14 ASIAN LEGAL BUSINESS – APRIL 2024 WWW.LEGALBUSINESSONLINE.COM INDONESIA In September last year, Indonesia’s outgoing President, Joko Widodo, launched the country’s first carbon exchange, Bursa Karbon Indonesia (BKI), hailing it “Indonesia’s real contribution to fight with the world against climate crisis.” As Indonesia is one of the top 10 global carbon emitters, the move to set up a carbon exchange market was almost unanimously welcomed, but IDX Carbon has seen few trades since its inception. According to Indonesia Financial Services Authority (OJK) data, carbon exchange transactions in Indonesia remain low, with only 52 registered users as of Mar. 18. The total accumulated transaction volume is only $1.9 million since its launch in September. Lawyers in the country say the government needs to do more to mitigate regulatory uncertainties, build infrastructure, and issue comprehensive implementing norms to attract more capital to its carbon exchange. Karina Sungkono, a partner at Indonesian law firm Santoso, Martinus & Muliawan Advocates, says that in the nascent and still-developing carbon trading market, the country’s lawyers play two crucial roles: Advising clients – such as investors, project proponents and buyers – engaged in carbon trading on risk identification and risk mitigation and providing guidance and interpretation on the regulations; and advising the OKJ the carbon exchange operator and other stakeholders for improvement of regulations. enactment of additional sectoral regulations, and the complete implementation of Indonesia’s carbon trading through BKI,” Mahandara explains. Indonesia has been involved in the international carbon market for many years. A number of Indonesian renewable projects were successfully registered under the Clean Development Mechanism (CDM), established in accordance with the Kyoto Protocol, as well as in various international voluntary carbon registries. The journey towards a structured carbon market began with Indonesia’s efforts over the past two years to establish a regulatory framework for carbon pricing and trading. Presidential Regulation 98 of 2021 and Ministry of Environment and Forestry 21 of 2022 laid the groundwork for carbon pricing mechanisms, including cap and trade systems, to reduce greenhouse gas emissions and align with Indonesia’s Nationally Determined Contribution (NDC) goals. In 2022, the Minister of Energy and Mineral Resources issued Regulation No. 16 of 2022 on Procedures of Administration of Carbon Economic Value in the Power Plant Subsector, which was the regulatory framework for emission trading in the power sector in Indonesia, mainly for coal-fired power plants. Law No. 4 of 2023, enacted in January 2023, further solidified Indonesia’s commitment to carbon trading by categorising it as a financial transaction overseen by the OJK. OJK’s Regulation No. 14 of 2023 on Carbon Trading through Carbon Exchange provided detailed guidelines for the implementation of Indonesia’s domestic carbon market, classifying carbon units as securities and outlining the requirements for trading these units domestically and internationally. Indonesia’s stock exchange has also issued several regulations regarding The role of lawyers is not limited to regulatory concerns, says Alta Mahandara, partner at Indonesian law firm ADCO Law. “Lawyers are also needed to emphasise the environmental importance of carbon trading activities carried out by business actors in combatting climate change. Additionally, we emphasise the current significance for business actors to enter the carbon trading market early. Businesses may position themselves to 4 benefit from a sustainable business model in the long run and become leaders in sustainability by participating in carbon trading early on,” he explains. REGULATORY UNCERTAINTY While the implementation of general provisions and the BKI indicates a positive trajectory for Indonesia’s commitment to climate change, there remain areas for improvement. “These include the establishment of clear and robust technical guidelines for climate change mitigation, the ARRESTED DEVELOPMENT When Indonesia established a carbon trading mechanism last year, the move was welcomed across the board. However, a lack of strong implementing regulations, regulatory uncertainty, and insufficient business incentives have combined to ensure slow-going for the country’s carbon trading market. BY NIMITT DIXIT Image: Indonesian Picture/Shutterstock.com
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