Jakarta, August 24th, 2021 - The issue of global warming and climate change is not new. However, discussions about solutions and efforts to overcome them are always new and growing. Apart from solutions, the important thing that also needs to be understood is that issues regarding global warming and climate change are a shared responsibility. Citing the IPCC report, Climate Change 2021, human influences are causing the climate to warm at an unprecedented rate, at least in the last 2000 years.
Furthermore, the report also says that the climate change that humans will experience in this century and beyond depends on greenhouse gas emissions, how much global warming will be caused, and the response of the climate system to this warming. Indonesia itself under the Paris Agreement has set Nationally Determined Contributions (NDC) to commit to stabilizing its carbon emissions, and even reducing them if they get financial support.
Referring to the latest study on the level of Greenhouse Gas (GHG) emissions, the government has set an unconditional target of 29% and a conditional target of up to 41% compared to the Business as Usual (BaU) scenario in 2030. It is soon, but that does not mean it is impossible to achieve.
While the time is running, Indonesia needs to immediately take concrete steps to realize this target. Starting from the government as a regulator to be able to strengthen and implement policies related to the long-term strategy for low carbon and climate resilience by 2050. On the other hand, the private sector also needs to shift to setting goals and running science-based business operations that can have a measurable impact on the market.
“There are two carbon price instruments, namely trading instruments and non-trading instruments. In trading, the instruments will be further divided into two types; emission trading system (ETS), and emission offsets using a credit mechanism. An ETS allows an entity to purchase the right to release more carbon dioxide from a country with lower carbon emissions. This type of instrument uses a cap and trade system. The emission offset is a mechanism to sell carbon credits to entities in need," said Special Staff to the Minister of Finance of the Republic of Indonesia, Masyita Crystallin, in the Katadata SAFE 2021 webinar which was held virtually (23/8).
As one of the world's lungs, Indonesia contributes 75-80% of the world's carbon credits. This means that Indonesia is indirectly responsible for most of the world's potential to produce carbon offsets. This makes Indonesia a potential market in the implementation of carbon credit trading. This carbon trading can contribute up to more than USD150 billion to the Indonesian economy.
Therefore, Indonesia needs to move quickly in taking an important role in mitigating the risk of global warming and leading the carbon trading market on an international scale. However, to be able to sell to the international mandatory market at the highest price, Indonesia needs a market to collect supply and demand, as well as climate policies that are considered fair and effective by the international community.
“Global warming and climate change, which continue to be in the world's spotlight, show that this issue should be part of the sustainability agenda of all parties. Since its establishment, ICDX has been committed to advancing Indonesia, especially in the economic, social, and environmental aspects. One of these commitments is through the participation of ICDX as a commodity exchange in realizing a fair, and transparent carbon trading market. Carbon credits themselves are internationally recognized as commodities,” said ICDX CEO Lamon Rutten on the same occasion.
In Indonesia, PT Barito Pacific Tbk has implemented trading of carbon emissions between its subsidiaries. However, Chief Strategy Officer, Star Energy Geothermal, Agus Sandy Widyanto said, “Currently we still depend on brokers for price discovery. So we need a domestic carbon market for better price transparency.”
If all parties work together, Indonesia can produce carbon offsets at levels that exceed NDC commitments and can sell them worldwide. Organized carbon trading through the exchange will make it easier for Indonesia to achieve the targets that have been set with minimal costs, and maximize its opportunities in the international carbon trading market. The ICDX ecosystem and infrastructure will enhance Indonesia's carbon market.
“We are still waiting for the choice of instruments which will be taken by the government. There is a hybrid option which is a combination of carbon emission trading schemes (setting quotas) and carbon levies (setting prices). Both create demand. Currently, the neighboring country that has implemented this system is Colombia,” said Chairperson, IDH Foundation (The Sustainable Trade Initiative), Fitrian Ardiansyah.
“Indonesia can become the axis of the world and play a central role in carbon trading. The potential and supporting natural resources, as well as the increasing economic capacity of Indonesia, will be the key to the role of Indonesia's carbon market globally. With the integration of all parties, Indonesia's target for Net Zero Emission will be realized, and a balance of environmental, social, and good governance will lead Indonesia to a new axis of green economy," Lamon concluded.