The Indonesian Financial Services Authority, or Otoritas Jasa Keuangan (OJK), has on the 23rd August this year issued a set of regulations for the soon-to-be-launched carbon exchange.
The regulations could stimulate the development of sustainable finance products and services, Naritalia Panjaitan, the corporate sustainability and climate change lead for Indonesia at global sustainability consultancy firm ERM, told ISFI.
The new regulations define the specifics of carbon credit registration as well as carbon trading through carbon exchanges, acting as a precursor to the Indonesian carbon exchange, set to be launched in September this year.
“The launch of the carbon exchange could improve the VCM [voluntary carbon market] by enhancing visibility and standardizations as well as providing transparency on pricing. However, a few challenges still remain, such as ensuring credit integrity, avoiding double counting and regulatory oversight,” Naritalia explained.
Like the Malaysian Bursa Carbon Exchange, the development of the Indonesian exchange appears to have experienced some delays. ISFI previously reported in May 2023 that the carbon regulations were expected to be issued in June this year.
The implementation and regulation of carbon trading have been on the country’s policy docket for a number of years now.
The Harmonization of Tax Regulation 2021, which outlines the implementation of full carbon trading and the expansion of the carbon tax scheme for all sectors, is scheduled in stages for 2025 and onward.
Notably, while Indonesia has come later than Malaysia to establishing a government-affiliated carbon exchange, it has already taken a policy decision on the implementation of a carbon tax.
In a podcast interview earlier this month with Dr Chen Wei-nee, the head of carbon markets at Bursa Malaysia, explained that Bursa Malaysia is conducting a joint feasibility study with the Ministry of Finance and the World Bank on carbon pricing instruments in Malaysia.
“What the World Bank is helping us to do is to work out policy designs on compliance carbon markets. We are looking at the moment at carbon tax to see how Malaysia can possibly design one,” Dr Chen shared.
According to Dr Chen, the policy decision on whether Malaysia will implement a carbon tax as opposed to opting for an emissions trading system will take place upon the completion of the study in 2025, barring any unforeseen developments.
In a previous correspondence with OJK, its senior analyst Junaidi Cerdas Tarigan confirmed that there is a possibility of the Indonesian carbon exchange expanding its business scope to Shariah compliance in the long term.
While not entirely mirroring its Malaysian counterpart, which launched as the first Shariah compliant carbon exchange in December 2022, it conforms to the broader trend of Islamic VCMs.