A Deep Dive into Indonesia's Carbon Trading System
As a country with vast forests and a rapidly growing economy, Indonesia plays a crucial role in the global effort to combat climate change. To meet its ambitious climate targets under the Paris Agreement, the government has established a comprehensive and regulated carbon trading system. This system, which is still in its early stages, is designed to turn climate action into an economic opportunity, driving investment in green technologies and sustainable practices.
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| A Deep Dive into Indonesia's Carbon Trading System |
Here is a breakdown of how the carbon trading system in Indonesia works.
The Legal and Regulatory Framework
The foundation of Indonesia's carbon trading system is Presidential Regulation No. 98/2021 concerning the "Implementation of Carbon Economic Value." This landmark regulation provides the legal basis for carbon economic value (NEK) and outlines the mechanisms for both carbon trading and results-based payments. It solidifies the government's commitment to achieving its Nationally Determined Contribution (NDC) and reaching net-zero emissions by 2060.
The system is overseen by two primary regulatory bodies:
The Ministry of Environment and Forestry (KLHK) acts as the main regulator, setting the rules for emissions caps and project methodologies.
The Financial Services Authority (OJK) supervises the financial aspects of the market, ensuring transparency and stability.
The Two Pillars of Indonesia's Carbon Market
Indonesia’s system is unique in that it integrates both mandatory and voluntary mechanisms under a single national framework.
1. The Mandatory Carbon Market (Cap-and-Trade)
This market is designed for specific sectors that are considered high emitters. The government sets a hard limit or "cap" on the total amount of greenhouse gas (GHG) emissions allowed for these sectors. The first phase of this system, which began in 2023, is focused on coal-fired power plants.
How it Works: The government issues an emissions allowance known as Persetujuan Teknis Batas Atas Emisi Pelaku Usaha (PTBAE) to each company. If a company successfully reduces its emissions below its allowance, it can sell the surplus units to other companies that have exceeded their allowance. This creates a market where companies have a financial incentive to invest in cleaner technology to avoid purchasing expensive allowances.
2. The Voluntary Carbon Market (Carbon Offsetting)
This market operates in parallel for all other sectors and project types. It provides a way for businesses to voluntarily offset their carbon footprint by purchasing carbon units from climate projects that reduce or remove emissions.
How it Works: Project developers (e.g., in forestry, renewable energy, or waste management) can generate Sertifikat Pengurangan Emisi Gas Rumah Kaca (SP-GRK), or carbon units, from their projects. Each unit represents one tonne of CO2e that has been verified as a legitimate reduction. These units can then be sold on the carbon exchange to buyers (businesses or individuals) who want to neutralize their emissions.
The Trading Platform and Infrastructure
To ensure a credible and transparent market, all carbon trading in Indonesia is conducted through a single, official platform.
IDX Carbon: The official carbon exchange, launched by the Indonesia Stock Exchange (IDX) in 2023, acts as the centralized marketplace. It facilitates the buying and selling of carbon units in a regulated environment, providing price discovery and liquidity.
SRN-PPI: All carbon units must be registered and accounted for in the Sistem Registri Nasional Pengendalian Perubahan Iklim (SRN-PPI). This national registry acts as a central database and a digital "wallet" for all carbon units. No unit can be sold or transferred without being officially listed on the SRN-PPI, which prevents double-counting and ensures the integrity of the system.
The Process: From Project to Trade
For a project developer in Indonesia, the journey to selling carbon units on IDX Carbon typically follows these steps:
Project Registration: The project is first registered on the SRN-PPI.
Measurement and Verification: A third-party validator audits the project's emission reductions and issues a report.
Unit Issuance: Based on the verification report, the SRN-PPI issues the official SP-GRK carbon units.
Account Opening: The developer opens an account with an IDX Carbon exchange member (a licensed broker).
Trading: The units are listed and sold on the IDX Carbon platform, with the transaction recorded on the SRN-PPI.
Indonesia's carbon trading system represents a sophisticated and ambitious approach to climate policy. By combining regulatory pressure with market-based incentives, it aims to mobilize private sector capital to fund climate projects and help the nation achieve its critical environmental and economic goals.
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