Indonesia introduces carbon trading policy to reduce emission

Indonesia has introduced new rules on carbon trading to set up a market mechanism to help achieve the country's greenhouse gas reduction targets by 2030, according to a copy of the regulation seen by Reuters.

President Joko Widodo signed the regulation, called "the Economic Value of Carbon" ahead of the COP26 conference in Glasgow, according to the document, which has not been made public. The document was verified as authentic by the environment ministry.

The regulation introduces result-based payments, for initiatives that result in carbon reduction, as an instrument in the carbon trading mechanism, on top of the carbon tax that the Indonesian parliament passed last month.

The carbon trade will have a cap-and-trade system where pollution level is limited and allowances can be traded by business entities within the country and cross-border.

The regulation calls for a bourse to be set up to facilitate the trading.

Officials have said a fully fledged carbon market will likely operate in 2025, but the carbon tax will kick in next April for above-cap pollution level at a rate of 30,000 rupiah ($2.09) per tonne of CO2e for coal-fired power plants.

To be able to set the cap per sector, the government must calculate and report how much greenhouse gas Indonesia emits every year to evaluate it against baseline emission levels and the country's targets.

This will be Jakarta's roadmap to reach its pledge to reduce emission level by 29% below business-as-usual in 2030 by its own efforts, or up to 41% with international help on financing and technology, the regulation said.

Sectors that must act to mitigate climate change include energy, transportation, waste management, manufacturing, agriculture and forestry, it said.

The regulation also mandates authorities to make an inventory of the potential impact of climate change in the archipelago of 17,000 islands, so as to come up with better climate adaptation policy. ($1 = 14,345.0000 rupiah)