Climate change is one of the biggest global challenges of the 21st century, driving efforts to reduce greenhouse gas (GHG) emissions. One emerging mechanism is the carbon market, which allows companies and individuals to offset their emissions by purchasing carbon credits from projects that reduce or sequester carbon dioxide (CO2). In addition to the compliance market, there is also the voluntary carbon market (VCM), which provides flexibility for non-government entities to achieve carbon neutral or net-zero emission targets.
Definition
Voluntary carbon market (VCM) can be defined as a market that allows individuals or organizations to purchase carbon credits issued by privately organized certification schemes to voluntarily offset their carbon footprint for a variety of reasons, including but not limited to ethical considerations (Kreibich & Hermwille, 2021). In a VCM, what is traded is carbon credit, which results from an activity that eliminates the emission of GHGs or prevents GHGs from being emitted into the atmosphere. Each unit of credit in a VCM represents one ton of carbon dioxide equivalent (CO2e) that has been removed or avoided (Dyck, Streck, & Trouwloon, 2023).
How It Works
(Source: SP Group)
At first, an individual, company, and/or other party (project developer) creates mitigation and adaptation projects that can reduce carbon emissions. The mitigation project is then approved, validated, monitored and verified by the Verification and Validation Agency (VVA). The end result of the VVA assessment is a carbon credit certificate. VVA is a GHG emissions assessment body that has established verification, validation and monitoring methodologies and procedures that project developers must follow to certify that the activities developed measurably sequester or avoid greenhouse gas emissions (Dyck, Streck, & Trouwloon, 2023). For example, GHG emission standards that are adhered to in assessing these carbon credits include Verified Carbon Standards (VCS), Gold Standard (GS), ACR, Climate Action Reserve (CAR), and Plan Vivo.
Once declared successful, the carbon credits are then traded by the project developer to entities that wish to offset their emissions to support carbon neutral commitments or help achieve Net Zero Emissions. This trade can be done through brokers and carbon trading platforms, such as Xpansiv, AirCarbon Exchange, Senken, and others, or can also be purchased directly from the project developer. After purchasing carbon credits, companies or individuals can “retire” them to claim a reduction in their carbon footprint.
The Role of VCM in Climate Change Mitigation
VCM involves various parties. These include companies, governments, non-governmental organizations (NGOs), and public and private stakeholders, who participate in investments to generate tradable carbon credits.
(Source: Business Wire/Logitech)
For companies, engagement in VCM provides a range of strategic benefits. Companies can contribute to their own climate targets, strengthen their market position by differentiating themselves from competitors, and improve their brand image and customer loyalty. To claim carbon neutral, a product must first conduct a Life Cycle Assessment (LCA) to calculate its total carbon footprint from raw materials to disposal. After that, the company needs to reduce emissions as much as possible through energy efficiency, use of renewable energy, or optimization of production processes. The remaining unavoidable emissions are then offset by purchasing carbon credits from sustainable projects or investing in in-house carbon solutions such as reforestation.
Governments also derive significant benefits from VCM, particularly in attracting foreign investment and enhancing climate change mitigation and adaptation efforts. Through this mechanism, governments can obtain additional funding for projects that cannot be fully funded by national policies or financial instruments. Thus, the VCM supports the achievement of national climate targets as well as sustainable development through direct investment flows to the environmental sector.
(Source: Luis Baretto/WWF)
For local communities, landowners, and local governments, involvement in VCM can be through the development of mitigation projects and as beneficiaries of such initiatives. Programs funded through VCM can improve community welfare by creating new economic opportunities, such as through forest conservation, sustainable agricultural practices, or environmentally friendly renewable energy projects.
Meanwhile, for NGOs, communities, and private developers, VCM provides an opportunity to obtain funding, often in the form of foreign currencies used in international transactions. These funds can be used to implement projects aimed at reducing GHG emissions or increasing carbon sequestration. With access to global funding sources, these organizations can accelerate the realization of environmental projects that contribute to climate change mitigation and adaptation and have a positive impact on communities and ecosystems.
Potential and Opportunities of VCM in Indonesia
(Source: Himaba FKT UGM)
Indonesia is one of the main countries providing carbon credits in the voluntary carbon market (Dyck, Streck, & Trouwloon, 2023). Based on data from the Ministry of Environment and Forestry (as cited in Cintaning, 2025), Indonesias tropical rainforest area reaches approximately 126 million hectares, which covers 59% of Indonesias total land area and 10% of the worlds tropical forest area. With this area, Indonesia is the third largest tropical forest country in the world after Brazil and Congo. These forests have a huge carbon sequestration capacity, with the potential to absorb up to 25.18 billion tons of carbon emissions.
Indonesias VCM potential for blue carbon is also enormous, given the vast coastal ecosystems such as mangroves, seagrass beds, and brackish swamps that can absorb and store significant amounts of carbon. With these ecosystems, Indonesia can become a major player in coastal-based carbon credit trading, especially with the increasing global demand for high-quality carbon credits that are nature-based solutions. In addition, Indonesia also has extensive mangrove ecosystems, reaching 3.31 million hectares, with the ability to absorb carbon of around 950 tons per hectare or equivalent to 33 billion tons of carbon in total. Not only that, Indonesia also has 7.5 million hectares of peatlands, making it one of the countries with the largest peatlands in the world. These peatlands are capable of sequestering around 55 billion tons of carbon, making them an important element in mitigating global climate change (Indonesia Commodity & Derivatives Exchange, 2024).
Overall, the total carbon that can be sequestered by Indonesias ecosystems is estimated at 113.18 gigatons. If the government successfully capitalizes on this potential by selling carbon credits in the carbon market at USD 5 per ton, Indonesias potential revenue from carbon trading could reach around USD 565.9 billion or around IDR 8,000 trillion. This figure shows Indonesias role in the carbon economy and its potential in supporting global climate change mitigation actions (Indonesia Commodity & Derivatives Exchange, 2024).
As a country with one of the largest tropical forest ecosystems in the world, Indonesia has a great opportunity to develop a nature-based carbon market. Programs such as REDD+ (Reducing Emissions from Deforestation and Forest Degradation) can play an important role in preventing deforestation and reducing carbon emissions. With proper management, Indonesia can capitalize on the potential of its tropical rainforests, mangroves and peatlands as valuable assets in carbon trading, while ensuring the sustainability of its ecosystems for future generations.
Indonesia participates in carbon credit trading through the Indonesia Carbon Exchange (IDX Carbon). IDX Carbon is a carbon trading platform, one of which is carbon credits—also known as Greenhouse Gas Emission Reduction Certificate(Sertifikat Pengurangan Emisi Gas Rumah Kaca/SPE-GRK)—that has been recognized in the National Registry System for Climate Change Control (Sistem Registri Nasional Pengendalian Perubahan Iklim/SRN-PPI). Based on Circular Letter Number SE-00001/BEI.PB2/01-2025 regarding Standardization of Carbon Unit Grouping (Standarisasi Pengelompokan Unit Karbon), SPE-GRK products traded on the exchange are divided into eight groups, including:
NO. | NAME OF STANDARD | DEFINITION |
1. | Indonesia Nature Based Solution (IDNBS) | Standard grouping of GHG emission reduction mitigation projects that fall under nature-based solutions (NbS) according to the criteria set by the Carbon Exchange Operator in Indonesia. |
2. | Indonesia Nature Based Solution Authorized (IDNBSA) | Standard grouping of GHG emission reduction mitigation projects that reduce GHG emissions into nature-based solutions (NbS) according to the criteria set by the Carbon Exchange Operator in Indonesia that has received authorization for overseas carbon trading from the Government of the Republic of Indonesia. |
3. | Indonesia Nature Based Solution International Standard (IDNBSI) | Standard grouping of GHG emission reduction mitigation projects into nature-based solutions (NbS) according to the criteria set by the Carbon Exchange Operator in Indonesia and certified by an international certification body. |
4. | Indonesia Technology Based Solution (IDTBS) | Standard grouping of GHG emission reduction mitigation projects that reduce GHG emissions into technology-based solutions (TbS) other than renewable energy according to the criteria set by the Organizer of the Carbon Exchange in Indonesia. |
5. | Indonesia Technology Based Solution Renewable Energy (IDTBS-RE) | Standard grouping of GHG emission reduction mitigation projects that are technology-based solutions (TbS) in the form of renewable energy according to the criteria set by the Carbon Exchange Operator in Indonesia. |
6. | Indonesia Technology Based Solution Authorized (IDTBSA) | Standard grouping of GHG emission reduction mitigation projects that reduce GHG emissions into technology-based solutions (TbS) other than renewable energy according to the criteria set by the Carbon Exchange Operator in Indonesia that has received authorization for overseas carbon trading from the Government of the Republic of Indonesia. |
7. | Indonesia Technology Based Solution Authorized Renewable Energy (IDTBSA-RE) | Standard grouping of GHG emission reduction mitigation projects included in technology-based solutions (TbS) in the form of renewable energy in accordance with the criteria set by the Carbon Exchange Operator in Indonesia that has received authorization for overseas carbon trading from the Government of the Republic of Indonesia. |
8. | Indonesia Technology Based Solution International Standard (IDTBSI) | Standard grouping of GHG emission reduction mitigation projects that are technology-based solutions (TbS) according to the criteria set by the Carbon Exchange Operator in Indonesia and certified by an international certification body. |
(Source: Riau Pos)
Currently, there are six SPE-GRK projects that have been registered with IDX Carbon (2025), including:
Lahendong Unit 5 & Unit 6 Project PT Pertamina Geothermal Energy Tbk.
Construction of New Natural Gas Fired Power Plant PLTGU Block 3 PJB Muara Karang
Operation of Gunung Wugul Mini Hydro Power Plant
Operation of New Natural Gas Fired Power Plant Priok Block 4
Conversion of Single Cycle Plant to Combined Cycle (Add On) New Natural Gas Fired Power Plant Grati Block 2
Conversion of Single Cycle Plant to Combined Cycle Block 2 PLN NP UP Muara Tawar