The Ministry of Environment/Environmental Management Agency of the Republic of Indonesia (KLH/BPLH), the Financial Services Authority (OJK), and Indonesia Stock Exchange (IDX) officially inaugurated the International Trade of Indonesian Carbon Units through the Indonesia Carbon Exchange (IDXCarbon).
The event, which took place on Monday (20/1) at the IDX Main Hall, represents a major milestone in advancing carbon trading in Indonesia.
Carbon trading plays a crucial role in achieving Indonesia’s Nationally Determined Contributions (NDCs) – part of the country’s commitments under the Paris Agreement to cut greenhouse gas (GHG) emissions.
In its Enhanced NDC (ENDC) announced in September 2022, Indonesia pledged to reduce emissions by 31.89% through domestic efforts and up to 43.20% with international support by 2030, aiming for net-zero emissions by 2060 or earlier.
To understand the significance of IDXCarbon’s international trading, it is essential to explore how Indonesia’s carbon trading system is structured.
A Crash Course on Indonesia's Carbon Market
The IDX Carbon Exchange, which was launched in September 2023, facilitates two primary types of carbon trading:
Emission Allowance Trading (Persetujuan Teknis Batas Atas Emisi Pelaku Usaha (PTBAE-PU))
The IDX Carbon Exchange, which was launched in September 2023, facilitates two primary types of carbon trading:
Emission Offset Trading (Sertifikat Pengurangan Emisi Gas Rumah Kaca (SPE-GRK))
Also referred to as carbon credits, this mechanism rewards companies that successfully reduce emissions. After undergoing rigorous Measurement, Reporting, and Verification (MRV) processes, these reductions are recorded in Indonesia’s National Registry System for Climate Change Control (SRN-PPI) and can be sold through auctions, marketplaces, or direct negotiations.
Since its launch IDX Carbon has recorded transactions upwards of (data up to Oct 2024):
- Trading volume: 907,770 tons of CO2e
- Trade value: IDR 50.45 billion
- Participants: Grew 460%, from 16 to 91 companies
To better understand IDX Carbon’s relative performance, we will compare it with Malaysia’s and Japan’s carbon markets.
Indonesia’s carbon market, IDXCarbon, has demonstrated a comparable trading activity since its launch, achieving the highest total traded volume (907,770 tCO₂e) compared to Malaysia’s 198,821 tCO₂e and Japan’s 553,315 tCO₂e.
However, despite this high trading volume, Indonesia’s carbon credit prices remain significantly lower at approximately $3.75 per tCO₂e, whereas Malaysia’s prices range between $2.01 and $15.30, and Japan’s premium credits reach as high as $37.17 per tCO₂e.
While Indonesia offers three types of carbon credit products, its market is less diverse compared to Japan, which lists 15 different credit types (though only 8 are actively traded). Malaysia, on the other hand, operates primarily through auctions, which can create pricing fluctuations and limit continuous trading opportunities.
A major limitation in Indonesia’s system is the absence of market makers, which could help stabilize prices and improve liquidity. In contrast, Japan allows four market makers, providing price support and enhancing market confidence.
Despite these promising numbers, Indonesia’s voluntary carbon market remains relatively underutilized, given the country’s vast forest resources and potential for 1.3 gigatons of CO2e reductions, valued at $190 billion.
As part of Indonesia’s effort to unlock this potential, its is now welcoming international participation.
International Buyers Enter the Market
During its inauguration, 22 transactions , involving 17 buyers delivered trading volume reaching 49,807 tCO2e.
Reflecting on the examples shared above, some of the ways Indonesia can remain competitive in the global carbon market involve thinking about its ability to maintain price stability, improve market accessibility, and diversify its credit offerings.
Strengthening these aspects could help drive long-term market confidence and ensure the success of IDXCarbon in the international sustainability landscape.
The effectiveness of international carbon trading relies on strong collaboration between nations, industries, financial institutions, philanthropies, banks, and other key stakeholders. Ultimately, it is a shared effort that demands seamless coordination among all involved parties.
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