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Published on July 23, 2007

Before the end of this year, Khon Kaen Sugar Industry (KSL), a major sugar-producer, will be making about Bt28 million per year from trading carbon credits, using a new financial system that has arisen from the global struggle to reduce the undesirable effects of global warming.

For KSL it is one of its new businesses, sanctioned by the United Nations Framework Convention on Climate Change (UNFCCC), the predecessor of the 1997 Kyoto Protocol.

The UNFCCC's so-called Clean Development Mechanism (CDM) seeks to reduce emissions of carbon dioxide (CO2) and other greenhouse gases that are accused of trapping heat within the earth's atmosphere. The aim is to mitigate worsening climate change.

It begins with member countries of the Kyoto Protocol that emit high levels of greenhouse gases. These "annex I countries", including the main industrialised nations, must reduce their emissions to a more manageable level by 2012, the protocol's first deadline.

However, many industrialised countries believe it is economically too damaging to reduce emissions in their own back yards, so they're currently offered the right to buy "credits" for reducing emissions in developing countries that already have low emission rates, effectively reducing global emissions while maintaining their industrial production.

The director of Thailand's Office of Natural Resources and Environmental Policy and Planning (Onep) Aree Wattana Tummakird, says the system works like trading shares on the stock market.

"If a country or a factory can prove that it can reduce carbon emissions by a certain amount, then it can earn the CO2 credits and can offer them on the open market.

"Then developed nations with heavy releases of greenhouse gases may want to buy those credits to help them comply with the protocol's reduction requirements," he explains.

KSL's carbon credits are to be earned from a biomass power-generation project using vast amounts of agricultural waste from the firms' sugar-refining to generate electricity.

"This project gains us about 61,000 carbon credits, each of them worth ¤10 [Bt462]. In total, we will get Bt28 million per year," says chief executive Chamroon Chinthammit.

KSL is able to turn 200,000 tonnes of farm waste, including sugarcane and other related wood wastes, into energy for a 50-megawatt power plant. However, the firm has invested slightly more to qualify for carbon credits so it can sell the credits on the world market, Chamroon says.

Prior to implementation of CDM, KSL invested in a 30-megawatt power plant fuelled by waste products.

"We are now planning to earn more carbon credits. We will produce ethanol from our industrial waste, molasses, and expect to gain an additional 70,000 carbon credits worth another Bt32 million annually," he says.

The proposed plant, producing 150,000 litres of ethanol per year, will use about 120,000 tonnes of molasses in the process, significantly helping to reduce water pollution and carbon emissions.

Aree believes that the carbon-trading business has a bright future, given the worsening trend of global warming.

About 700 CDM projects are registered around the world and ready to sell their carbon credits. Half of them are schemes launched by the energy sector. More than 60 per cent of the projects are in just three countries: India, Brazil and China. In Thailand only two projects are registered by UNFCCC's executive board, but Onep says it is considering eight more.

SGS (Thailand) business manager Jitote na Nakhon says his firm provides a third-party service validating and verifying CDM projects. It is a subsidiary of UK-based climate-change specialist SGS.

"We're dealing with two CDM projects now, one to validate the KSL scheme and another to verify the AT Biopower project, a rice-husk energy scheme in Pichit province," Jirote explains.

Joining the CDM trading system has two major steps. First a company has to set up its project and register documents with Onep. This is followed by a validation process involving a third-party company, leading to UNFCCC listing.

After validation, projects are posted on the UNFCCC website, allowing comments and debate from around the world. Then they go to the UNFCCC's executive board for approval.

Besides verification by the third-party company, projects need final certification before their carbon credits can begin trading.

Jirote says his company's income from CDM projects is still small but expects it to gain a reputation that will generate good business in the next decade and beyond.

Aree says Onep is considering registration of eight projects in Thailand while another 22 are being set up. The projects include biomass and biogas plants and a landfill project in Samut Prakan. Altogether Thailand could have 48 CDM projects in coming years.

The Cabinet has also approved the establishment of a new body, to be called the Global Warming Administrative Organisation, to oversee schemes in Thailand, including CDM projects. It is expected to begin operations in about six months.

Kamol Sukin

The Nation