Jakarta—The Indonesian government has made progress on stimulating the development of the carbon market; however, the International Emissions Trading Association (IETA) said in its latest report issued late last week that more work is needed to unlock the country’s carbon market.
The Indonesian government is already on track to unlock the country’s carbon economic values through the introduction of the emission trading system (ETS), the formation of SRN (national registration system), and the opening up of the IDX Carbon market to international participants; however, more work is needed.
“However, importantly, the specific requirements for developers on the supply side and buyers on the demand side may need to be better integrated to allow for a robust and scaled-up market,” IETA’s Business Partnership for Market Implementation (B-PMI) said in its latest report entitled Unlocking Indonesia’s Carbon Market.
It said building scale and integrity in the market at this stage would require two important points: alignment with international standards and best practices, and opening up the market for non-correspondingly adjusted credits.
IETA said the alignment or mutual recognition between Indonesia’s domestic crediting mechanism and international standards (such as Verra, Gold Standard, and others) and foundational integrity criteria (notably, the Core Carbon Principles) is “critical to provide comfort to international corporates looking to purchase credits for voluntary purposes.”
Additionally, facilitating alignment with CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) eligibility criteria will help unlock another key source of demand for Indonesian credits, bringing much-needed finance into the country, it said.
IETA said the non-correspondingly adjusted credits, whether issued by independent crediting programmes, the domestic mechanism, or the Article 6.4 PACM, can play a critical role in facilitating finance to underserved sectors and activities within or outside the NDC, as these units do not require authorisation and CA.
It said that even as credits are bought and retired abroad, the mitigation outcomes underpinning those credits will stay within the country’s accounting system and count towards Indonesia’s NDC in accordance with the final Article 6 rules.
In the previously issued Presidential Regulation 98/2021, provisions for the process of selling such non-CA credits outside of Indonesia are still unclear.
It said this should ideally be amended and streamlined to help Indonesia unlock the full stream of carbon revenues needed to achieve its NDC.
For each of the routes to market described above, the Indonesian government may usefully continue the tracking of projects on SRN to ensure proper accounting and transparency, said IETA.
Indonesia also needs to clarify and report on sector-specific NDC target achievements, setting aside specific volumes of emissions that may be authorised as Internationally Transferred Mitigation Outcomes (ITMO). It should also uphold and communicate a positive list of project activities that fall outside the scope of the unconditional NDC and will be eligible for Article 6 authorisation.
IETA added that Indonesia also needs to establish a clear process for authorising ITMO. For authorised credits requiring corresponding adjustments, the government should clarify the process for obtaining letters of authorisation, the roles of responsible ministries, and eligible project types.
“To unlock international financing towards projects, longer-term authorisation frameworks that support forward sales of ITMOs are critical,” it said.
The other recommendation is to define the role of independent crediting programs, which are crucial in aligning with international standards, enhancing market integrity, and ensuring investor confidence.
Clarifying how these programmes interact with Indonesia’s domestic crediting mechanism will help harmonise the market and attract international corporate buyers, particularly those seeking credits for voluntary purposes, IETA B-PMI concluded. (Roffie Kurniawan)
Banner photo: Image generated by OpenAI’s DALL·E via ChatGPT (2024)
