A NEW ASSET CLASS

       Scientific consensus is growing that some floods, droughts and storms over the past decade may have been triggered by activities such as farming, deforestation and burning fuel for transport and manufacturing.
       Global alarm over climate change inspired the Kyoto Protocol, which set ambitious targets for reducing greenhouse gas emissions among industrialised nations.
       Carbon trading allows these countries to buy reductions in greenhouse gas emissions from other countries with fewer emitting activities - an opportunity that Thailand's business community is becoming alert to. What is carbon trading?
       The Kyoto Protocol establishes specific mechanisms for industrialised countries to lower greenhouse gases. Emissions trading allows countries to trade greenhouse gases, which include carbon dioxide (CO
       2), methane, nitrous oxide,hydrofluorocarbon, perfluorocarbons and sulphur hexafluoride.
       In the Kyoto Protocol, Annex I countries - developed countries that agree to reduce their emissions to below 1990 levels - are given assigned amount units (AAUs), setting the emissions they have to cut.
       AAUs can be bought or sold if an Annex 1 country cannot reach its committed reduction in emissions, or if it can cut emissions beyond the level of AAUs assigned to it. The carbon bought and sold is called "carbon credits".
       Carbon credits are divided into three categories, according to the three mechanisms they are intended to serve.Emission reduction units (ERUs) are carbon credits resulting from joint implementation (JI) schemes between developed countries investing in projects that will help reduce gases. What is the Clean Development Mechanism?
       The CDM is how developed countries assist developing countries in certain projects, such as helping build biogas plants. The gas emissions saved will be transferred in the form of certified emission reductions (CERs) to the developed country that assisted in the project. How are carbon credits calculated?
       Greenhouse gases emitted by factories are measured in tonnes per year, with one tonne equalling one CER. If a CER is sold, it is called a "carbon credit",which is measured in tonnes of CO
       2equivalent per year.
       Carbon credits are bought and sold in the carbon market, which varies in each country. The price of carbon credits is based on negotiation, so there is no calculation formula. The carbon market in Thailand:
       Being a non-Annex I country, without an obligation to reduce greenhouse gases,Thailand is allowed to participate in buying and selling carbon credits within the CDM mechanism.
       Thailand mostly has bilateral CDM projects jointly invested with developed countries. But some projects are unilateral - without help from Annex I countries. Since Thailand does not have to commit itself to lowering greenhouse gases, demand for CERs comes from foreign buyers.
       The Thailand Greenhouse Gas Management Organisation (TGO) was set up in 2007 to promote greenhousegas (GHG) emissions reduction activities in Thailand and to review CDM projects for approval. The process takes an average of 110 to 180 days.
       CDM projects approved by the TGO then go to the United Nations Framework Convention on Climate Change (UNFCCC) for further approval for registration.
       Up to this point, the process takes between 18 months and two years.Although Thailand has registered 24 CDM projects with the UNFCCC, only two have sold carbon credits. We still have a long way to go:
       The TGO has given letters of approval to 90 CDM projects (as of Sept 17,2009),which would save about 5.82 million tonnes of CO
       2equivalent per year,according to its calculations.
       Of the 90 projects,50.8% are in the renewable biogas sector and 17% are related to biomass. A total of 152 projects are to be proposed for consideration,while 13 are being returned for resubmission. Eight projects are currently under consideration by the TGO.
       The figures put Thailand in fourth place when compared with its neighbours for the amount of projects approved by the UNFCCC. Ranking first is Malaysia,followed by the Philippines and Indonesia. Thailand's ranking reflects high transaction and technology costs and the fact that it joined the carbon market after other countries. What are the obstacles?
       Business operators in Thailand still lack sufficient understanding of CDM projects, which has resulted in a small total to date.
       Due to the projects' high risks and high investment needs, private financial institutions are still not confident about providing loans.
       The long wait for investment returns also means that most interested investors are large-scale business operators.
       Issuing loans for CDM projects is also something that financial institutions overlook, since they consider money from selling CERs as a byproduct. Many also lack knowledge in certain aspects of CDM projects, which would be helpful in giving advice.
       While Thailand does not currently waive taxes for business operators of CDM projects, the topic is under negotiation at the Board of Investment.