1. Background:
   Indonesia is one of the world's largest emitters of greenhouse gases, primarily due to deforestation, land-use changes, and peatland degradation. To address this issue and contribute to global climate goals, Indonesia has initiated various carbon trading and offset programs.
   
   The total emission reduction target from all sectors in 2030 is 834,000,000 tons of CO2e, with the achievement of a verified emission reduction from mitigation actions of 0 tons of CO2e, or 0% of the 2030 target, as well as a reduction in inventory emissions of 1,723,817 tons of CO2e, or 1,412% of the target in 2030.
   
   Until 2021, through the National Climate Change Registry System (SRN PPI), 487.90 million tons of CO2e were recorded as verified emission reduction achievements and as mitigation and inventory achievements. In addition, it was reported that the carbon trading mechanism's potential economic value could reach 3000 trillion rupiah (over 188 billion USD).
    
2. Carbon Credits:
   Carbon credits, also known as carbon offsets, represent one metric ton of carbon dioxide equivalent (CO2e) emissions reduced or removed from the atmosphere. These credits can be generated through various projects and activities that reduce emissions or remove carbon from the atmosphere.
    

   What are carbon credits and how do they work?

   Carbon credits are measurable, verifiable emission reductions from certified climate action projects. These projects reduce, remove or avoid greenhouse gas (GHG) emissions. But they also bring a whole host of other positive benefits, for example, they empower communities, protect ecosystems, restore forests and reduce reliance on fossil fuels.

    

   Projects must adhere to a rigorous set of criteria to pass verification by third-party agencies and a review by a panel of experts at a leading voluntary carbon market standard like Verra or Gold Standard.

   After an organization or an individual buys a carbon credit, the credit is permanently retired so it can't be reused.
    
3. Types of Carbon Credits in Indonesia:
   • Forestry and Land Use Credits: Indonesia has substantial tropical forests and peatlands. Projects that reduce deforestation, promote reforestation, and protect peatlands can generate carbon credits.
   • Renewable Energy Credits: Investments in renewable energy projects such as wind, solar, and hydro can generate carbon credits by displacing fossil fuel-based energy generation.
   • Energy Efficiency Credits: Projects that improve energy efficiency in industrial processes, buildings, or transportation can generate credits by reducing emissions.
   • Agricultural Credits: Sustainable farming and land management practices that reduce emissions can also generate carbon credits.
    
4. Project Development:
   To participate in carbon trading, project developers in Indonesia need to follow specific guidelines and methodologies by international organizations like the United Nations Framework Convention on Climate Change (UNFCCC), for example, Verra Standard, Gold Standard, Plan Vivo, and so on.  These guidelines ensure the credibility and integrity of carbon credits.
    
   In Indonesia, the carbon trading methodology or standard has to be verified by the Ministry of Environment and Forestry or "Kementerian Lingkungan Hidup dan Kehutanan" in Bahasa Indonesia. This verification ensures that the carbon credits generated through carbon reduction projects comply with the country's environmental regulations and standards.
    
5. Verification and Certification:
   Independent third-party auditors verify and validate the emissions reductions achieved by the project. Once verified, these reductions are converted into carbon credits, which can be sold on carbon markets.
    
6. Trading Platforms:
   Carbon credits can be traded on various international and regional carbon markets. Indonesia can participate in global markets or develop its own domestic carbon trading platform.

   The Republic of Indonesia Financial Services Authority has introduced Regulation Number 14 of 2023, focusing on carbon trading through the carbon exchange. This regulation aims to provide a structured framework for the trading of carbon credits in Indonesia. It likely outlines the rules and procedures for participating in carbon trading activities, setting standards for verification, and ensuring compliance with environmental regulations. It represents a significant step towards promoting sustainable and environmentally responsible practices within the country's financial sector and aligning with global efforts to combat climate change.

   As of the last update in September 2021, the OJK had not issued specific regulations regarding carbon exchanges. However, regulations can change and new ones can be introduced, so it's essential to check with the OJK or the latest legal sources for any updates regarding carbon exchange regulations in Indonesia.

   The establishment of carbon exchange regulations would likely involve guidelines and standards for carbon trading activities, market participants, carbon offset projects, and the verification and monitoring processes to ensure compliance with environmental and financial regulations. Please consult the most recent and official sources for up-to-date information on OJK regulations related to carbon exchanges in Indonesia.
    

7. Buyers and Sellers:

   Buyers of carbon credits can include 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.
    
8. Regulation and Oversight:
   The Indonesian government plays a crucial role in regulating and overseeing the carbon trading market, ensuring that projects meet environmental and sustainability standards.
    
9. Impact and Benefits:
   Carbon trading can provide multiple benefits to Indonesia, including:
   • Financial incentives for emission reduction projects.
   • Encouragement of sustainable land use and development practices.
   • Contribution to global climate goals and international climate agreements.
   • Promotion of green and renewable energy projects.
    
10. Challenges:
    Challenges in Indonesia's carbon trading include ensuring transparency, preventing fraud, and addressing the complexities of land-use emissions accounting.
     
    Challenges for Companies Starting Carbon Projects:
    • Project Development Costs: Developing a carbon reduction project, such as renewable energy or afforestation, can require significant upfront investment. Companies need to secure funding for project initiation and ongoing operation.
     
    • Technical Expertise: Implementing carbon reduction projects often demands specialized technical knowledge. Companies may need to hire or partner with experts in fields like renewable energy, forestry, or emissions reduction technologies.
     
    • Regulatory Compliance: Navigating the complex regulatory landscape, including emissions monitoring and reporting, can be a challenge. Staying compliant with local and international regulations is essential for project success.
     
    • Market Access: Finding buyers for carbon credits can be a challenge, especially for smaller companies. Access to carbon markets and trading platforms can be limited, and building relationships with potential buyers is crucial.
     
    • Project Risks: Carbon projects can face risks such as weather-related disruptions, market price fluctuations, and delays in project implementation. Companies need to assess and mitigate these risks effectively.
     
    • Social and Environmental Impacts: Ensuring that carbon projects contribute positively to local communities and the environment is vital. Balancing social and environmental concerns with emissions reductions can be a challenge.
     
    • Regulatory Compliance: Navigating the complex regulatory landscape, including emissions monitoring and reporting, can be a challenge. Staying compliant with local and international regulations is essential for project success.
     
    • Market Access: Finding buyers for carbon credits can be a challenge, especially for smaller companies. Access to carbon markets and trading platforms can be limited, and building relationships with potential buyers is crucial.
     
    • Project Risks: Carbon projects can face risks such as weather-related disruptions, market price fluctuations, and delays in project implementation. Companies need to assess and mitigate these risks effectively.
     
    • Social and Environmental Impacts: Ensuring that carbon projects contribute positively to local communities and the environment is vital. Balancing social and environmental concerns with emissions reductions can be a challenge.

Carbon trading in Indonesia is aimed at a diverse group of stakeholders, each with distinct roles and interests in the carbon market. These stakeholders include: Government Entities, Businesses and Corporations, Investors and Financiers, Environmental and Conservation Organizations, Academia and Research Institutions, Carbon Project Developers.
 

The following are several regulatory sources that can be sources regarding carbon trading in Indonesia.

• Presidential Regulation Number 98 of 2021 concerning the Economic Value of Carbon (Nationally Determined Contribution Targets and Control of Greenhouse Gas Emissions in National Development)
• Minister of Environment and Forestry Regulation No. P71.2017 concerning the National Registry System for Climate Change Control
• Minister of Environment and Forestry Regulation Number 7 of 2023 concerning Procedures for Carbon Trading in the Forestry Sector.
• Minister of Environment and Forestry Regulation Number 21 of 2022 concerning Procedures for Implementing the Economic Value of Carbon.
• Minister of Energy and Mineral Resources Regulation Number 2 of 2023 concerning Implementation of Carbon Capture and Storage, as well as Carbon Capture, Utilization, and Storage in Upstream Oil and Gas Business Activities.
• Republic of Indonesia Financial Services Authority (OJK) Regulation Number 14 of 2023 concerning Carbon Trading Through the Carbon Exchange.

In conclusion, Indonesia's carbon trade operates within the broader framework of international efforts to combat climate change. By developing and participating in carbon offset projects, Indonesia aims to reduce its emissions, protect its natural resources, and contribute to the global effort to mitigate climate change while also harnessing economic opportunities in the carbon market.

Contact us at contact-Jakarta@moores-rowland.com or contact-Bali@moores-rowland.com to learn more about our services.

**By: Stefani W. Anggraeni — Marketing Communications & Social Media Specialist