Implementation of 2 Types of Carbon Markets in Indonesia

As part of its commitment to reducing greenhouse gas emissions, Indonesia has implemented two types of carbon markets to support national and global emission reduction efforts: the Emissions Trading System (ETS) and the Voluntary Carbon Market (VCM). These markets function as mechanisms that allow companies to participate in carbon trading, either through mandatory or voluntary means. Under the supervision of the Financial Services Authority (OJK), Indonesia has also established a Carbon Exchange, regulated through OJK Regulation (POJK) 14/2023 on the Carbon Exchange, and operated by the Indonesia Stock Exchange (IDX) through its IDX Carbon platform. Below is a detailed explanation of the structure and mechanisms that apply within Indonesias Carbon Exchange.

1. Emissions Trading System (ETS)

The ETS is a compliance-based mechanism in which companies are required to meet specific emission limits and are permitted to trade carbon units to achieve these targets.

• Method: The ETS uses a cap and trade (and tax) approach, where the government sets an emissions limit, or “cap,” for each sector. Companies can trade emissions permits if they exceed or fall below this limit. In the IDX Carbon Exchange, the carbon unit for this mechanism is known as PTBAE-PU (Allocation of Emission Cap – Business Actors), which accommodates a quota system or allowance market.
• Carbon Unit Creation: The government issues PTBAE-PU units based on the permitted emission levels per sector. Companies that emit less than the cap can sell their remaining permits, while companies that exceed the cap must purchase additional permits.
• Oversight and Registration: All PTBAE-PU units must first be recorded in the National Registry System for Climate Change Control (SRN-PPI), which falls under the authority of the Directorate General of Climate Change Control, Ministry of Environment and Forestry (KLHK). This ensures the legality and accountability of carbon unit trading.
• Sellers (S) and Buyers (B): In the ETS, Sellers are companies with surplus emission permits, while Buyers are companies that need additional permits due to higher emissions.

2. Carbon Offsetting / Voluntary Carbon Market (VCM)

The Voluntary Carbon Market, or VCM, offers a pathway for companies that do not have mandatory emission reduction obligations but wish to contribute to climate goals by purchasing carbon offsets.

• Method: The VCM uses a baseline and crediting approach, rewarding emission reduction efforts by specific projects. The carbon unit in the VCM is called SPE-GRK (Greenhouse Gas Emission Reduction Certificate), which is generated from projects that have undergone Measurement, Reporting, and Verification (MRV).
• Carbon Unit Creation: SPE-GRK is created when a company successfully performs verified emission reductions. Once registered in SRN-PPI, SPE-GRK units can be traded through various methods, including Auction, Marketplace, or Negotiation. IDX Carbon provides a platform for companies to buy and sell SPE-GRK based on specific projects or categorized groupings in the regular market.
• Sustainability and Transparency: On IDX Carbon, each SPE-GRK traded will be classified according to specific standards, allowing buyers to access details of the projects invested in after completing the transaction. This ensures that each carbon unit has measurable origins and impact.
• Sellers (S) and Buyers (B): In VCM, Sellers are companies or projects that have conducted emission reduction activities, while Buyers are companies that aim to obtain offsets for their sustainability targets.

Institutional Collaboration in the Carbon Exchange

The organization of Indonesia’s Carbon Exchange requires collaboration among various institutions, including OJK, which oversees market operations, and KLHK, responsible for climate mitigation regulations, emission reduction, and monitoring. Companies must register their carbon units in SRN-PPI, ensuring legality and validity in carbon transactions. Through this collaboration, IDX Carbon provides a transparent and integrated platform for carbon trading that meets national and international standards.

Conclusion

The Indonesian Carbon Exchange, through the implementation of the Emissions Trading System (ETS) and the Voluntary Carbon Market (VCM), provides a structured solution for companies to meet emission obligations and voluntarily participate in emission reduction efforts. With stringent supervision by OJK and close collaboration with KLHK, the Carbon Exchange aims to drive Indonesia toward a low-carbon economy and support global efforts in mitigating climate change.