Challenges in Developing Indonesia's Carbon Market
Indonesia possesses approximately 120 million hectares of tropical forests, presenting significant opportunities for global partnerships in climate investment and sustainable forestry business development, stated Minister of Forestry Raja Juli Antoni during a forum at the Indonesian Consulate General in New York on Monday, 11 May 2026.
The Minister explained that the issuance of Forestry Ministerial Regulation Number 6 of 2026 marks a vital milestone in the transformation of Indonesia’s forestry sector. This regulation provides legal certainty for businesses involved in the production, verification, and trading of carbon credits from forestry concession areas, including natural production forests, industrial plantation forests, and social forestry areas. Furthermore, the regulation strengthens the integration of the national carbon market with international standards, including ICVCM principles and the Article 6 mechanism of the Paris Agreement, ensuring Indonesian forestry carbon credits remain competitive in the global market.
Beyond carbon trading, the Ministry of Forestry is encouraging the development of multi-business forestry schemes. This scheme allows forest utilisation permit holders to develop various simultaneous revenue streams, ranging from non-timber forest products and environmental services to ecotourism and bioeconomy products such as biochar and sustainable biomass energy.
A carbon market is a trading system where nations, businesses, or organisations buy and sell permits and credits representing the right to emit specific amounts of greenhouse gases. Its primary goal is to reduce overall global emissions and mitigate climate change. Carbon markets essentially place a price on pollution, operating through two main mechanisms: the Compliance Market and the Voluntary Carbon Market (VCM).
The Compliance Market, also known as a regulatory market, is a legally binding system established by governments or international agreements, such as UN frameworks or national emission trading schemes. Often referred to as ‘cap-and-trade’, regulatory bodies set a strict limit (cap) on total emissions. Companies are allocated permits or quotas; those emitting below their limit can sell excess quotas, while those exceeding it must purchase additional quotas.
The second mechanism is the Voluntary Carbon Market (VCM), which operates outside legal mandates. This allows companies, institutions, and individuals to voluntarily purchase and sell carbon credits to offset their carbon footprints, often to achieve corporate net-zero targets. One tradable carbon credit unit typically represents the reduction, avoidance, or removal of one metric ton of CO2 equivalent from the atmosphere, generated by environmental projects such as reforestation, wetland restoration, or renewable energy implementation.
Carbon markets provide financial incentives for businesses and governments to transition to low-carbon technologies. Rather than forcing every organisation to reduce pollution directly, the system offers financial flexibility, allowing emission reductions to occur wherever it is most cost-effective.
Regarding Governance and Regulation, carbon trading in Indonesia is regulated through Carbon Economic Value (NEK) based on Presidential Regulation Number 98 of 2021. The mechanism includes Emission Trading (buying and selling emission quotas between businesses) and Emission Offsetting (compensating emissions through green projects).
The primary stages of carbon trading implementation in Indonesia begin with Registration and Certification. Businesses or project owners must register through the SPE-GRK system (Climate Change Control Registry System) owned by the Ministry of Environment and Forestry (KLHK). Emission reduction projects must undergo Validation and Verification by accredited bodies to issue Emission Reduction Certificates (SPE) or carbon quotas.
Once registered, an Emission Limit Target is established. For Emission Trading, the government issues Technical Approval for Emission Limits (PTBE) for businesses in specific sectors, such as power plants or industry. Businesses with emissions below the limit can sell surplus quotas, while those exceeding it must buy additional quotas. Currently, only the forestry and energy sectors have issued regulations regarding Indonesian carbon trading procedures.
The next stage involves Carbon Trading Transactions through a Carbon Exchange. Trading must be conducted through a Carbon Exchange Operator that has obtained a business licence and is directly supervised by the Financial Services Authority (OJK). Currently, carbon credit trading in Indonesia is officially facilitated through the IDXCarbon platform.
The final stage is the Reporting and Evaluation by the carbon credit holders (issuers). All transactions and transfers of carbon credits must be reported to the KLHK to be recorded and to prevent double counting. Businesses are also required to submit periodic emission reduction reports as part of their commitment to national Net Zero Emission targets.
The global carbon market has rapidly evolved into a key pillar of the green economic transition to suppress greenhouse gas emissions. Currently, the world’s largest Emission Trading System (ETS) is dominated by China, as nations worldwide continue to align regulations towards high-integrity carbon credit standards.