Introduction of Indonesia’s Inaugural Carbon Exchange: Pioneering Carbon Market Launching 26th September 2023
Context:
In alignment with Indonesia’s steadfast efforts to curb emissions and attain net-zero status, Indonesia has just inaugurate its carbon market on 26th September 2023. This landmark initiative, supervised by the Financial Service Authority (OJK) and facilitated by the Indonesia Stock Exchange (IDX), is the fruition of extensive policy iterations, from Presidential Regulation No. 98 in 2021 to Minister of Forest and Environmental Regulation No. 21 in 2022.
What are the the 5 important things to know about Indonesia Carbon Exchange Market?
1. Mirroring Stock Exchange Mechanisms: The carbon market predominantly emulates the mechanisms of a stock exchange from listing, trading, clearing, to settlement, with minor modifications. For instance, it integrates the KSEI system for the custodian banking, real time trading, and incorporates bid and ask trading features.
2. Dual Trading System:
- Allowance market (mandatory): Currently in its pilot phase, this market solely includes coal power plants, with baselines and targets determined by the Ministry of Energy and Mineral.
- Offset market (voluntary): This market solely deals with credits related to nature-based and technology-based products. It trades in SPE GRK, a specialized certification of credit that is issued by the SRN and authenticated by the Ministry of Environment and Forest.
3. SRN is The Gate: SRN stands as the pivotal gateway for the issuance and registration of carbon allowances and offsets, rendering the status “Available for Exchange” and linking with the IDX Carbon Market for settlement and registry functions.
4. Participation Prerequisites to Become a Carbon Exchange Service User
- Attend training and onboarding sessions conducted by the Carbon Market Operator (CMO).
- Present the financial statement from the preceding year.
- Submit the application form along with the required registration fee.
- The CMO will review the application within a maximum of 5 working days.
- Foreign-owned entities are required to provide additional documentation—a Legal Entity Identifier (LEI).
5. The Concept of Retirement or Surrender: A distinctive feature of the carbon market is the surrender (mandatory) or retirement (voluntary) mechanism:
- Once the credit of the carbon has taken place, the carbon credit holder can submit retirement request (for voluntary) or surrender at ending of compliance period (for mandatory) through the carbon market organizer platform which will then be forwarded to SRN.
- The retirement or surrender feature is important to ensure the avoidance of double counting in the SRN registry and rendering the credits untradeable
Differences between Allowance vs Offset market mechanism