International Law

Clean Development Mechanism for Indonesia's Geothermal Industry

by Sigit Ardianto, Gita Syahrani and Ahmad Fikri

Clean Development Mechanism (CDM) has not received enough priority within Indonesia's legislation after its Kyoto Protocol ratification in 2004. Despite the "Bali Action Plan" and the 3rd Meeting of Parties to the Protocol in Bali in December 2007, no governmental effort has been made on this issue. With no prevailing regulations in place to regulate potential CDM issues, progress by non-state actors on CDM implementation may be impeded.


Clean development mechanism (CDM) is still striving to receive priority within the framework of Indonesia's national legislation following ratification of the Kyoto Protocol by the country in 2004. Even after the "Bali Action Plan" was agreed upon at the 13th Conference of the Parties (COP 13) and the 3rd Meeting of the Parties to the Kyoto Protocol (MOP3) in Bali, Indonesia in December 2007, there has been virtually no significant effort from the government to address this issue. To date, the government has not promulgated any public regulation specifically addressing CDM that forces the implementation of CDM in Indonesia to rely on existing regulations governing related areas. With a few exceptions, those regulations were not created and issued by the Legislature with the CDM concept in mind. On a practical level, the fact that prevailing regulations are not constructed to regulate potential issues in relation to CDM might impede the progress of CDM implementation by non-state actors in Indonesia.

CDM in Geothermal Business

 Under the current government structure, the Designated National Authority (DNA) to approve CDM projects within Indonesia is the National Commission for Clean Development Mechanism (NCCDM). Up to June 2011, the Commission has approved 122 CDM projects. However, apart from the establishment of the NCCDM, prevailing Indonesian laws provide practically no reference to private involvement in CDM. On the other hand, Indonesian law has never been intended to prevent non-state actors from operating business in areas which will allow them to earn credits (in the context of CDM, Certified Emission Reductions (CERS)), while at the same time developing growth in the said areas. This perspective is expressly shown in various regulations related to natural resources, including geothermal. In relation to geothermal business, the law encourages involvement of a private entity in geothermal production. Participation by foreign entities with the generous limitation of up to 95% is even welcomed. The government has also increased the price for electricity generated from geothermal to induce investors.

Despite the significant geothermal potential and the support given by the government, the development of geothermal industry in Indonesia has not shown any noteworthy progress. Over the span of 20 years, Indonesia developed only 787 MW of geothermal power, a mere four per cent of Indonesia's 20,000 MW strong geothermal potential. Until September 2010, only four CDM projects which have been requested and registered in the UNFCCC (a German secretariat named for the United Nations Framework Convention on Climate Change, and established to implement that treaty) are based on geothermal power. Only one project (Darajat Unit III Geothermal Project - Chevron Limited) successfully received CERS issuance in 2009. [footnotes omitted]

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Sigit Ardianto, Gita Syahranim, and Ahmad Fikri are practicing lawyers of the law firm DNC Advocates at Work, Jakarta, Indonesia. They are directly involved in the climate change and emission trading practice area, with a list of clients that includes the Ministry of Finance of Indonesia, DFID-UK, and the World Bank.