joint-venture partners with Malaysian companies which are keen to set up CDM projects in exchange for carbon credits.

Perhaps it is worthwhile for Malaysian companies, especially oil palm players, to seriously consider embarking on profitable CDM ventures in the advent shrinking earnings given the lower CPO prices.