The Launch of the Indonesian Carbon Exchange; A New Instrument in the Energy Transition
Indonesian President Joko Widodo visited the Indonesia Stock Exchange (or IDX) on 26 September 2023 to inaugurate the Indonesian Carbon Exchange (abbreviated as IDXCarbon) and thereby enabling carbon trading. Through carbon trading Indonesia facilitates green financing in an effort to achieve its energy transition goals (which includes the net zero emissions target by 2060).
Based on Financial Services Authority (Otoritas Jasa Keuangan, or OJK)’s Decree No. KEP-77/D.04/2023 and OJK Regulation (or POJK) No. 14 of 2023 on Carbon Trading through the Carbon Exchange, IDXCarbon is given the operating authority as well as the responsibility to facilitate carbon trading in Indonesia.
Meanwhile, through Presidential Regulation No. 98 of 2021 on the Implementation of Carbon Pricing to Achieve the Nationally Determined Contribution Targets and Control over Greenhouse Gas Emissions within National Development, regulations related to carbon pricing are stipulated, including carbon trading.
What Is Carbon Trading?
Almost every activity – ranging from traveling, manufacturing to farming – leads to the emission of carbon dioxide (CO₂), which contributes to the greenhouse effect (a process that occurs when gases in Earth's atmosphere trap the Sun's heat). Reducing greenhouse gases could therefore help to reduce global warming. One way to do this is by carbon trading.
Carbon markets are trading systems in which carbon credits are sold and bought. Companies, institutions, or, individuals can use carbon markets to compensate for their greenhouse gas emissions by purchasing carbon credits from entities that cut or reduce greenhouse gas emissions. There are two ways to do this:
- Through a carbon tax (a fixed price that must be paid for every ton of CO₂ emitted);
- Carbon trading (where companies/institutions/individuals are given a quota in terms of emissions, and will have to enter the secondary market to buy extra units or credits if they exceed the quota).
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