Indonesia launched its carbon exchange to international buyers on Monday, marking a significant step in efforts to raise funds for its ambitious climate targets.
This move opens the door for global investors to participate in a market initially established in September 2023 for domestic players. Carbon credits are generated by activities that either reduce or prevent the emission of carbon dioxide, a major greenhouse gas. Companies can purchase these credits to “offset” their own emissions, helping them comply with regulations or enhance their environmental reputation.
As one of the world’s largest polluters, Indonesia relies heavily on coal to power its rapidly growing economy. Despite a 2022 agreement with the United States and European nations to help transition its power grid away from coal, Indonesia has made little progress on this multi-billion-dollar plan.
In an effort to accelerate its climate goals, President Prabowo Subianto recently advanced the country’s carbon neutrality target to 2050, a decade ahead of the previous deadline. Additionally, he pledged to close hundreds of coal and fossil-fuel plants by 2040. The government also intends to develop over 75 gigawatts of renewable energy capacity by 2040, although there are few details on how this ambitious goal will be achieved.
The government hopes that proceeds from the carbon credit exchange will contribute to financing the country’s green transition. “This launch is a key milestone in our collective journey towards a sustainable future,” said Hanif Faisol Nurofiq, Indonesia’s Environment Minister.
This development follows agreements made at COP29 on guidelines for trading carbon credits at the national level. However, the carbon credit market has been subject to criticism in recent years, with concerns over poor accounting practices and even fraudulent activities in some projects.
Hanif assured that the government would guarantee every credit issued on the exchange and implement oversight measures to ensure that emissions are not double-counted. Despite these assurances, some experts remain sceptical about the market’s future.
“If the domestic demand were high, we wouldn’t need to open it to international buyers,” said Fabby Tumiwa, executive director of the Institute for Essential Services Reform. He noted that the domestic market had not attracted significant interest and questioned whether the carbon credit projects on the market were aligned with the country’s emissions reduction strategy.
One key concern is the concept of “additionality,” which requires that carbon credits prove their emissions reduction efforts would not have occurred without the credits. Demonstrating this counterfactual has long been a challenge in the sector.
Fabby also expressed doubt about whether the credits offered on the exchange would meet international standards. Nonetheless, there were at least nine transactions recorded at the start of Monday’s trading, accounting for over 41,000 tons of carbon dioxide equivalent, according to the stock exchange’s data board.
