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Steel and three other industries to be included in Indonesia's cap-and-trade program. (Photo: iStock)
Indonesia's government is set to implement a cap-and-trade carbon trading system, with more details expected to be released in August this year. Under the preliminary regulations, businesses exceeding their carbon allocation will face fines for 5% of the excess emissions, while the remaining 95% can be purchased through other companies.
The industry has generally welcomed the cap-and-trade plan, urging the government to accelerate infrastructure development, establish clear standards, and introduce incentive measures.
Four high-emission sectors to implement cap-and-trade program
Following the launch of a voluntary carbon market in 2023, Indonesia plans to introduce a mandatory carbon market in 2027. The initial focus will be on carbon-intensive sectors such as cement, fertilizers, steel, and paper industries.
Apit Pria Nugraha, Head of the Green Industry Center at the Ministry of Industry, stated that the policy details will be announced in August, with gradual implementation across industries.
Apit explained that businesses exceeding their carbon allowance will face fines but emphasized that the fines are not a carbon tax. Companies with emissions below their quotas will be allowed to sell their surplus allowances to businesses exceeding their limits. The Indonesian government aims to fully implement the cap-and-trade system across manufacturing by 2030, with carbon taxes for non-compliant companies.
Indonesia plans to launch a mandatory carbon market in 2027, allowing companies with emissions below their quotas to sell excess allowances to those exceeding their limits. (Image: Indonesia Stock Exchange)
Industry welcomes mandatory carbon markets but calls for better infrastructure
The cement and steel industries generally support the upcoming cap-and-trade measures, believing they will help decarbonize the sectors. However, they stress that a successful carbon market requires a supportive industrial ecosystem and easier access to renewable energy. The Indonesian Cement Association (ASI) anticipates setting a single carbon emissions threshold for the industry by 2026, with companies required to submit regular carbon data.
Despite supporting the cap-and-trade system, the steel industry is concerned about the cost challenges it might bring. Akbar Djohan, Chairman of the Indonesian Iron and Steel Industry Association (IISIA), noted that the sector is already struggling with global overcapacity, low utilization rates, and high import volumes.
Akbar Djohan urged the government to create a clear, feasible development blueprint that includes improving infrastructure, establishing carbon calculation standards, and boosting low-carbon investment incentives to reduce uncertainty and cost pressures.
In 2023, Indonesia implemented a mandatory carbon trading system for some power sectors, but its impact has been limited. Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), pointed out that the cap-and-trade system implemented by the Ministry of Energy and Mineral Resources lacks clear carbon data and compliance mechanisms.
Fabby emphasized that carbon trading must drive emissions reductions, linking it to industry decarbonization goals rather than just compliance. He recommended that the government set clear targets and penalties, ensuring that all businesses adhere to them, particularly those exporting to Europe and facing the EU Carbon Border Adjustment Mechanism (CBAM).
Source: Jakarta Post, Global Cement
