Moores Rowland Bali Explains Indonesia's Carbon Trading Initiative
November 2023
Indonesia is embarking on a significant journey in the fight against climate change through its carbon trading initiatives. With the aim of reducing emissions by more than 30% by 2030 and reaching net-zero emissions by 2060, the country has established a carbon exchange, paving the way for onshore carbon trading. This article from tax and sustainability auditors Moores Rowland Bali provides an overview of Indonesia's carbon trade, shedding light on its background, the types of carbon credits, the project development process, stakeholders, and the challenges it faces.
Indonesia's commitment to carbon trading stems from its status as one of the world's largest greenhouse gas emitters, mostly due to deforestation, land-use changes, and peatland degradation. To address this, the country has initiated various carbon trading and offset programs to significantly reduce carbon emissions by 2030.
Carbon credits, also known as carbon offsets, are the heart of carbon trading. Each credit represents one metric ton of carbon dioxide (CO2) or carbon dioxide equivalent (CO2e) emissions reduced or removed from the atmosphere through projects that must adhere to rigorous criteria and pass verification by third-party agencies.?
Indonesia offers a range of carbon credits, including forestry and land use credits, renewable energy, energy efficiency, and agricultural credits generated through projects that reduce deforestation, promote reforestation, and protect peatlands, or through investments in renewable energy, improved energy efficiency, and sustainable farming practices. Stakeholders involved in Indonesia's carbon trading include government entities, businesses, investors, environmental organizations, academia, and carbon project developers.
Indonesia contributes to and plays a crucial role in regulating and overseeing the carbon trading market, ensuring that projects meet environmental and sustainability standards. Indonesia's carbon trading framework is supported by a range of regulatory sources, including presidential regulations and ministerial regulations.
To participate in carbon trading, project developers in Indonesia need to follow specific guidelines and methodologies set by international organizations such as the United Nations Framework Convention on Climate Change (UNFCCC). Verification by the Indonesia Ministry of Environment and Forestry ensures compliance with national environmental regulations and standards.?
Independent third-party auditors verify and validate the emissions reductions achieved by carbon reduction projects. Once verified, these reductions are converted into carbon credits which can be sold or traded on various international and regional carbon markets. Carbon credits are bought by governments, corporations, and individuals looking to offset their emissions. Sellers can be project developers, organizations, or governments that have successfully reduced emissions and generated carbon credits.?
Carbon trading provides various benefits to Indonesia, including financial incentives for emission reduction projects, encouragement of sustainable land use and development practices, contributions to global climate goals, and promotion of green and renewable energy projects. Indonesia's carbon trade aligns with global efforts to combat climate change. It serves as a means to reduce emissions, protect natural resources, and contribute to international climate goals while harnessing economic opportunities.
Companies starting carbon projects need to manage project development costs, technical expertise, regulatory compliance, market access, project risks, and social and environmental impacts. Moores Rowland Bali offers services such as carbon market advisory, verification, compliance, and project development, manage price risk, and develop your hedging strategy to support the growing global carbon trading market. Carbon trading is a dynamic field, subject to regulatory changes, so staying informed and consulting experts such as Moores Rowland Bali is crucial in navigating this evolving landscape.
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