May 05, 2025 09:09:52 am
Manhajul Islam, S. Ak - BATS Consulting
Climate change is the biggest global challenge today. One of the key tools for reducing greenhouse gas emissions is carbon credits, which can be traded on the voluntary carbon market (VCM). Carbon credits are certificates that represent one ton of carbon dioxide (CO₂) emissions reduced or captured. They are only issued for real, measurable projects that are “additional” (meaning they would not have happened without the carbon credit incentive) and have been verified by an independent third party. Once a project is verified and credits issued, carbon credits can be purchased by companies or individuals to offset their emissions. The purchase and retirement of the credits means that the emissions have been voluntarily offset.
The process of generating carbon credits involves several stages, from planning to trading. In simple terms, the carbon credit journey is:
Project Design: Determine the type of solution to be used. There are two main categories: nature-based solutions (e.g. reforestation, peatland restoration, forest conservation) and technology-based solutions (e.g. solar power, biomass generation, carbon capture and storage).
Financing: Investors or sponsors provide the funds to develop the project.
Project Development: Project developers design the technical details and implement the project on the ground.
Implementation and Verification: The project is executed and the results are independently audited. A third-party auditor verifies that the emission reductions have occurred according to the methodology.
Issuance of Carbon Credits: After verification, carbon credits are issued by a recognized certification (standard) body, such as the Verified Carbon Standard (VCS), Gold Standard, or the National Registration System (SRN) in Indonesia. These credits are recorded in an official registry (such as the Verra Registry, Gold Standard Registry, or SRN) to avoid double counting.
Carbon Credit Trading: Credits that have been issued can be traded on the market. Trading can take place on a carbon exchange (for example the Indonesian Carbon Exchange/IDXCarbon) or through specialized brokers and traders. The buyer of carbon credits plays the role of the end buyer who retires to offset their emissions.
Carbon credit ecosystem diagram: from project planning, funding, project development, credit issuance, to trading. Source: from various carbon certification standards
The general scheme of the carbon credit process is shown above. For example, a rooftop solar power project will calculate how many tons of CO₂ are avoided compared to fossil fuel power plants. After the project is built, an auditing body verifies the amount of emission reduction. The carbon credit equivalent to tons of CO₂ avoided is then issued by a certification scheme (e.g. Gold Standard) and entered into an official registry. After that, the credit can be sold to companies that need emission offsets (voluntarily) or purchased for compliance.
Carbon Credit Certification Standards
In order to be accepted by the market, carbon projects must follow certain certification standards. These standards define the methodology for calculating emission reductions, as well as monitoring and reporting rules. Examples of well-known global standards include Verra (VCS), Gold Standard, Climate Action Reserve (CAR), and the American Carbon Registry (ACR). Each standard has its own scope and requirements: for example, Verra covers renewable energy, forestry, waste management, and other projects with strict third-party verification requirements; Gold Standard emphasizes social sustainability and SDG aspects in renewable and energy efficiency projects; CAR is widely used for projects in North America. In Indonesia, in addition to global standards, the government has also established a National Registration System (SRN) to record carbon credits transparently and prevent double counting.
Voluntary Carbon Market Actors and Structure
The Voluntary Carbon Market (VCM) is a decentralized system where companies or individuals voluntarily purchase carbon credits to offset their emissions. The market structure is project-based: project developers create and issue credits, which are then sold on the market. There are several key roles in this ecosystem:
Project Developer: Entity that designs and implements carbon projects (e.g. renewable energy companies, forest NGOs). They are responsible for generating credits.
Standards/Schemes: Institutions that verify and issue credits based on a specific methodology (VCS, Gold Standard, SRN, etc.).
Broker/Marketplace: Intermediary that connects credit buyers and sellers. Brokers help distribute credits from various projects to client portfolios, while marketplaces or exchanges provide a structured trading platform. Examples include IDXCarbon (Indonesia) and global traders such as AirCarbon Exchange or Xpansiv CBL.
Trader: Actors who buy and sell carbon credits to make a commercial profit. They can buy large volumes and then sell them to corporate clients. Examples of companies that also trade carbon are South Pole, EcoAct, 3Degrees.
Retailer: Provider of carbon credits to retail consumers (individuals or SMEs). They often market specific projects and sell credit packages in small amounts. International examples include NativeEnergy, Terrapass, Cool Effect.
End Buyers: Companies or individuals who ultimately purchase credits to offset their emissions. They retire them so that the credits are no longer tradable and the emissions are recognized as offset.
Brokers, traders, and retailers facilitate voluntary carbon market mechanisms. Brokers and exchanges collect and sell credits; traders buy and sell for profit; retailers sell credits to end consumers (individuals or small businesses). The chart above illustrates that once credits are issued by the standard, they can be traded through carbon exchanges or brokers. Brokers act as intermediaries between project developers and buyers, while traders buy to trade further. Voluntary carbon markets are not regulated as strictly as mandatory markets; however, the current global regulatory trend is toward integrating the two markets through mechanisms such as Article 6 of the Paris Agreement, CORSIA (aviation), and national approaches.
Carbon Credit Project Examples
Carbon credit projects are very diverse. Some examples of popular projects include:
Renewable Energy: Solar power plants (PLTS), wind power, small hydropower (micro hydro), biomass power plants. For example, commercial rooftop PV, or community-scale hydropower. Credits are calculated from the avoidance of fossil fuel power plant emissions.
Energy Efficiency: Renovation of buildings to be energy efficient, use of LED lights, replacement of electric motors with more efficient ones, transition to electric/hybrid vehicles. These projects reduce fuel or electricity consumption.
Carbon Capture (CCS): Carbon storage technology from factory emissions (e.g. cement, steel industry) or underground storage of CO₂. For example, post-combustion capture projects at PLTU.
Waste Management: Biogas installations to utilize methane from agricultural or livestock waste; industrial/household scale organic compost systems; methane gas capture at landfills (landfill gas capture).
Nature-Based Solutions: Reforestation or mangrove planting to absorb CO₂; peat restoration; forest conservation (REDD+); sustainable agriculture (no-till, crop rotation, biochar). Example: Reforestation projects for conservation forests or peat restoration in Kalimantan.
Social/Efficiency Projects in Communities: Distribution of fuel-efficient stoves or water filters to villages. For example, providing clean cookstoves so that people can cook more efficiently (reducing the use of firewood).
The cost (price) of credits from the above projects varies, depending on the type of activity and location. In general, projects that also provide socio-environmental benefits (co-benefits) or advanced technology can be priced higher. Projections from the study show that the price of high-integrity carbon credits could reach tens to hundreds of US dollars per ton in the future.
Voluntary Carbon Market Trends
The global voluntary carbon market is experiencing a dynamic growth phase. According to a McKinsey/Bain report, the market volume and value increased rapidly in 2019–2021 as companies’ net-zero commitments increased, although it has slowed since 2022. For example, the research noted that VCM credits jumped 86% in 2021 compared to 2019. However, concerns about project quality and regulation have led some companies to hold back or shift their focus to direct emission reductions. Several large companies (Shell, Nestlé, EasyJet) have even reduced their reliance on carbon credits as a net-zero strategy.
Until 2024, the voluntary carbon market value is not as large as the mandatory market. The MSCI report states that the value of global credit retirements in 2024 is around USD 1.4 billion (down from a peak of USD 1.7 billion in 2022). In volume, around 180 million tonnes of CO₂ were retired in 2024. However, the VCM market is still growing in the long term. Projections show that the VCM market value could increase tens of times in the future – between USD 7 and 35 billion in 2030, and even USD 45–250 billion in 2050, depending on the achievement of global climate targets.
In the Indonesian context, the potential for carbon credits is enormous. According to President Jokowi, Indonesia has the potential for around 1 gigaton of CO₂ that can be absorbed through various activities, with a value of trillions of rupiah. Indonesias carbon price is also expected to increase sharply in the future (around USD 61–122 per ton of CO₂ in 2030 according to the IDX). The launch of the Indonesian Carbon Exchange (IDXCarbon) in 2023 marks the integration of the voluntary market with the compliance system. Here, companies that reduce emissions can sell their credits to those that have excess emissions, with SRN recording rules to maintain transparency.
Challenges and Opportunities
Despite its benefits, voluntary carbon markets face several challenges. Transparency and trust are still questionable: there are concerns about the credibility of some projects and the potential for double counting of emissions. To that end, many are pushing for global standardization and a robust registry system so that each credit is only counted once. In Indonesia, SRN is expected to be an important tool for transparency in carbon governance.
From the market side, price fluctuations and regulations can also be obstacles. A temporary decline in demand (due to skepticism or uncertainty) has depressed credit prices in VCM by up to 80% in the last 1-2 years. However, on the other hand, more and more companies are setting ambitious climate targets, opening up great opportunities for the carbon market. Industry and analyst projections predict that demand will increase again as agreements are reached at the COP and new incentives emerge (e.g. carbon tax, CORSIA, Article 6 Paris).
For Indonesia, the carbon market is both an economic and environmental opportunity. With abundant natural resources, Indonesia can produce high-quality credits (e.g. through peat or mangrove restoration) that are in global demand. Indonesia can even export its carbon credits to countries such as Singapore that have implemented carbon taxes and offset systems. Another benefit: investment flows from these low-carbon projects can drive green development while helping to achieve national emission reduction targets.
Conclusion
Carbon credits are an important tool in climate change mitigation. By purchasing carbon credits, companies and individuals help fund projects that reduce or eliminate emissions. Voluntary carbon markets provide flexibility to meet climate commitments while supporting green innovation. For the general public, it is important to be aware of this mechanism: each of us can act as a carbon credit buyer (for example by donating to green projects) or at least support carbon-conscious companies. Moving forward, the active involvement of all stakeholders – from project developers, strict certification standards, to market transparency – will be key to ensuring that carbon credits truly have a positive impact on curbing climate change.