News - 13 Januari 2022

Carbon Trading, a New Development Instrument

Government has just issued a regulation on the carbon market as a form of Indonesia's commitment to the issue of climate change.

The government has just issued a regulation on the carbon market as a form of Indonesia's commitment to Nationally Determined Contributions (NDC) related to climate change issues, both in the form of strengthening programs and strategies.

Presidential Regulation number 98 of 2021 was signed by President Joko Widodo on October 29, 2021, before leaving for the 26th United Nations Climate Change Conference (COP26) in Glasgow in early November. The carbon market scheme can be an incentive to achieve the NDC target.

The NDC itself contains Indonesia's commitment to the carbon emission reduction agenda, either with its own efforts which can reach 29 percent or 41 percent with international support by 2030.

The interesting question is what are the benefits of the Carbon Economic Value (NEK) for Indonesia? If examined further, the Presidential Decree NEK regulates the issue of the carbon market in it.

For Indonesia, the existence of this regulation allows the country to receive wider funding for climate change control.

In connection with this scheme, the Head of the Fiscal Policy Agency (BKF) of the Ministry of Finance, Febrio Kacaribu, assessed that efforts to reduce greenhouse gas emissions could be carried out through command and control as well as approach market-based instruments(MBI).

According to him, market-based regulations base their policies on aspects of determining NEK or carbon pricing. In general, carbon pricing consists of two important mechanisms, namely carbon trading and non-trading instruments.

Trading instruments consist of cap and trade and offsetting mechanisms, while non-trading instruments include levies on carbon and result-based payments(RBP).

"The government really understands that to achieve the NDC target, innovations in policy instruments are needed. The stipulation of the NEK Presidential Regulation is an important milestone in setting Indonesia's policy direction towards the NDC 2030 and NZE 2060 targets," said Febrio on Tuesday (2/11/2021).

The same opinion was expressed by the Director General of Climate Change Control at the Ministry of Environment and Forestry (KLHK) Laksmi Dwanthi in a press release recently.


Encourage Green Investment

According to him, through Presidential Decree No. 98 of 2021, it is hoped that more green financing and investment will have an impact on reducing greenhouse gas (GHG) emissions.

In the NEK Presidential Regulation, there are several carbon trading mechanisms that are regulated, namely trade between two business actors through the scheme cap and trade, offsetting emissions through the scheme. carbon off set,result based payment, and carbon levies, as well as a combination of existing schemes.

Laksmi said the scheme carbon pricing could be an incentive to achieve the NDC target for climate change control.

"Carbon pricing is expected to support other instruments that are also carried out, such as controlling forest fires, preventing deforestation and degradation, or transitioning technology to realize new and renewable energy," Laksmi said in a statement from the Ministry of Environment and Forestry.98/2021 is

Presidential Regulation No.intended for both domestic and international markets. If carbon occurs between two domestic entities, the calculation of the GHG emission reduction achieved will still be taken into account as Indonesia's contribution.

It is hoped that the international community will also want to realize a fair carbon pricing for countries that have carbon stocks. Indonesia itself plans to implement it on April 1, 2022 .

the issue, the pricing of carbon tax in Indonesia amounting to Rp30 per kilogram (kg) of carbon dioxide equivalent (CO2e) or unit equivalent considered too low. In spite of all that, it could be this is all still a start and then later be adjusted according to the market.

B latest report Anak Dunia revealed that the fundraising that could be generated from carbon trading could reach USD 53 billion by 2020, so that the funds could be used for green investment.

True, carbon trading is only an instrument for achieving NDC. However, to achieve these goals, Indonesia cannot do it alone. It takes cooperation to achieve it. Carbon pricing needs to be supported by strong, accountable and transparent policies.