Navigating Indonesia's Carbon Market: Progress, Policy, and Pathways Toward Net-Zero
- Apr 2
- 4 min read
Written By: Jonathan PHILLIP
Verified By: William DANIEL
Indonesia, the world’s fourth most populous country and one of the largest greenhouse gas (GHG) emitters, has been steadily progressing toward climate goals set under international agreements. Since ratifying the Paris Agreement in 2016, Indonesia has taken crucial steps to integrate carbon pricing into its climate strategy. Through Presidential Regulation No. 98 of 2021, the country has adopted a sectoral approach to carbon pricing—marking a pivotal step toward achieving net zero by 2060 or sooner.
Carbon Pricing: A Tool for Transition
Carbon pricing is a key mechanism in Indonesia’s toolkit for reducing GHG emissions. It operates through a combination of disincentives and incentives—penalizing high emitters through mechanisms like carbon taxes, while rewarding those who reduce emissions via crediting and offsetting systems.
Indonesia’s Enhanced Nationally Determined Contribution (NDC) outlines a 31.89% to 43.20% emissions reduction target by 2030, with key sectors such as energy, forestry, waste, agriculture, and industrial processes included in the scope. The energy and land use sectors alone account for more than 60% of targeted reductions, underscoring their critical role in achieving national climate goals.
Carbon pricing is applied through these mechanisms:
Emission Trading Systems (ETS) – where companies are allocated emission allowances that can be traded.
Crediting / Offsetting Mechanisms – which allows entities to generate or purchase carbon credits from emissions reduction project, such as forestry or renewable energy, to compensate for their own emissions through the IDXCarbon, Indonesia's official carbon exchange platform.
Carbon Taxes – where emitters pay a fixed price per ton of CO₂ emitted, set to start at Rp. 30,000 (~USD 2) per ton in 2025. This rate is significantly lower compared to neighboring countries like Singapore (S $25 or ~ $19 USD). This relatively low rate could limit the tax’s effectiveness in driving emissions reductions and corporate investment in cleaner technologies.
Regulation Landscape: Sector-Based Governance
Indonesia’s approach assigns regulatory responsibilities to sector-specific ministries. While this facilitates tailored sector implementation, it complicates the harmonization of compliance and standards across industries.
Priority has initially been given to the energy sector, particularly coal-fired power generation, due to its large emissions footprint. Other sectors such as industrial processes, agriculture, and waste remain partially or completely unregulated in terms of carbon pricing, creating uncertainty for companies operating in these fields.
Additionally, Indonesia's Monitoring, Reporting, and Verification (MRV) systems remain underdeveloped. Currently, the country lacks fully accredited MRV verifiers and mechanisms aligned with Article 6.4 of the Paris Agreement, which impedes transparency and weakens potential participation in international carbon markets.
Indonesia's ETS: Early Implementation and Next Steps
In February 2023, Indonesia officially launched its mandatory, intensity-based ETS, focusing first on the power generation sector. The rollout follows a phased strategy:
Phase I (2023-2024): Covers coal power plants >100 MW.
Phase II (2025-2027): To expand to oil and gas plants.
Phase III (2028-2030): Inclusion of all fossil fuel-based generation
Additional regulations are in place or are being developed for other sectors:
Maritime: A 2025 regulation will cover blue carbon, aquaculture, and fishery product processing.
Forestry: A regulation passed in 2023 enables ETS for peatland and mangrove management, with carbon crediting focusing on forestry activities.
One major upcoming development is the opening of forestry carbon offsets in 2025. The Indonesian government is working toward mutual recognition with international standards such as Verra and Gold Standard—key to accessing global voluntary carbon markets.
Looking Ahead: Toward a More Inclusive Market
Indonesia’s carbon market will continue to evolve through sector expansion from 2025 to 2027. The government plans to include:
Oil and gas-fired power plants – Phase 2 of Energy sector ETS
Expansion from industrial sectors, focusing on carbon-intensive sectors such as cement, fertilizers, steel, and pulp & paper industries.
This broadening of scope signals a shift from pilot initiatives toward a more comprehensive, functioning carbon market. However, from the business perspective, progress remains cautious. Regulatory instability and unclear timelines have made companies hesitant to invest or participate. Many are waiting for firmer signals and consistent rules before committing resources to carbon trading or emissions reduction plans.
For these efforts to be successful, Indonesia must address gaps in MRV systems, provide clarity for currently unregulated sectors, and build stakeholder confidence in carbon pricing as a transparent and fair tool for emissions reductions.
Conclusion
Indonesia’s journey to net zero is gaining momentum, with carbon pricing emerging as a central pillar. While the current approach is sector-specific and fragmented, the foundation is in place for a robust national system. As the country prepares for the inclusion of new sectors and the rollout of carbon taxes, successful implementation will depend on improved coordination, stronger MRV infrastructure, and greater alignment with international carbon market standards.
At Mt. Stonegate, we are proud to support these efforts. With our expertise in carbon markets, renewable energy, and tailored decarbonization strategies, we are committed to empowering stakeholders in Indonesia and across the region to achieve their sustainability goals and drive impactful climate action.
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