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Indonesia to launch carbon exchange in June; open to Shariah compliance, says OJK

Indonesia is set to issue a new regulation as a precursor to the launch of its carbon exchange in June this year, Junaidi Cerdas Tarigan, a senior analyst at the Indonesian Financial Services Authority, or Otoritas Jasa Keuangan (OJK), told ISFI.

“OJK, as mandated by the new law, is responsible to regulate and supervise the secondary market of carbon trading through the carbon exchange whereas the primary market will be solely under the authority [of the] relevant ministries,” Junaidi told ISFI.

OJK, which targets to conduct its inaugural carbon trading this year, is currently coordinating with several ministries to set up the exchange, particularly regarding data integration between the ministries and the carbon exchange, the senior analyst shared.

While still in the early stages, Junaidi shared that OJK is open to making the carbon exchange Shariah compliant in tandem with its Malaysian counterpart, which launched the world’s first Shariah compliant voluntary carbon market exchange, the Bursa Carbon Exchange, late last year.

“In the long-term, the possibility to expand the business scope [toward Shariah compliance] is open,” Junaidi told ISFI.

The soon-to-be launched regulations will cover the scope of the carbon units to be traded on the exchange, the registration requirements of the units, the qualifications and activities of the carbon exchange provider, the operational and internal control specifications of the exchange as well as other provisions related to permit applications and penalties.

In a previous development in May this year, Bahlil Lahadalia, the Indonesian minister of investment, announced that the exchange will implement open and registered carbon trading, with the Ministry of the Environment and Forestry carrying out the registration while the carbon exchange will be supervised by OJK.

“We have decided that carbon trading in Indonesia is open but it must be registered,” Bahlil noted following a cabinet meeting on the 3rd May 2023.

ISFI previously reported that the Indonesian government has made several legislative efforts to set the foundation for the establishment of the carbon exchange including Presidential Regulation No 98 on the implementation of carbon pricing issued on the 29th October 2021.

Additionally, under the Harmonization of Tax Regulation 2021, the implementation of full carbon trading as well as the expansion of the carbon tax scheme for all sectors is scheduled in stages for 2025 and onward.

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