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Tuesday, January 31, 2023

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More regulation may follow before launch of Indonesian carbon exchange

The Indonesian Financial Services Authority, or the Otoritas Jasa Keuangan (OJK), is preparing for the implementation of the Indonesian carbon exchange as part of the government’s efforts to combat climate change.

While the authority supports the establishment of the carbon exchange, the head of commissioners of OJK, Mahendra Siregar, says a clear regulatory framework is required to regulate the exchange for both foreign and domestic trade, according to a statement dated the 27th September 2022.

The country has made continuous efforts toward carbon credit trading in recent years. The Indonesian Ministry of Energy and Mineral Resources ran a pilot project from March to August 2021 for carbon trading in the electricity subsector. According to the ministry, 32 coal-fired power plants participated in the trial with 14 power plants acting as the buyer and 18 power plants acting as the seller.

Following that, the government issued the Presidential Regulation No 98 on the implementation of carbon pricing on the 29th October 2021. The objectives of the regulation include establishing policies and measures as well as implementing activities in accordance with the government’s commitment to reduce greenhouse gas (GHG) emissions by 29% up to 41% by 2030 compared with the GHG emissions baseline as well as to build national, regional and community resilience to various risks associated with climate change conditions and climate resilience.

Moreover, under Indonesia’s Harmonization of Tax Regulation 2021, the government began to impose carbon tax on coal power plants in April 2022 with the implementation of full carbon trading and expansion of the carbon tax scheme for all sectors scheduled in stages for 2025 and onward.

While the government has made several legislative and regulatory efforts to promote carbon taxation and foster the establishment of a carbon exchange, the recent comment from the OJK may be an indication that there is more regulation to follow before the establishment of the exchange.

Indonesia is moving in tandem with its Southeast Asian peers which are either preparing or have already launched carbon exchanges. Bursa Malaysia has confirmed it will launch a Shariah compliant voluntary carbon market exchange by the end of 2022. The Singapore Exchange rolled out Climate Impact X earlier in February in partnership with DBS Bank, Standard Chartered and Temasek while Thailand, just last week, unveiled its first carbon credit exchange, FTIX, which will be operated by the Federation of Thai Industries.

As the second Muslim-majority country in Sourtheast Asia moving toward establishing a carbon exchange, the question arises as to whether it will follow in Malaysia’s footsteps by establishing a Shariah compliant carbon exchange.

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