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Welcoming and benefiting from Indonesian carbon exchange
Indonesia should be capable of absorbing a total of 113.18 gigatons of carbon and earn a whopping $565.9 billion from the carbon market.
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Carbon absorber: A mangrove forest grows near the coast of Bengkalis Island, Riau, on June 13, 2021. Indonesia’s vast mangrove forests are able to absorb some 33 billion tons of carbon. (Thomson Reuters Foundation/Harry Jacques)
T
he enactment of Law No. 4/2023 on the Development and Enhancement of the Financial Sector (UU PPSK) marks the establishment of a new legal basis for the Indonesian carbon exchange. The carbon exchange is specifically referred to in Article 23 of the UU PPSK, which also discusses the Financial Services Authority’s (OJK) role in carbon exchange and the relevant monetary instrument.
With the legal basis already in force, the government needs to start the implementation of the carbon exchange itself.
The urgency to enforce the carbon exchange scheme comes from the fact that by 2030, the 196 state parties to the United Nations Climate Change Conference (COP), including Indonesia, must have achieved their targeted emission reduction, also known as Nationally Determined Contribution (NDC).
Based on the result of emission reduction discussed during the COP26 in Glasgow and COP27 in Egypt, many states are expected to miss their respective NDC by 2030.
Indonesia has ratified the Paris Agreement, a legally binding treaty and applicable to all by nature, with the principle of common but differentiated responsibilities and respective capabilities through the enactment of Law No. 16/2016 on the Ratification of the Paris Agreement to the United Nations Framework Convention on Climate Change.
The fact is Indonesia has the third-largest forest area in the world, and in the COP, Indonesia only set its carbon emission reduction target at 835 million CO2 equivalent. These factors combined mean Indonesia is almost certain to fulfill the targeted NDC, and there is also a massive untapped economic potential with regard to the forest.
Based on the data from the Office of the Coordinating Maritime Affairs and Investment Minister, Indonesia is home to the world’s third-largest tropical rainforest, with a total of 125.9 million hectares (ha) capable of absorbing up to 25.18 billion tons of carbon emissions.
