Indonesia has taken a major step towards reducing carbon emissions and achieving its goal of net zero by 2060 by launching a carbon credit trading market. The country, which is Southeast Asia’s largest emitter, has selected the Indonesia Stock Exchange (IDX) as the platform for trading carbon credits. This move is expected to promote energy transition and mitigate the climate impact of Indonesia’s coal-dominated power sector. Furthermore, it aims to contribute to the global Net Zero goal at a faster pace. President Joko Widodo expressed his confidence in Indonesia’s potential to become a global carbon market axis, emphasizing the importance of concrete and collaborative steps by all stakeholders.
The president stated that the value of Indonesia’s carbon credit market is expected to exceed $194 billion. He has consistently shown faith in the carbon market and carbon pricing as part of the country’s efforts to address climate change. The market was launched two years after President Widodo’s remarks at the COP26 in 2021, under the supervision of the Financial Services Authority (OJK). Mahendra Siregar, the Head of OJK, expressed hope that coal power plants would join the carbon trading exchange immediately in 2022. Over 99 coal-fired power plants, representing 86% of Indonesia’s total active coal plants, are expected to participate in trading carbon credits. The country has been actively seeking funds to decarbonize its power sector, which experienced the highest growth in coal emissions last year.
After extensive negotiations, President Widodo and U.S. President Joe Biden signed a climate finance package last year. The final plan for Indonesia’s $20 billion climate deal is expected to be released next month, following circulation to partner groups and public consultation. However, during the launch of the carbon credit trading market, the first batch of carbon credits traded came from carbon offset projects by PT Pertamina Geothermal Energy’s Lahendong power plant in Sulawesi island. These credits, totaling nearly 460,000 metric tonnes of CO2, were priced at $4.51 per credit. Buyers included major banks, such as Bank Central Asia and Bank Mandiri, mining firms, and state energy company Pertamina.
The use of carbon exchange services is open to emissions trading companies, non-emission trading companies, project owners, and other entities approved by the OJK. Indonesia has implemented strict regulations governing carbon projects, leading to the suspension of the validation of major projects. However, in December, the Rimba Raya Biodiversity Reserve project was validated by Indonesia’s carbon registry, SNR. To generate carbon credits, projects in the country must comply with Presidential Regulation No. 98/2021 and other relevant laws, which regulate carbon trading using emissions trading and offsets.
The Indonesian government is also working on a plan to introduce another regulation on carbon emissions, which may include a carbon tax. Initially, trading carbon credits on the IDX is voluntary, but the government intends to place a cap on carbon emissions for sectors beyond the power sector, including forestry, agriculture, waste management, and industrial processes and product use. Indonesia also plans to adhere to international standards for carbon trading and gain recognition from foreign markets to attract buyers seeking to offset their emissions.
The new emission trading system in Indonesia utilizes blockchain technology to record carbon credit transactions. This bold move by Indonesia to launch an emissions trading system is a significant step towards achieving its net zero goal by 2060. By encouraging emissions reductions across various sectors and promoting nature-based solutions, the country aims to play a pivotal role in the global carbon market.