Indonesia’s Carbon Exchange is Here. What Do Businesses Need to Know?

In January 2023, Indonesia passed Law No. 4 of 2023 on the Development and Strengthening of the Financial Sector (P2SK Law), granting the Financial Services Authority ("OJK") the authority to regulate and oversee financial services activities in the carbon exchange sector. Subsequently, OJK issued OJK Regulation No. 14 of 2023 on Carbon Trading through Carbon Exchange ("OJK Regulation"), providing guidelines for carbon exchange operators and participants. The Indonesia Stock Exchange ("IDX") was later approved as the operator of the carbon exchange, allowing businesses to commence trading in carbon units. On 26 September 2023, President Joko Widodo officially launched the carbon exchange.

The OJK Regulation defines carbon units as proof of ownership of carbon in the form of certificates or approvals, recorded in the National Registry System for Climate Change Control (SRN PPI). Carbon units can be traded directly between parties or through the carbon exchange, with IDX being the current operator. Foreign carbon units must meet certain requirements for trading on foreign carbon exchanges. OJK's role in carbon trading includes regulating, licensing, supervising, and assessing the competence of individuals involved in carbon exchange operations. In addition, OJK may impose sanctions for violations. These efforts aim to establish an accountable market mechanism to meet emission reduction targets, though challenges such as preventing double selling of retired carbon units and integrating with offshore registries and exchanges remain. Future regulations may be needed for carbon trading through private placement, as OJK's mandate is limited to carbon trading through the exchange.

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