Financial Distress in Nature-Based Carbon Markets: A System Dynamics Model of Corporate Liquidity Under Climate Shocks and Revenue Deferral

Azizah Mumtazah Efson; Octofa Yudha Sudrajat

doi:10.55927/fjmr.v5i7.123

Authors

Azizah Mumtazah Efson Bandung Institute of Technology
Octofa Yudha Sudrajat Bandung Institute of Technology

DOI:

https://doi.org/10.55927/fjmr.v5i7.123

Keywords:

Peatland Restoration, Carbon Market, System Dynamics, Minimum Cash Threshold, Financial Distress

Abstract

Indonesia's carbon market framework reconstitutes peatland conservation as a financially tradable activity through SPE-GRK carbon credits, but its institutional architecture contains structural vulnerabilities such as mandatory Measurement, Reporting, and Verification (MRV) cycle imposed by SRN-PPI creating a temporal mismatch between ongoing operational expenditures and realized carbon revenues. This study develops an integrated System Dynamics model that simultaneously captures financial, ecological, and institutional subsystems to quantify Minimum Cash Threshold (MCT) that peatland restoration companies must maintain to survive MRV waiting period under El Niño climate shocks. Five simulation scenarios reveal that under extreme El Niño conditions, an insolvency trap feedback loop is activated around Month 4, triggering canal maintenance cessation, WTD collapse, and permanent removal of SPE-GRK (ecological collapse), with financial co-payments that cannot be detected by static cost-benefit analysis. Required MCT increases from 68.97 billion rupiah to 172.42 billion rupiah under extreme El Niño conditions, with increases exceeding standard initial reserve. Policy simulations show that accelerating MRV to 12 months alone is insufficient to prevent collapse under S2-equivalent conditions. These findings extend Financial Distress Theory to domain of delayed revenues from nature-based carbon projects.

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