Towards 2030, the Indonesian government has formulated several policies to achieve emissions reduction targets, including zero carbon by 2060; the amount of carbon emissions produced is similar to the amount of emissions that can be absorbed. However, the process to fully implement these regulations and mechanisms is currently awaiting the next step; considering that the roadmap for implementing the Carbon Pricing (Nilai Ekonomi Karbon) and other regulations has not yet been issued. 

Referring to the Statistical Review of World Energy 2023, Indonesia’s total CO2 emissions from flaring, industrial processes and methane gas, and energy increased by 27.73%, or reached 839.6 million tonnes of CO2 in 2022. This figure places Indonesia in the 7th rank as the country contributing the highest CO2 emissions. In November 2022, the Ministry of Energy and Mineral Resources conveyed its commitment to reducing carbon emissions, by increasing the Enhanced Nationally Determined Contribution (ENDC) target to 32%, or the equivalent of 912 million tonnes of CO2 in 2030; up to 3% compared to the previous target. Of the three sectors producing CO2 emissions, the energy sector appears to have the most influence on Indonesia’s overall carbon emissions, around 400 million tonnes in 2012-2017.

If we look at Article 17 of the Kyoto Protocol and Article 6 of the Paris Agreement , one of the significant approaches in implementing climate mitigation is through market-based mechanisms; or implementation procedures based on the rules applicable in the carbon market. This market refers to a condition where each unit of carbon credits, representing a reduction in emissions, is traded within a defined framework. In other words, it is a place where the buying and selling of carbon emission reduction certificates from climate change mitigation activities is carried out. Previously, carbon trading was regulated by various mechanisms, including the Clean Development Mechanism (CDM), Joint Credit Mechanism (JCM), and Verified Carbon Standard (VCS). CDM is the first global carbon credit instrument that can be carried out between Annex I countries and non-Annex I countries with the principle of offsetting (exchanging emissions released as an effort to prevent emissions or absorb the emissions produced, where the buyer gets a credit called Certified Emission Reduction or CER of the CDM project). Annex I countries are countries that have contributed to Green House Gases (GHG) due to human activities since the Industrial Revolution in the 1850s, namely the United States, Australia, Austria, the Netherlands, Belarus, Belgium, Bulgaria, the Czech Republic, Denmark, Estonia, Finland, Russia, Germany, Hungary, Ireland, Italy, England, Iceland, Japan, Canada, Croatia, Latvia, Liechtenstein, Lithuania, Luxembourg, Monaco, Norway, Poland, Portugal, France, Romania, New Zealand, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, European Union, and Greece. Meanwhile, Non-Annex I countries are countries that are not included in Annex I where their contribution to GHG is much less and has lower economic growth; Indonesia is included in a Non-Annex I country. Furthermore, the unit traded is the right to greenhouse gas emissions in tons of CO2 equivalent (tons of CO2 equivalent).

This opportunity can open up green economic potentials where carbon trading creates incentives for groups, institutions, and business actors to protect ecosystems, reduce emissions, and invest in renewable energy. Allowing carbon trading in various sectors can also generate demand for renewable energy or other energy-saving technologies, so that green jobs will arise, including efforts to restore ecosystems, conserve natural resources, and further develop community resilience. As one of the actors in carbon trading, CarbonX will help achieve emission reduction targets, as well as collaborate in the actions of climate change adaptation and mitigation because nature-based solutions or similar efforts will only thrive with proper business planning. Some carbon projects such as avoided conversion or reforestation; regrowing forests on degraded land, either because the forests are old and have been cut down for livestock or agricultural activities, and so on, will also be carried out to give a positive impact on the lives of surrounding communities.

Previously, the Indonesian Government had also issued a Forest Moratorium to prevent deforestation and land degradation; one of them is by prohibiting new concessions in primary forests or peatlands. For this reason, the government could consider expanding the moratorium policy, to include forests that have high biodiversity and degraded forests with high carbon supplies. Economic development of local communities can be a focus in these critical areas. To encourage carbon trading; including the development of renewable energy which is in line with this effort, the government must also ensure ease of doing business in this sector. This includes providing incentives for the development of renewable energy infrastructure, such as smart grids, transmission, and storage. Based on Presidential Regulation Number 98/2021 regarding Carbon Pricing, companies buy carbon from the government in exchange for the amount of greenhouse gases they are allowed to emit. However, considering that the electricity sector contributes up to 30% of total energy-related emissions, Indonesia needs emission limits regulated by law, where these limits are set by the government.

Furthermore, the IPCC (Intergovernmental Panel on Climate Change) also submitted a report, where nature-based solutions were able to generate resilience to climate risks while providing broader sustainable development benefits. One of the examples is ecosystem-based adaptation which can help communities maintain natural resources, bolster food security, provide health and economic benefits, and enhance carbon sequestration. Many types of adaptation are ecosystem-based; including protection, restoration, ecosystem management, and sustainable agricultural practices, can be conducted at relatively low cost. Therefore, looking at the value prediction of carbon trading and the growth of this sector at the global level, carbon trading in Indonesia needs to be implemented collaboratively with various parties, where indigenous peoples and local communities are one of the essential parts of preserving ecosystems with a high biodiversity value.