Expected halt in Rimba Raya carbon credit issuances adds to overall market uncertainty

Canada-based Carbon Streaming's recent announcement on the expected halt in credit issuances for the Rimba Raya Biodiversity Reserve REDD+ project has caused uncertainty among regional developers on the future of carbon projects, developers told S&P Global Commodity Insights this week, but they were "proceeding with caution" on ongoing projects.

According to media reports earlier this week, Carbon Streaming announced that no new credits will be issued by the Rimba Raya project until the Indonesian government formulates a clear carbon market policy. Last year, Carbon Streaming entered into a stream agreement for the rights to receive 100% of the carbon credits generated by Rimba Raya, except for those previously committed to buyers.

Last month, S&P Global Commodity Insights was the first to report that credit issuances from Indonesia, for new vintage credits were on hold until after the Presidential Regulation passed last year on Indonesia's nationally determined contribution, or NDC, targets. The Indonesian Ministry of Environment and Forestry later clarified that the halt to the validation process was for projects located in the Sumatra and Kalimantan regions as the verification processes for projects in that area were not aligned with Indonesian law.

Agus Justianto, director general of the Sustainable Forest Management department said: "If Indonesia misses its [NDC] target due to double counting, it will cause both us and the world enormous difficulties."

An Indonesian developer with projects in Sumatra and Kalimantan said it was "trying to be careful", while attempting to understand the implications of the recent regulation. As projects were still in the development stage, the developer said the rules had yet to impact them much and they were proceeding, albeit, with caution.

The recent regulation has fueled speculation that the government is likely to direct a proportion of credits generated locally to have to be used for the domestic market.

"If the government mandates that most credits from those areas will have to be traded domestically, it won't be very economical for us," the source said.

However, the developer added that it was still optimistic for the longer term and hoping that international trade for credits would eventually open. "The question is only about when and not whether we can trade overseas."

He added that many other developers were spooked about getting into projects in Indonesia. "But we have a strong presence on the ground and are confident our projects will be successful."

"It is anyone's guess what is going to happen to future projects and credits," a second developer told S&P Global.

"It is all very undecided. Buyers are apprehensive," the developer said. "Everyone is digesting the information with a pinch of salt."

The second developer added it was seeking a meeting with the Indonesian ministry on its projects.

"Let's see what their view is. There are many investments right on the brink of happening in Indonesia. A lot will be lost if future credits cannot be issued," the developer said.

Lack of clarity worldwide

The lack of clarity from governments worldwide regarding Article 6 was a cause for concern as it led to all-round uncertainty, the developer said. Governments should start deciding quickly on how to proceed on Article 6, he added.

At COP 26 in Glasgow last November, countries agreed on a set of rules to implement international carbon market mechanisms and to prevent double counting of credits under Article 6 of the earlier Paris agreement.

Similarly, the recent buzz around the emergence of a carbon market in India had spooked some buyers as there were concerns that credits from India would only be used domestically once they came into place, according to industry sources.

The first developer said the Indian carbon market might take some years as the ground work is just about to start.

A broker, however, said there were expectations it would start a lot sooner and that buyers had already started specifying that they wanted to avoid purchases from India. "There is the expectation that renewables credits will be used for the internal compliance market. Buyers want to take precautions for the future," the broker said.