Indonesia officially opened its carbon exchange to international buyers on Monday, January 20, 2025, a move expected to raise funds to help meet the country’s ambitious domestic climate targets.
The move also allows foreign investors to enter the carbon market that was previously launched in September 2023 for domestic players.
Carbon credits are generated through activities that avoid or reduce emissions of carbon dioxide − a greenhouse gas that contributes significantly to climate change. Companies can buy carbon credits to “offset” or cancel out some of their own emissions, either to meet regulations or to bolster their “green” credentials.
President Prabowo Subianto last year brought forward Indonesia’s carbon neutrality target to 2050, a decade earlier than originally planned. He has also pledged to close hundreds of coal- and fossil-fueled power plants by 2040. The government also aims to build more than 75 gigawatts of renewable energy capacity by 2040, though it has not provided concrete details on the plan.
Minister of Environment, Hanif Faisol Nurofiq, called the launch of the carbon exchange “an important milestone in our collective journey toward a sustainable future.” The government hopes that the proceeds from the sale of carbon credits on the exchange will help finance part of the green transition. The move follows new guidelines on country-level carbon credit trading agreed at COP29 last year.
However, carbon credit trading has faced criticism for poor accounting and alleged fraud in some previous projects.
Hanif said the government would guarantee every credit issued on the exchange, with strict oversight to ensure emissions were not double-counted.
However, skepticism remains among experts. Executive director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, said the domestic market had attracted little interest.
“If domestic demand is high, we don’t need to open it to foreign entities,” Fabby said as quoted on Monday, January 20, 2025.
Fabby also questioned whether the exchange was in line with Indonesia’s emissions reduction strategy and highlighted the importance of the concept of “additionality” in the carbon credit program.
A carbon credit program must demonstrate that emissions reductions or avoidance would not have occurred without the carbon credits. But proving the counterfactual − what would have happened if there had been no carbon credits − is a major challenge in the sector.
Fabby also warned that it was not yet clear whether the carbon credits available on the exchange were in line with international standards. Despite the criticism, carbon credit trading has gotten off to a positive start. On the first day of trading, at least nine transactions were executed, covering more than 41,000 tons of carbon dioxide equivalent, according to a stock exchange board report.
