A Closer Look at Indonesia’s Carbon Trading Regulations
From: A.M Oktarina Counsellors at Law
Contributors: Pramudya Yudhatama, S.H., Khaifa Muna Noer Uh’Dina, S.H., Raysha Alfira, S.H., Putri Shaquila, S.H.
Reviewer: Noverizky Tri Putra Pasaribu, S.H., L.L.M (Adv).
⦁ Background
Carbon emission trading in Indonesia, now is certainly familiar to our ears, and there have been many countries that have carried out trade transactions to buy and sell carbon emissions, we can see including in the European Union since 2005, Switzerland since 2008, New Zealand since 2008 and in Kazakhstan since 2013, and other countries that have tested the existence of carbon emission buying and selling trade transactions. (as
the link attached below). Today, Indonesia is preparing to follow the world market by entering an important chapter in carbon emission trading, namely the operationalization of carbon exchanges to reduce greenhouse gas emissions. In 2023, the carbon market will begin to open, so many parties are flocking to be able to carry out trade transactions to buy and sell gas emissions that generate economic value from carbon emissions in Indonesia. Until now, it has been regulated more specifically related to the application of regulations regulated regarding carbon emission buying and selling trade transactions, which with the regulations used today can add convenience to the application of carbon emission buying and selling trade transactions. So what regulations regulate the trade transactions of buying and selling emissions and what benefits are obtained by parties who are sellers and buyers of the carbon? Let’s take a closer look at carbon.
⦁ Legal Basis
⦁ Law No. 4 of 2023 concerning the Development and Strengthening of the Financial Sector (“Law No. 4/2023”)
⦁ Presidential Regulation Number 98 of 2021 concerning the Implementation of Carbon Economic Value for the Achievement of Nationally Determined Contribution Targets and Control of Greenhouse Gas Emissions in National Development (“Presidential Regulation No. 98/2021”)
⦁ Regulation of the Financial Services Authority of the Republic of Indonesia Number 14 of 2023 concerning Carbon Trading Through Carbon Exchanges (“POJK No. 14/2023”)
⦁ Regulation of the Minister of Energy and Mineral Resources of the Republic of Indonesia Number 2 of 2023 concerning the Implementation of Carbon Capture and Storage, as well as Carbon Capture, Utilization, and Storage in Upstream Oil and Gas Business Activities (“Minister Regulation No. 2/2023”)
In achieving the reduction of Greenhouse Gas (“GHG”) emissions that have occurred in the world, especially in Indonesia, the government utilizes and implements carbon emission buying and selling trade. This has been done in Indonesia, and is in line with global regulations, which for example can be an incentive for achieving the Nationally Determined Contributions (“NDC”) target which is a document containing a country’s climate commitments and actions communicated to the world through the United Nations Framework Convention on Climate Change (“UNFCCC”) (as the link attached). By 2020, Indonesia has a commitment in its NDC to reduce carbon emissions both nationally by 29% and/or 41% with international support (as the link attaches).
Currently, the international community and Indonesia are making every effort to reduce the causes of climate change that occur in the world by conducting buying and selling trade transactions by carbon emission operators, which have been supervised by the Financial Services Authority (“OJK”) with the aim of reducing the impact of GHG by mitigating or preventing climate change that occurs as described in Article 1 number
(6) of Presidential Regulation No. 98/2021, which is:
“Climate Change Mitigation is a control effort to reduce risks due to climate change through activities that can reduce emissions or increase GHG sequestration and storage/strengthening of carbon stocks from various emission sources.”
With activities carried out by reducing emissions, increasing carbon sequestration and so on, it has been stated in the definition in Article 1 number (7) of Presidential Regulation No. 98/2021:
“Climate Change Mitigation Action is an activity that can reduce GHG emissions, increase carbon sequestration and/or storage/strengthening of carbon stocks.”
That in Article 1 number (5) of Minister Regulation No. 2/2023, it is explained about the definition of GHG itself which reads as follows:
“Greenhouse gases, hereinafter abbreviated as GHG, are gases contained in the atmosphere, both natural and anthropogenic, which absorb and re-emit infrared radiation.”
That based on these GHGs, it produces GHG emissions as defined in Article 1 number
(6) of Minister Regulation No. 2/2023:
“GHG emissions are the release of GHGs into the atmosphere in a certain area within a certain period of time.”
So that from the existence of GHG emissions that produce carbon emissions, the government makes efforts to reduce the impact of these carbon emissions by trading or carbon emission transactions carried out. Based on Article 1 number (7) of Minister Regulation No. 2/2023, explains the definition of carbon emissions itself which reads:
“Carbon emissions are GHG emissions in the form of carbon dioxide and other GHGs that can be converted as carbon dioxide equivalent.”
Currently, efforts that can be made by the government in reducing carbon emissions themselves are by capturing and storing carbon and also, utilizing and storing carbon as explained in Article 1 number (10) and Article 1 number (11) of Minister Regulation No. 2/2023 which reads:
Article 1 number (10) of Minister Regulation No. 2/2023:
“Carbon Capture and Storage hereinafter abbreviated as CCS is an activity to reduce GHG Emissions which includes capturing Carbon Emissions and/or transporting captured Carbon Emissions, and storage to the Injection Target Zone safely and permanently in accordance with good engineering principles.”
and also Article 1 number (11) of Minister Regulation No. 2/2023:
“Carbon Capture, Utilization and Storage (CCUS) hereinafter abbreviated as CCUS is an activity to reduce GHG Emissions which includes capturing Carbon Emissions and
/ or transporting Carbon Emissions captured, utilization of Carbon Emissions captured, and storage to the Injection Target Zone safely and permanently in accordance with good engineering principles.”
Based on the two articles above, the Indonesian government has made efforts to reduce the impact of carbon emissions by conducting buying and selling transactions or carbon trading and carbon trading which have been defined individually in Article 1 number
(18) of Presidential Regulation No. 98/2021, and Article 1 number (8) POJK No. 14/2023 which reads as follows:
Article 1 number (18) of Presidential Regulation No. 98/2021:
“Emission Trading is a transaction mechanism between Business Actors who have emissions exceeding the specified Upper Emission Limit.”
And Article 1 number (8) POJK No. 14/2023:
“Carbon Trading is a market-based mechanism to reduce GHG emissions through buying and selling Carbon Units.”
Carbon trading is a market-based mechanism to reduce greenhouse gas emissions through buying and selling, which has been explained in Article 23 paragraph (1) of Law No. 4/2023 and Article 1 number (3) of POJK No. 14/2023 as follows:
Article 23 paragraph (1) of Law No. 4/2023:
“Carbon trading is a market-based mechanism to reduce greenhouse gas emissions through buying and selling carbon units.”
and Article 1 number (3) POJK No. 14/2023:
“Carbon Unit is proof of carbon ownership in the form of a certificate or technical approval stated in 1 (one) ton of carbon dioxide recorded in SRN PPI.”
The estuary of buying and selling carbon units will be processed using a carbon exchange system carried out by carbon exchange operators as explained in Article 1 number (9) and Article 1 number (10) POJK No. 14/2023, including the following:
Article 1 number (9) POJK No. 14/2023:
“A Carbon Exchange is a system that regulates Carbon Trading and/or ownership records of Carbon Units.”
And also Article 1 number (10) POJK No. 14/2023:
“The organizer of the Carbon Exchange is the party that organizes and provides the Carbon Exchange.”
That the carbon exchange organizer has the duty to provide and facilitate the trading of carbon units from abroad recorded in SRN PPI or carbon units that are not recorded in SRN PPI, as long as they do not conflict with the provisions of the law as determined in Article 3 paragraph (3) POJK No. 14/2023.
In conducting trading transactions for buying and selling carbon emissions through carbon exchanges, there are requirements that must be carried out by parties who want to make transactions, namely by being registered and having a business license as a carbon exchange operator that has previously been applied for or submitted by the applicant to the OJK traded at the carbon exchange operator to develop products based on carbon units and other activities with the existence of prior permission and approval from OJK as explained in Article 4 and Article 6 of POJK No. 14/2023 and carried
out regularly, reasonably, and efficiently through carbon exchanges as mentioned in
Article 7 of POJK No. 14/2023 which reads:
Article 7 POJK No. 14/2023:
“(1) Carbon Exchange Operators shall conduct orderly, fair, and efficient trading of Carbon Units.
⦁ Carbon Exchange Operators shall organize, provide, and use electronic systems to bring together Carbon Unit transactions continuously.
⦁ The implementation of Carbon Unit transactions as referred to in paragraph (2) can be carried out directly between Parties and/or through the intermediary of service users.
⦁ The Carbon Exchange Operator may enter into an engagement with other Parties regarding the implementation of customer due diligence and/or the creation of a single service user identity number.
⦁ The Carbon Exchange Operator shall provide a Carbon Unit trading system which includes:
⦁ Carbon Unit sale and purchase offer meetings; and
⦁ settlement of Carbon Unit transactions, both fund settlements and Carbon Units, between Parties in the same sector and/or in different sectors in accordance with the provisions of laws and regulations.
⦁ Settlement of Carbon Unit transactions may be carried out using clearing mechanisms with or without guarantees.”
With the requirements carried out to carry out transactions that will later produce Carbon Economic Value (“NEK”) as defined in Article 1 number (2) of Presidential Regulation No. 98/2021:
“The Economic Value of Carbon, hereinafter abbreviated as NEK, is the value of each unit of greenhouse gas emissions resulting from human activities and economic activities.”
Based on the above Article NEK has benefits including to increase investment and innovation in technology and increase the cost of using carbon technology, increase and encourage the government to achieve sustainable government sustainable development goals and generate revenue that can be recycled or rotated into the green economy such as the development of green technology and carried out through carbon trading mechanisms, performance-based payments, carbon levies and through other mechanisms compatible with technologies established by governments.
Basically, it is related to the existence of companies that do not mitigate recording obligations, reporting related to the implementation of mitigation actions carried out in achieving NDC targets, with the recording and reporting of the implementation of climate change mitigation actions, climate change adaptation actions, and the implementation of economic value and climate change resources which are used as the basis for government recognition of and contribution to the implementation of NEK as explained in Article 69 of Presidential Regulation No. 98/2021, will receive administrative sanctions as explained in Article 70 paragraphs (1), (2), and (3) of Presidential Regulation No. 98/2021 which reads:
“(1) Business actors who do not carry out the obligation to record and report the implementation of Climate Change Mitigation Actions, Climate Change Adaptation Actions, NEK implementation, and climate change resources on SRN PPI as referred to in Article 69 paragraph (1) are subject to administrative sanctions.”
⦁ Administrative sanctions subsection (1) shall be: as referred to in
⦁ written reprimand;
⦁ government coercion;
⦁ administrative fines;
⦁ freezing of GHG Emission Reduction Certificate; and
⦁ revocation of GHG Emission Reduction Certificate.
⦁ The imposition of administrative sanctions does not exempt the person responsible for the business and/or activity from civil sanctions and criminal sanctions in accordance with the provisions of laws and regulations.”
⦁ Conclusion
It can be concluded, with the trade transaction of buying and selling carbon economic value emissions, which has been carried out by carbon emission organizers, as one of the positive efforts made by the government, which is to increase investment and innovation in technology, as well as increase the cost of using technology, improve and encourage the government to achieve sustainable development goals, and become one of the sources of income that can be recycled or rotated into the economy, so that Indonesia becomes one of the subjects in the international market by contributing and committing to the UNFCCC to reduce carbon emissions that occur.
References :
https://www.antaranews.com/berita/3673704/bersiap-menuju-perdagangan- ⦁ karbon#mobile-src
https://www.cnbcindonesia.com/news/20210318153929-4-231171/ini-deretan- ⦁ negara-yang-perdagangkan-emisi-karbon
https://lindungihutan.com/blog/nilai-ekonomi-karbon-dan-peraturannya/#rb- ⦁ apa-manfaat-nilai-ekonomi-karbon
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