Press Release
Challenges and Opportunities for Carbon Trading in Indonesia
Challenges and Opportunities for Carbon Trading in Indonesia
Friday, 03 December 2021

In the Presidential Regulation on Carbon Economic Value (NEK), four mechanisms are introduced. First, carbon trading. It includes trading and offsets for carbon emissions. The second mechanism is result-based payment. Third, levies on carbon. Lastly, a combination of the previous three mechanisms.

In his remarks at the Indonesia Carbon Forum organized by the ICDX Group (1/12), Chairman of the Advisory Council for Climate Change Control (DPPPI), Ministry of Environment and Forestry (KLHK), Sarwono Kusumaatmadja said, "This carbon trade is in the context of an extraordinary transformation of civilization. normal, so a certain learning curve is needed before this carbon trading becomes effective.”

Currently, several countries in Asia, Europe, and America have implemented carbon trading and use commodity exchanges as an organized market to facilitate it. In order to implement an effective carbon market, it is necessary to have careful preparation from various related parties, especially the government as a regulator.

“Carbon trading with carbon market instruments through commodity exchanges has been carried out by several countries. In this case, Indonesia as a country that has a carbon emission reduction project, especially in the forest sector, needs to hold an organized market for carbon trading," said Head of Carbon Market ICDX Group, Mukhamad Zulfal Faradis.

This is also supported by the statement of the Head of the BAPPEBTI Market Development and Development Bureau of the Ministry of Trade, Tirta Karma Sanjaya, "The Ministry of Trade can act as a market regulator so it needs early preparation, both from policy preparation, carbon trading road map in organized markets, capacity building for prepare competent and professional human resources, infrastructure in order to support the implementation of an organized carbon market, then it is necessary to anticipate and mitigate the impact of carbon trading which involves many sectors in order to regulate activities related to the carbon trading mechanism.”

Furthermore, Zulfal explained that carbon trading through the commodity exchange has several benefits, namely transparency, buyers and sellers can see prices transparently and there is also direct access so there is no confusion in finding sellers or buyers of carbon credits. In addition, trading through the stock exchange can also provide the best price, because carbon trading through the carbon exchange will use an auction system, where buyers and sellers can bid and ask according to the wishes of each party.

The impact for Indonesia if it does not make a corresponding adjustment in mitigating risks related to carbon emission reduction, there will be a potential decline in Indonesia's exports which is estimated to reach USD141 million in a year. In carbon trading, the price of carbon is one of the main concerns. Therefore, it is necessary to have regulations and mechanisms for carbon trading as well as good carbon pricing to achieve the NDC target and ensure that the income from carbon trading is invested in sustainable emission reduction programs.

The carbon pricing mechanism needs to be regulated so that its implementation is right on target and is effective in reducing greenhouse gas (GHG) emissions. There is a need for price regulation and a carbon trading mechanism that can provide incentives for stakeholders to achieve the Nationally Determined Contribution (NDC) target, and ensure that revenues from carbon trading are invested in sustainable emission reduction programs.

In designing the carbon trading mechanism, what must be known first is that carbon pricing should be related to the GHG reduction target to be achieved. As said by the Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, "We must first know how much emissions we want to reduce, then from there, we can calculate which sectors contribute to these emissions and how much the reduction is from the sector." who contributed earlier. Including we can calculate how much the abatement cost. By calculating that, we can calculate what the ideal floor price will be.”

Meanwhile, for the industrial sector, strategies and adjustments are needed in the business activities carried out. As one of the largest exporting companies in Indonesia, PT Pan Brothers Tbk has set a number of agendas in addressing this, namely by focusing on the Sustainable Development Goals (SDGs).

“For clothing, our focus is on Sustainable Development Goals (SDGs), we focus on several details, for example, social compliance. We focus on social compliance for workers and the ecosystem around our factories. Next is environmental, one of which is changing all energy for responsible procurement. As it is known that the textile and garment industry gives the world the second largest pollution, how do we globally reduce pollution both in terms of water consumption in terms of the process and in terms of water treatment and also reduce carbon emissions that we contribute as polluters. So, this is a mitigating step because it is a necessity, not only from the Indonesian side, because the world market requires this step. Pan Brothers itself has actually proclaimed it since 2018, but in 2020 we will publicly declare the 10 SDGs, namely people, planet, and profit," said Vice President Director, PT Pan Brothers, Tbk, Anne Patricia Sutanto.

Regarding exports and the Carbon Border Adjustment or CBAM policy starting in 2023, policies related to reducing carbon emissions need to be well designed. CBAM will become a non-trade barrier for developed countries against Indonesia and if Indonesia does not prepare a good framework, then all exports of goods in Indonesia will become a problem. This requires preparation and collective efforts from various sectors.

“Carbon Border Adjustment or CBAM will definitely happen. Sooner or later we will lose to other exporters if we are not ready. In fact, this is Indonesia's momentum with the carbon tax and the Carbon Economic Value (NEK) we can get ahead. We can claim that we are net-zero, which then becomes an added value for buyers to buy from us. We really have to collaborate, collectively, from the private sector, government and NGOs," said PT Rimba Makmur Utama President Director, Dharsono Hartono.

Rewatch the discussion here: Carbon Trading In Indonesia – Opportunities and Challenges.

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