Realization Steps of Indonesia’s Carbon Trading in Year 2023
By Setyawati Fitrianggraeni, Agnes Wulandari, Marcel Raharja
Achievement of the Nationally Determined Contribution (NDC) Target is a national commitment in addressing global climate change and achieving the goals of the Paris Agreement to the United Nations Framework Convention on Climate Change. As a step in supporting the achievement of the NDC target, the government has developed a framework for reducing Greenhouse Gas (GHG) emissions through the management of carbon economic value, especially in the context of carbon trading. The government has issued regulations related to carbon trading, in the forestry sector with the Regulation of the Minister of Environment and Forestry Number 7 of 2023 concerning Procedures for Carbon Trading in the Forestry Sector (Minister of Environment and Forestry Regulation 7/2023) and in the financial services sector with the Financial Services Authority (Otoritas Jasa Keuangan (“OJK”)) Regulation Number 14 of 2023 concerning Carbon Trading through Carbon Exchanges (POJK 14/2023).
The government, through the Ministry of Environment and Forestry (KLHK), has issued Regulation of the Minister of Environment and Forestry Number 7 of 2023 concerning Procedures for Carbon Trading in the Forestry Sector (“Minister of Environment and Forestry 7/2023”). In this regulation, it is explained that carbon trading is a market mechanism that aims to reduce GHG emissions through buying and selling carbon units. This Ministerial Regulation is the basis for carbon trading in the forestry sector to control GHG emissions from the sector. The main objective of this regulation is to regulate carbon trading in the forestry sector to achieve NDC targets in that sector.
The implementation of climate change mitigation actions in the forestry sector can be carried out through Carbon Trading, which consists of 2 ways, namely: (i) Emissions Trading; and (ii) GHG Emission Offsetting/GHG Emission Offsetting. Emission Trading is a transaction mechanism between Business Actors who have emissions exceeding the specified GHG Emission Upper Limit. While GHG Emission offsetting / GHG Emission offset is an activity carried out by businesses and/or activities to compensate for emissions made elsewhere.
In the Minister of Environment and Forestry 7/2023, it is also mentioned related to state levies in carbon trading, more precisely Non-Tax State Revenue on Carbon Trading. Levies on forestry sector carbon are carried out in the form of other state levies. Other state levies as referred to are in the form of non-tax state revenues on forest utilization for carbon sequestration and/or carbon storage activities, where the determination of types and tariffs is carried out in accordance with the provisions of laws and regulations. Payment of non-tax state revenue is made through the non-tax state revenue information system (SIPNBP).
FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 14 OF 2023
In the financial service sector, carbon trading can be carried out through carbon exchanges which are currently regulated by the Financial Services Authority Regulation Number 14 of 2023 concerning Carbon Trading Through Carbon Exchanges (Peraturan Otoritas Jasa Keuangan Nomor 14 Tahun 2023 Tentang Perdagangan Karbon Melalui Bursa Karbon) (“POJK 14/2023”). POJK 14/2023 regulates the provisions for carbon exchange operators and carbon units traded in carbon exchange operations. Carbon units to be traded on carbon exchanges include:
Carbon units transacted on carbon exchanges can come from both within the country and even from abroad if they are recorded in the National Registry System for Climate Change Control (SRN PPI) or do not conflict with the provisions of laws and regulations. Carbon units traded in carbon exchanges must first be listed on SRN PPI and carbon exchange operators.
Organizers of carbon exchange activities are required to be in the form of Limited Liability Companies that can be owned by sui generis institutions, Indonesian citizens/legal entities, and/or foreign legal entities that already have licenses with a maximum share ownership of 20% (twenty percent). The organizer of the carbon exchange is required to have a paid-up capital of at least IDR 100,000,000,000.00 (one hundred billion Rupiah) with sources that do not come from loans. This means that the source of shareholders’ funds from the Carbon Exchange Operator is prohibited from coming from any form of nominee arrangement. In addition, each of the shareholders organizing the carbon exchange must first obtain approval from the FinanOJK.
In carbon exchange activities, OJK carries out regulation, licensing, supervision, and development. Trading activities of carbon units in carbon exchanges must be carried out using an electronic system. Therefore, carbon exchange operators must provide a carbon trading system using electronic systems and qualified risk management procedures, to ensure that carbon unit trading transactions run smoothly.
OJK imposes administrative sanctions in the form of written warnings, fines, restrictions on business activities, suspension of business activities, revocation of business licenses, cancellation of approvals to cancellation of registration for parties who violate the provisions stipulated in POJK 14/2023.
The Procedures for Implementing Carbon Trading is further regulated in Financial Services Authority Circular Letter Number 12/SEOJK.04/2023 concerning Procedures for Implementing Carbon Trading Through Carbon Exchanges.
The government’s commitment to achieving the Nationally Determined Contribution (NDC) Target as part of the Paris Agreement and addressing global climate change is evident through the establishment of a comprehensive framework, with a particular focus on carbon trading. This framework includes regulations that govern carbon trading in both the forestry and financial services sectors. The Minister of Environment and Forestry Regulation Number 7 of 2023 serves as the cornerstone for carbon trading in the forestry sector, emphasizing the role of carbon trading as a market mechanism for reducing greenhouse gas (GHG) emissions and achieving NDC targets.
In the financial services sector, carbon trading occurs through regulated carbon exchanges, as detailed in Financial Services Authority Regulation Number 14 of 2023. This regulation outlines the types of carbon units that can be traded, encompassing emissions cap approvals, greenhouse gas reduction certificates, and others, while emphasizing compliance with legal provisions.
Further guidelines on implementing carbon trading are provided in Financial Services Authority Circular Letter Number 12/SEOJK.04/2023, offering comprehensive instructions for carbon trading through carbon exchanges. These regulations collectively underscore the government’s dedication to combatting climate change, reducing GHG emissions, and achieving its NDC targets while promoting responsible economic growth.
Regulation of the Minister of Environment and Forestry Number 7 of 2023 concerning Procedures for Carbon Trading in the Forestry Sector
Financial Services Authority Regulation Number 14 of 2023 concerning Carbon Trading Through Carbon Exchanges
Financial Services Authority Circular Letter Number 12/SEOJK.04/2023 concerning Procedures for Implementing Carbon Trading Through Carbon Exchanges
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