Indonesia has implemented new carbon trading regulations, known as ‘The Economic Value of Carbon.’ These regulations establish a cap-and-trade mechanism between businesses, a carbon offset scheme, and results-based payments, which will require the establishment of a trading exchange.
Officials have indicated that a fully-fledged carbon market is expected to be operational by 2025, with a launch anticipated before November 2022. Starting from April 2022, a carbon tax will be imposed on coal-fired power plants exceeding the pollution threshold, set at approximately US$2 per tonne.
The determination of emissions caps will rely on government greenhouse gas (GHG) calculations, baseline levels, and emissions reduction targets. Indonesia has committed to reducing emissions by 29% by 2030, compared to business-as-usual levels, or up to 41% with international assistance in financing and technology. The sectors covered under these regulations include energy, transport, waste management, manufacturing, agriculture, and forestry.
Experts highlight challenges such as the highly subsidised electricity sector, where consumers may not adopt adaptive behavior if they do not pay a price reflective of the true cost of power. They also emphasise the importance of fair allocation of emission caps across sectors. The Indonesian government acknowledges that the country is missing out on carbon trading opportunities, as some Indonesian companies actively participate in foreign markets, particularly in Singapore, on a voluntary basis. The finance minister has also expressed that Indonesia could phase out coal-fired power generation by 2040 if sufficient financial assistance is provided by the international community.
The regulations also mandate the authorities to compile an inventory outlining the potential impact of climate change on the archipelago of 17,000 islands. This inventory will inform and guide the formulation of effective climate adaptation policies.
