Indonesia, Japan Partner for a Sustainable Future with Carbon Trading Agreement
In line with the Paris Agreement, which aims to reduce greenhouse gas emissions and global temperature by reducing climate change, Indonesia and Japan recently signed the Mutual Recognition Agreement (MRA) for a bilateral carbon trading agreement. The agreement aims to reduce greenhouse gas emissions, particularly carbon dioxide emissions. By pricing carbon dioxide emissions, carbon emissions can be traded in the carbon market. Indonesia and Japan signed the MRA to establish an international carbon market and achieve carbon neutrality by 2050.
The carbon trading deal between these countries will acknowledge carbon credits from verified greenhouse gas reduction projects. Carbon credits are a reduction of carbon emissions that are generated through various projects such as renewable energy development, reforestation or developments that utilise plenty of green energy. To ensure transparency and environmental integrity, the carbon trading agreement terms state that there will be a prevention mechanism for double-counting credits.
Indonesia’s Carbon Exchange Sees Rapid Growth, Set for International Trading in 2025
Since Indonesia launched the Indonesia Carbon Exchange (IDXCarbon) in September 2023, it has experienced rapid growth. The number of carbon traders surged by 220% from 50 to 1,601 between September 2023 and February 2024, highlighting increasing interest in carbon trading.
In January 2024, the carbon exchange traded 7,656 tCO2e, with a value of up to IDR 453.2 million. By September 2024, it had listed three projects with 1,356,991 available carbon units. As more verified projects are listed, more carbon units are expected to be made available.
Concluding 2024, IDXCarbon recorded a trading volume of 1,000,000 tCO2e and attracted 100 registered users. While carbon trading on IDXCarbon was primarily regional or local, IDXCarbon will begin its first international carbon trading on 20 January 2025. This impending event has sparked widespread interest among international parties, with several enquiries from foreign media and prospective buyers.
Leading the Way for Carbon Offset
Though 2025 has just begun, Indonesia’s carbon market already has 2.53 million tons of verified CO2 equivalent (CO2e) credits from six significant projects. Moreover, three projects such as the PLN Indonesia Power’s Natural Gas-Fired Power Plant project, contributing 763,653 tCO2e; the Single Cycle Conversion Project, contributing 407,390 tCO2e; and the Muara Tawar Conversion Project, contributing 30,000 tCO2e are now on the IDXCarbon.
By signing the carbon trading agreement with Japan, Indonesia enhances its appeal as a carbon trading hub. Given the steady supply of carbon credits and strict regulations, investors are likely to trust Indonesia’s commitment to the credits’ credibility and environmental effects.
The average spot price of carbon credit has dropped to $4.80 per tonne of carbon dioxide equivalent. It has been declining since 2022, with a 32% drop and in 2023, it declined by 20%. Although the carbon credit prices will be lower in the coming years, Indonesia is determined to reduce its carbon emissions. Through their projects such as the New Priok Block 4 and Grati Block 2 Power plants, Indonesia is generating around 1.2 million carbon units.
Fulfilling Climate Goals with Carbon Trading Agreement
With abundant natural resources, Indonesia is among the key players in global carbon offsets. In addition to its commitment to reducing greenhouse gas emissions, the country’s carbon exchange is attractive to international investors seeking environmentally friendly investments. The exchange offers verified credits from projects that reduce carbon emissions, use green energy, and replant trees.
The signing of the MRA with Japan will boost Indonesia’s establishment as a carbon trading hub, as it is supported by a strong regulatory framework and more initiatives. With the market expanding and global collaboration strengthening, Indonesia is looking forward to playing its role in helping other nations and itself fulfill climate goals.
