A tropical rainforest in Sumatra, Indonesia. The country’s new government aims to raise green funds through nature-based carbon credit revenues. (Photo: iStock)
Indonesia's new government intends to establish a green fund, raising capital through the production and sale of nature-based carbon removal credits to invest in more green projects and achieve a net-zero goal by 2060.
However, experts argue that the government's ambition may be too great, as raising 1,000 trillion Indonesian rupiah (about 65 billion USD) in just four years seems nearly unattainable.
President-elect Prabowo pushes for green economy
President-elect Prabowo Subianto is set to assume office in October. His climate policy advisor, Ferry Latuhihin, recently revealed in an interview with Reuters that the new government will establish a new regulatory body to manage the green fund and oversee the operation of carbon offset programs.
The fund will be financed through the sale of carbon credits, with credits obtained through methods such as forest conservation and reforestation, peatland and mangrove restoration, and other nature-based solutions. Latuhihin emphasized the need for Indonesia to leverage its natural advantages, noting that the country’s tropical rainforest is the third largest in the world, after the Amazon and the Congo Basin.
In addition to environmental benefits, Prabowo also hopes that the green initiatives will boost economic development. He has publicly pledged to accelerate Indonesia's economic growth, aiming to increase the GDP growth rate from the current 5% to 8% within 4 to 5 years.
Latuhihin pointed out that the new government will provide seed funding, though the scale is still under discussion. The goal is to promote carbon credit trading and generate profits, raising 1,000 trillion rupiah by the end of 2028 to invest in large-scale green projects without tapping into the national budget.
Indonesia's Prabowo plans $65 bln green fund from selling carbon credits.（Phoot: X/Prabowo Subianto）
Fund's ambitious goals face market challenges, analyst says
However, experts have voiced skepticism about the feasibility of this plan. Christina Ng, executive director of the Energy Shift Institute, a think tank focused on energy transition in Asia, argues that the new government's goals are difficult to achieve due to factors such as carbon credit issuance volume and carbon prices.
She notes that the global voluntary carbon market's issuance peaked at a total 239-million-ton carbon credits in 2021. Even if Indonesia were to capture the entire global supply, it would still fall short of the target. Especially, nature-based carbon credits are priced between 5 to 50 USD per ton on average.
At the high end of this range, raising 10 billion USD annually would require selling 200 million credits, nearly equivalent to the total issuance of the global voluntary carbon market. Even if Indonesia achieved this scale consistently for four years, it would only accumulate slightly more than half of the target amount of 40 billion USD. This is made more difficult by the significant drop in carbon credit prices in 2023, which averaged less than 10 USD per ton.
Previously, Latuhihin stated that global demand for carbon credits is expected to reach 632 million by 2030, and Indonesia has the potential to supply 20% of this demand. The new government plans to promote the green fund internationally, hoping to collaborate with major global banks and market their carbon credits to countries with higher carbon prices.
