Yulia Indrawati Sari is a lecturer in international relations at Parahyangan Catholic University, in Bandung, Indonesia, specialising in environmental issues. Frans Siahaan is an independent consultant on environmental governance.
At COP29 in Baku, Indonesia made an ambitious pitch for its carbon market, with newly elected President Prabowo Subianto’s brother, Hashim Djojohadikusumo, leading the charge.
The delegation presented Indonesia as a global carbon trading powerhouse, signalling a dramatic shift from the previous administration’s caution. Prabowo has pledged to raise $65 billion by 2028 through carbon credit sales to fund reforestation and conservation.
With the official launch of international carbon trading in January 2025, Indonesia is positioning itself as a major supplier. But who will benefit from this booming market – and at what risk?
In a study seeking to answer this question, we applied a political economy approach to the forestry and land use sector. Our findings – published here for the first time – draw on interviews with carbon developers, government officials, palm oil representatives and civil society groups, conducted between November 2023 and October 2024, during the Jokowi administration.
Big business takes the lead
Indonesia, home to the world’s third-largest tropical rainforest, has long been a prime candidate for carbon trading. Large corporations, especially those in palm oil and timber, are seizing the opportunity, leveraging their vast land concessions to shift business models from exploitation to conservation.
Based on data from the Indonesian Forest Concession Holders Association (APHI), in November 2023, some of the 600 companies holding Forest Utilization Business Licenses have already started investing in carbon-related services. One industrial timber estate company plans to set aside 60% of its 130,000-hectare concession for carbon trading.
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With strong political and economic connections, these companies are actively acquiring forest concessions, merging firms, and lobbying the government to shape regulations in their favour. Industry associations such as APHI and the Indonesian Chamber of Commerce and Industry (KADIN) have pushed for policies that prioritise corporate interests. Yet their history of environmental destruction and Indigenous rights violations raises concerns about whether this shift is truly about emissions reductions – or just another revenue stream.
As one civil society representative working with Indigenous communities put it: “These companies see carbon trading purely as an economic transaction. Their approach is simple: ‘How much do you have? We’ll buy it.’ There’s no real discussion about emissions, climate justice, or Indigenous rights.”
Regulatory hurdles
Despite the enthusiasm, regulatory challenges remain. Companies are concerned that current policies make international carbon trading less attractive, particularly the emission reduction buffer requirement. Under Ministry Regulation No. 21/2022, companies must set aside 10–20% of their carbon credits as a buffer. Designed to safeguard against emissions loss from risks like fires and natural disasters, the buffer ensures credibility, but is viewed by companies as excessive.
“We already allocate 35% for risk management. With the government’s buffer, we’re left with only 45–55% of our credits to trade. The margin is just too tight,” said a representative from an international green investment firm entering the Indonesian market.
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Certification is another concern. Indonesia’s National Registry System for Climate Change Control (SRN PPI) is still underdeveloped and not yet ready to meet widely used global references, making the country’s carbon credits less competitive. The government has also chosen not to make mutual agreements with well-established certification bodies such as Verra or Gold Standard, further complicating credibility issues.
“The carbon trading regulations are still not clear. Although regulations exist, there is still a lack of clarity, especially in the technical processes. Almost all actors who care about the climate – not those in the timber and oil palm industries – are still taking a wait-and-see approach in the carbon market,” one green investor told us.
Risk of greenwashing
Several environmental NGOs have actively prepared to engage in carbon trading, with local organisation WARSI developing best practices for ensuring benefits reach communities. Through the Plan Vivo scheme, WARSI directs carbon revenues into village development and community benefit. The organisation has also created Forest Reference Emission Levels (FREL) to monitor deforestation reductions.
Despite such efforts, scepticism remains. Civil society groups such as the Indigenous Peoples Alliance of the Archipelago (AMAN), Greenpeace, the Indonesian Forum for the Environment (WALHI) and Forest Watch Indonesia have warned that carbon trading risks becoming a tool for greenwashing, allowing industries to continue polluting while buying credits to claim climate action on paper.
“The real winners in this market are those who already control concessions – especially in a situation where access to financing is difficult. Companies that hold concessions are ‘not clean companies’, [but] often businesses with close ties to political and military elite,” one environmental activist told us.
Without strict safeguards, critics argue, carbon trading could exacerbate existing inequalities instead of driving real emissions reductions. Ensuring fair benefit-sharing and preventing speculative trading will be crucial to maintaining the market’s integrity.
The road ahead
Indonesia’s carbon market is now a reality, but whether it delivers genuine climate benefits remains to be seen. The Prabowo administration’s push for international trading must be balanced with environmental and social safeguards. Will this be a true climate solution – or just another way for big players to profit?
As carbon trading takes off, all eyes will be on how the government enforces regulations, ensures transparency, and protects vulnerable communities.
For now, the rush is on – and the stakes are high.
Ridwan, Alam Surya Putra, and Margaretha Wahyuningsih also contributed to this study.
