Jakarta, 19 March 2024 – The association of Indonesian private sector leaders, Indonesian Business Council (IBC) submitted recommendations for the development of the Indonesian carbon market to the Financial Services Authority (OJK). IBC Chief Executive Officer (CEO) Sofyan Djalil stated the carbon market is expected to become an important component for increasing Indonesia’s competitiveness.
“A successful carbon market will depend on the participation of the Indonesian business players who are the direct actors. IBC has conducted research and developed recommendations on building an innovative, competitive and impactful carbon market,” Sofyan stated at public discussion on Developing the Indonesian Carbon Market: Opportunities for Economic Growth and Sustainability held by the Indonesia Business Council with Katadata in Jakarta (19/3/ 2024).
IBC’s short term recommendations include: developing a Carbon Market Knowledge Center, integrating the national registration system for climate change control, encouraging determination and calculation of emission limits at the entity level by public sectors, and equipping industry players with funding and grant facilities from Indonesian Environment Fund (BPDLH).
“It is also critically important to engage industry players, recognize efforts aligned with NDCs, and promote Indonesian sustainable taxonomy participation to increase participation in the carbon market,” added Sofyan.
For the medium and long term development, IBC proposes:
- Appoint industry leaders and build an acceleration team to determine Indonesia’s carbon market strategy.
- Develop a carbon trading roadmap to comprehensively map supply chains.
- Review the carbon trading roadmap, carbon exchange roadmap & regulatory framework on carbon exchange.
“Globally, carbon market offers a promising prospect to develop resilient economic ecosystems, where industries benefit from their efforts to restore the environment through mitigation and adaptation strategies. For Indonesia, the carbon market is also a way to achieve the Nationally Determined Contribution (NDC) we have committed to in the Paris Agreement,” said Sofyan.
Chief Executive of Capital Market Supervision, Derivative Finance and Carbon Exchanges, Inarno Djajadi, said that the implementation of carbon trading through carbon exchanges has become an important target for various countries in the world. In the last five years, various carbon exchanges have been established in a number of countries such as Malaysia, China, South Korea, the UK and the European Union.
According to Inarno, since the launch of the Carbon Exchange on 26 September 2023, there have been 52 registered service users on the Carbon Exchange from the energy, forestry, financial services institutions (banking and securities), consultants and other sectors (including media). Until 18 March 2024, the total accumulated transaction volume was 501,956 tons of CO2e, with a value of IDR 31.36 billion. From these transactions, 182,293 tons of CO2e have also been retired through the Carbon Exchange.
OJK has also issued Financial Services Authority Regulation 14/2023 concerning Carbon Trading through the Carbon Exchange, and Financial Services Authority Circular Letter 12/2023 concerning Procedures for Organizing Carbon Trading through the Carbon Exchange.
“By preparing an institutional framework such as a regulatory framework and technological infrastructure, in line with the National Strategy for Financial Market Development and Deepening (SN-PPPK), we hope the Carbon Exchange can become one of the carbon trading centers in the world,” he said.
Director General of Climate Change Control at the Ministry of Environment and Forestry, Laksmi Dwanthi, explained that carbon trading must comply with the Carbon Governance Instrument. It has to be recorded and traceable in the National Registry System for Climate Change Control (SRN PPI), as well as in the Measurement, Reporting and Verification (MRV) system, and comply with the issuance of Reduction Certificates Greenhouse Gas Emissions and the authorization and corresponding adjustments.
“We have an SRN that is in line with the international registry and which will later be built by the UNFCCC. We have MRV that follows UNFCCC standards so we can easily collaborate for acceptance with various parties. Indonesia also has an SPE GRK crediting scheme which will be able to carry out mutual recognition with the existing crediting scheme,” Laksmi during panel discussion.
Special Staff of the Minister of Finance for Fiscal and Macroeconomic Policy Formulation, Masyita Crystallin added that the Ministry of Finance is still preparing Non-Tax State Revenue (PNBP) policies for the issuance of Emission Reduction Certificates (SPE) and non-tax revenue scheme for fair and proportional carbon trading.
These technical regulations aim to ensure the imposition of the carbon tax in Indonesia aligns with the principles of justice, is affordable and still prioritizes the interests of the community.
“We have plenty of financial instruments to build a carbon market ecosystem. OJK with the Ministry of Finance are also building a financial transition ecosystem and include this in the taxonomy. Since each instrument has different characteristics, we continue to maintain collaboration with business sectors, regulators, the exchange organizers, as well as the demand and supply sides,” he said.
For further inquiries, please contact Kartika Susanti through kartika.susanti@business-council.id