JAKARTA - When Mr Todd Lemons first got the Indonesian government's green light to help set up the 64,000ha Rimba Raya reserve in Central Kalimantan in 2010 a carbon credit would fetch US$10 (S$13) a tonne.
Three years later, following a long tussle with a palm oil company that wanted the land, demand for carbon credits had collapsed to about US$3 a tonne as investors shied away and a long promised mandatory, or formal, carbon trading market failed to materialise.
The reserve - a US$5 million investment to preserve a patch of tropical peat swamp forest that covers an area nearly the size of Singapore - locks away as much carbon dioxide (CO2) as nearly five coal-fired power plants can produce in a year.
Projects like Rimba Raya store huge amounts of carbon in the trees and deep peat. If cleared and drained, the project would release millions of tonnes of CO2 and other greenhouse gases. Preserving them is a key weapon in fighting climate change.
To help pay for the costs of managing the project and funding local livelihood projects, clients agree to buy carbon credits from the project, each representing a tonne of avoided carbon emissions. The customer is essentially paying to keep the carbon in place.
Rimba Raya says its project is the largest in terms of avoided emissions delivered to date - more than 130 million tonnes of carbon emissions.
For now, sales of carbon offset transactions from Rimba Raya and other offset projects, such as efficient household cook stoves, occur in the voluntary carbon market, where companies buy carbon offsets as part of their efforts to go green.
The offsets are not valid for use in national, mandatory carbon markets, such as the European Emissions Trading Scheme, which covers European industry and sets increasing emissions reduction targets for big polluters. The design of the scheme is quite different.
While Rimba Raya earns enough to cover its costs and pay for a floating clinic that serves the seven villages that dot the river adjoining the concession, it has not paid a return to its investors.
"We have investors who are investing for the right reasons," said Mr Lemons, chief executive of Hong Kong based InfiniteEarth, which manages the project from his home in South Carolina. "They are expecting a return at some point."
But a study published last week might give the investors cause for optimism.
Written by Conservation International, DBS Bank, National University of Singapore and Temasek, the authors of the report said carbon projects in South-east Asia like Rimba Raya's can potentially generate returns on investment of up to US$27.5 billion a year.
With roughly 15 per cent of the world's tropical forests, which are increasingly under threat, South-east Asia's carbon stores offer the world's highest rate of return, the report said.
This is based on a combination of the size of the carbon stores - the region's tropical forests store billions of tonnes of carbon - and the risks they face from deforestation for their timber and agriculture.
That makes the remaining intact, high-quality carbon even more valuable.
For instance, between 1990 and 2020 South-east Asia lost 376,000 sq km of forests or roughly one sixth of its former expanse. Indonesia and Cambodia are the worst affected, according to the UN Food and Agriculture Organisation.
But, even as carbon emissions shrink this year as the Covid-19 pandemic tips most economies into recession, high-profile promises to curb carbon emissions suggest a lasting recovery in the carbon market might at last be at hand.
In January, Microsoft said that it will remove more carbon from the atmosphere than it puts there by the end of the decade, bettering a vow a year earlier by Amazon to be carbon neutral by 2040.
Earlier this month, former Bank of England governor Mark Carney said he would help establish a global carbon offset market. A pilot programme ought to be up and running next year.
A carbon exchange could go some way toward injecting more transparency into a market that gets criticised for being opaque with high operating costs.
In Singapore, the AirCarbon Exchange aims to bring much needed transparency to the market by trading carbon offsets like any other commodity. Fully verified offsets are held in a registry and are traded by the tonne of carbon in a transparent manner on the digital exchange between buyer and seller.
It is early days for the exchange but it already has a growing client base, from carbon project developers to investment funds.
In the voluntary market, carbon credits, which are generated according to rules set down by non-profits such as Washington DC-based Verra are, for the moment, mainly sold directly to clients making it tough to keep tabs on what is a fair price.
Calculating those credits are expensive too. Mr Lemons said regular audits of the Rimba Raya project take months and cost roughly US$250,000. The audits are meant to ensure carbon offset projects are locking away significant levels of carbon according to the strict methodologies set by Verra and other standards recognised in the market.
While overall sales of carbon credits more than doubled to US$320 million in 2019 from a year earlier, according to climate non-profit Forest Trends, that figure is only half of where the market was a decade earlier.
Professor Lian Pin Koh, director of the National University of Singapore's Centre for Nature-based Climate Solutions and one of the authors of the report, said the depressed market might indicate wariness of investors.
"Fifteen years ago, this thing was hyped," Dr Koh said referring to carbon trading.
The report, the first to focus on South-east Asia, assumes a more modest price for carbon of less than US$6 a tonne even as more buyers promise to pile into the market and takes into account the regulatory and financial hurdles of setting up carbon projects, Dr Koh said.
"There's less hype now and more focus on the science and policy aspects," he added.
Mr Lemons said that by 2022 Rimba Raya ought to finally find as many buyers for its carbon credits as it's permitted to sell - something that hasn't happened yet.
As companies become concerned with mitigating the risks climate change poses to operations, conditions for the carbon market will improve, Mr Lemons said.
"You pay a price to be a pioneer."