Indonesia's efforts to decarbonize the country's power generation sector took a significant step forward on Feb. 22 when the government initiated the first phase of mandatory carbon trading for coal-fired power plants.
Coal accounts for more than half of Indonesia's electricity generation. The first stage of a carbon trading mechanism will cover 99 power plants with a total installed capacity of 33.6 GW that are directly connected to state utility Perusahaan Listrik Negara's power grids (PLN).
The nation’s carbon trade applies to power plants with a capacity of at least 100 MW. Energy minister, Arifin Tasrif, said that it would later be expanded to cover smaller coal-fired plants and other fossil-fuel-powered facilities, as well as plants that are not linked to the PLN grid.
"There are 500,000 tonnes CO2 equivalent ready to be traded," said energy ministry official Mohamad Priharto Dwinugroho.
The figure is an estimate of the excess emissions over a total of 20 million tonnes CO2 equivalent emission quota allocated to power plants in the first phase of the carbon trade program.
Power plants that emitted more carbon than their quota can acquire carbon credits from plants that emitted less carbon or from renewable power plants under the mechanism.
Dwinugroho said that the price would be determined by a market mechanism, but according to an energy ministry analysis, the price might range between $2 and $18 per tonne.
"Carbon pricing is one of the policies that could increase energy efficiency, reduce dependence on carbon energy, imported energy and can be a source of income for the company and government," Arifin said at the launch, adding that carbon trading in power generation could reduce carbon emissions by 36 million tonnes by 2030.
Indonesia, one of the world's largest emitters of greenhouse gases, set a more aggressive target last year of decreasing carbon emissions by 31.89% on its own, or 43.2% with international assistance, by 2030.
This compares to its pledge in the 2015 Paris Agreement to reduce emissions by 29% or 41% with international assistance.
Authorities are researching the implementation of a carbon exchange and intend to establish agencies to monitor and verify emission levels.
Indonesia had planned to charge the remaining carbon emissions that had not been offset by carbon credits, however the implementation has been postponed.