Indonesia’s financial regulator said on May 5 that the government plans to launch a carbon exchange in the second half of this year, as part of efforts to boost renewable energy use and achieve net-zero emissions by 2060.
Indonesia, as Southeast Asia's largest economy and one of the world's biggest carbon emitters, aims to cut its emissions by at least 30% by 2030.
"We are preparing [to launch] the carbon exchange...to support the early retirement of coal-fired power plants," Mahendra Siregar, the country's financial services authority (OJK) chief said.
Earlier this week, Investment Minister Bahlil Lahadalia said only entities operating in Indonesia will be allowed to participate in carbon exchange and the scheme will be similar to stock trading.
OJK and the environment ministry will oversee activities on the exchange, he added.
The carbon exchange will allow business entities to trade allowances under a cap-and-trade system where emissions above a cap will be subject to the trading.
Indonesia initially planned to impose a carbon tax for emissions that had not been offset by carbon credits, but delayed the rollout, citing poor global economy.
In February, the government initiated the first phase of mandatory carbon trading for nearly a hundred coal power plants owned by the state utility Perusahaan Listrik Negara (PLN).
Meanwhile, the government has decided to open its carbon trade market to foreign entities, paving the way for multinational companies and institutions to tap into the country’s large carbon trading potential.
Businesses involved in carbon-trading schemes welcomed the decision, adding that it was aligned with the 2016 Paris Agreement on climate change. However, environmental analysts question whether the trade could bring real environmental improvement.
Experts doubted claims that participating foreign entities would help the country to meet its NDC targets, saying that it needed to be examined carefully.
Carbon trading in Indonesia kicked off this year but is only applied to the power sector so far, while the carbon exchange is still under development. The government plans to expand it to other sectors only after 2025, according to the 2021 Tax Harmonization Law.
