Indonesia is embarking on a significant journey in the fight against climate change through its carbon trading initiatives. To reduce emissions by more than 30% by 2030 and reach 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 Indonesia provides an overview of carbon trading in Indonesia, 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 organisations, 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 in Indonesia, project developers need to follow specific guidelines and methodologies set by international organisations 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, organisations, or governments that have successfully reduced emissions and generated carbon credits.
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 Indonesia offers services such as carbon market advisory, verification, compliance, and project development, managing price risk, and developing hedging strategies 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 is crucial in navigating this evolving landscape.