Furthermore, during the G20 session, Indonesia conveyed how the group must take the lead by example in cooperation against climate change and in sustainable environmental management. The G20 must be the catalyst of the green recovery and ensure no one is left behind. The fight against climate change is just as important as other global challenges such as the alleviation of poverty and achieving Sustainable Development Goals.

The climate change agenda will move from Rome to Indonesia, reflecting on Indonesia’s strategic position in fighting against climate change as home to one of the largest tropical forests in the world. Based on Environment and Forestry Ministry data by 2020, deforestation in Indonesia can be reduced to its lowest point in the last 20 years. Indonesia also rehabilitated 3 million hectares of critical land from 2010-2020.

Currently, Indonesia has set a net sink carbon target for the land and forestry sector by 2030 at the latest, and net zero in 2060. The development of the net-zero area has started, for example through the construction of the 13,200-ha Green Industrial Park in North Kalimantan, which uses renewable energy and produces green products. Reflecting on the President’s emphasis during the G20 summit in Rome the managerial aspects of the fight against climate change need to be closely watched.

Proper management at a global level for the implementation of carbon pricing pursuant to Perpres No. 98/2021 must be enforced as soon as possible in compliance with the Paris Agreement. Providing incentives will increase the participation of the private sector.

As of now, Indonesia is finalizing implementing regulations pertaining to carbon pricing to support its commitment to the NDC and licensing required for carbon trading.

To fully implement the carbon trading as mandated by Perpres No. 98/2021, ministerial-level implementing regulations are necessary to clearly stipulate such carbon trading mechanisms with the ultimate goal of fulfilling Indonesia’s commitment to the NDC. In the Perpres, carbon trading can be carried out both in the domestic and foreign market, and through either mandatory or voluntary trading mechanisms.

Article 33 of the Constitution regulates that the possession of the land, water and natural resources that are important for the nation and concerning the livelihood of the people shall be held by the government. It shall be construed that carbon is included as a natural resource, and therefore PR No. 98/2021 also includes the government’s role.

The state’s ultimate goal is overcoming climate change through carbon trading, especially in regard to the commitment made during the UN Climate Change Conference of the Parties (COP26) in Glasgow in November 2021.

In this context, the involvement of government in domestic and foreign carbon trading is through the restriction of carbon trading quotas and licensing aspects in relation to carbon trading. In the Perpres and the latest draft (the 11th) of ministerial regulation on carbon trading, carbon trading abroad may only be realized after the NDC target is fulfilled. In the latest draft of the ministerial regulation, the tradable carbon quota is set at 50 percent of the total emissions-reduction performance.

Carbon trading still has a long way to go. For one, regulations to implement Perpres No. 98/2021 have yet to be enacted, leaving loopholes in the technical aspects, facilities and infrastructure of carbon trading itself.

Although Perpres No. 98/2021 and the implementing regulation draft explain how carbon trading can be conducted through a carbon market or carbon exchange or direct trading, the carbon exchange in question is still to be formed. Not to mention how Environment and Forestry Ministerial Letter No. S.798/2021, which mandates the postponement of direct carbon trading until all relevant technical regulations pertaining to carbon trading have been issued. Consequently, the issuance of technical regulations on carbon trading is now more urgent than ever.

Postner (1991) explained from the perspective economic analysis of law, an economic potential without clear regulatory support will face obstacles in its implementation. Unclear regulatory support means a lack of legal certainty, which will lead to business interruption. The huge potential for investment and income from carbon trading must be supported with technical regulations, so carbon trading will not become mere rhetoric.

An important issue in carbon trading is related to licensing, which has been known as the Forest Concession Business License (PBPH) since the Job Creation Law came into force. Another licensing issue is the bureaucratic red tape, raising concerns about the future of PBPH licensing and domestic or foreign carbon trading.

Referring to the 2019 World Bank report on the ease of doing business in Indonesia, the main problem in Indonesia’s investment system is the licensing and lack of legal certainty. Currently, the PBPH issuance for ecosystem restoration in certain regions is mostly conducted manually, a process typified by a lack of transparency and complicated bureaucracy. Even the issuance of the governor's recommendation required for further licensing at the ministry poses its own obstacles.

Improving the governance of PBPH licensing and carbon trading will facilitate implementation of carbon trading, considering that carbon trading requires an authorization permit and recording of carbon trading results from the environment minister. Therefore, improvements in the governance of PBPH licensing and carbon trading are essential.

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The writer is an associate professor of law at Prasetiya Mulya University.