Indonesia to issue draft carbon market regulations

Indonesia's Financial Services Authority (OJK) aims to issue by 12 June an initial draft of technical regulations for setting up the country's carbon exchange.

The initial draft will be submitted to various ministries for harmonisation, with the final rules expected to be published in July. The OJK is aiming for formal operations of the carbon exchange market to begin in September this year, with an initial trade volume of 100mn t of carbon dioxide (CO2).

Setting up a national carbon exchange is part of the government's efforts to reduce CO2 emissions in line with its net zero target. Indonesia plans to reach net zero by 2060 and has announced a series of measures aimed at reducing the country's carbon footprint.

The country's energy ministry (ESDM) said it is working with the ministry of state-owned enterprises, the ministry of finance and state-owned utility PLN to complete the Comprehensive Investment and Policy Plan, which will serve as the framework for Indonesia's energy transition through the Just Energy Transition Partnership.

There is a need to reform the early retirement programme for coal-fired power plants since the country currently has an oversupply, the ESDM said. PLN has outlined a plan to phase out old plants as part of efforts to retire coal-fired units from its fleet.

The carbon exchange will use a cap-and-trade system where participants' carbon emissions will be limited to a set amount. Allowances can be traded by participants using a results-based payment mechanism currently under development, the OJK said.

The government will also issue an electronic system that will be linked with the carbon exchange and the National Registry System managed by the Ministry of Environment and Forestry. This system will be responsible for oversight regarding the trades made and recording carbon ownership of the carbon units in the market, the OJK said.

Businesses from the energy generation, manufacturing and forestry sectors will be participating in the initial operations of the carbon exchange market, with plans to make carbon trading a compulsory requirement for businesses. Trading in the carbon exchange will be limited to domestic companies that will need to get a permit from the OJK to start trading.

Indonesia first started a carbon trading market with a pilot programme launched by the ESDM in February. There are currently 99 coal-fired power plants participating in the programme.

By Antonio delos Reyes