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Indonesian Carbon Exchange Established under OJK and IDX Regulatory Frameworks

The recent arrival of Indonesia’s first carbon exchange is a welcome development, demonstrating the country’s commitment to reducing carbon emissions. While we expect carbon unit trading on the IDX to become increasingly active, questions are likely to arise with respect to the new rules.

The key rules on how the Indonesian carbon exchange operates are summarised in this article.

Legal background

On 2 August 2023, Indonesia’s Financial Services Authority (Otoritas Jasa Keuangan or OJK) issued the long-awaited regulatory framework on carbon exchanges through OJK Regulation No. 14 of 2023 on Carbon Trading through Carbon Exchange (Regulation 14), which was implemented by OJK Circular Letter No. 12/SEOJK.04/2023 on Procedures for the Organisation of Carbon Trading through Carbon Exchange, issued on 6 September 2023 (Circular 12).

These two regulations were issued by OJK as part of Indonesia’s commitment to reducing carbon emissions and implementing the mandate under Law No. 4 of 2023 on Development and Strengthening of the Financial Sector for the securitisation and trading of carbon units to fall under OJK’s supervision.

On 18 September, the Indonesian Stock Exchange (Bursa Efek Indonesia or the IDX) became the first institution in Indonesia to obtain a business licence as a carbon exchange operator – marking the realisation of the first carbon exchange in Indonesia. After issuing several regulations on the registration and trading of carbon units,1 on 26 September the IDX launched the first trading of carbon units as Indonesia’s current carbon exchange.

Carbon unit trading criteria

Regulation 14 defines “carbon units” as proof of carbon ownership in the form of a certificate or technical approval (in denominations of one tonne of carbon dioxide) registered with the National Registry System for Climate Change Control (Sistem Registrasi Nasional Pengendalian Perubahan Iklim or the SRN PPI). Under the carbon exchange framework, the SRN PPI validates the carbon units to be traded on the carbon exchange. Regulation 14 also reiterates that carbon units are treated as “securities” under Indonesia’s capital markets law.

Carbon units traded on the carbon exchange under Regulation 14 must take the form of either (i) Certificate of Greenhouse Emission Reduction (Sertifikat Pengurangan Emisi Gas Rumah Kaca or SPE-GRK) or (ii) Technical Approval of Emission Ceiling for Businesses (Persetujuan Teknis Batas Atas Emisi bagi Pelaku Usaha or PTBAE-PU), and must be listed with the SRN PPI and the IDX as the carbon exchange operator.

Foreign carbon units

Under Regulation 14, the carbon exchange can facilitate trading of foreign carbon units (ie, carbon units traded by foreign parties or issued by foreign parties or countries), whether or not they are registered with the SRN PPI.2 To do so, the carbon exchange operator must first register with OJK and obtain the registration letter from OJK.

Requirements for carbon exchange operators

A prospective carbon exchange must obtain a licence from OJK and must fulfil five key requirements under Regulation 14:

  1. It must be an Indonesian limited liability company.
  2. It must have minimum paid-up capital of Rp100 billion, none of which may be sourced from loans.
  3. It can only be owned by a sui generis institution (ie, an institution formed by laws and regulations, such as Bank Indonesia), Indonesian citizen, Indonesian legal entity and/or foreign entity that has obtained a licence from or is under the supervision of the financial regulator in its home jurisdiction (nominee arrangements are prohibited).
  4. Its shareholders, directors and commissioners must be approved by OJK.
  5. It must have its own regulations on carbon exchange users, carbon units, the trading mechanism, and the method of supervision.

IDX as Indonesia’s carbon exchange operator – how the carbon exchange works

Carbon exchange users. Carbon exchange users are Indonesian or foreign legal entities entitled to use the system or facilities of the carbon exchange operator and registered as carbon exchange users at the IDX. The minimum volume of trading on the carbon exchange is one lot or one tonne of CO2e (and any multiple thereof). The IDX recognises four types of carbon exchange users: (i) emission business traders; (ii) non-emission business traders; (iii) project owners; and (iv) other parties approved by OJK. Further details can be found in Table 1 – Indonesian Carbon Traders (see downloadable PDF).

Carbon exchange users must first register with the IDX and satisfy certain key conditions, among others:

  • have a dedicated officer responsible for using the carbon exchange facilities;
  • hold an account at a bank connected with the Bank Indonesia system (ie, BI-FAST or BI-RTGS);
  • have an audited financial statement covering at least the preceding year;
  • have at least two carbon exchange users that have participated in the training on carbon trading;
  • pay the registration fee; and
  • in the case of foreign entities, have a legal entity identifier registered with the Regulatory Oversight Committee.

In addition to the carbon exchange user requirements above, relevant ministries (ie, government ministries that can auction SPE-GRK for business players through the IDX carbon exchange) may also utilise the facilities provided by the carbon exchange operator in order to trade carbon units.

Carbon exchange market segments. The IDX carbon exchange has four markets, depending on (a) the type of carbon unit being traded and (b) the type of carbon exchange user. These markets are the auction market, regular market, negotiated market, and non-regular market. The types of units that can be traded, the types of users and the trading rules vary in each market, and are summarised in Table 2 – Indonesian Carbon Markets (see downloadable PDF). 

SPE-GRK. There are four categories of SPE-GRK that can be traded on the carbon exchange, depending primarily on the project criteria:

  • Indonesia Nature Based Solution (IDNBS);
  • Indonesia Nature Based Solution International Standard (IDBNSI);
  • Indonesia Technology Based Solution (IDTBS); and
  • Indonesia Technology Based Solution International Standard (IDTBSI).

The SPE-GRK category will determine the initial price on the auction market, or else the price may be determined by the IDX as the carbon exchange operator.

Closure of carbon units

Carbon units can be closed (a) if they reach maturity, (b) at the request of the relevant ministries or (c) at the request of the project owner.

Issues to address and closing thoughts

We expect carbon unit trading on the IDX to become increasingly active, and we will be closely monitoring its implementation.

We note initially a couple of practical issues that need to be addressed.

First, the fact that carbon units have been defined as “securities” under Indonesia’s capital markets law suggests that the capital markets regulations would also apply to carbon unit trading (for instance, the insider trading rules). The existing rules for the Indonesian capital markets, which are designed for conventional equity and debt securities, may not be very relevant to the trading of carbon units.

Second, the successful implementation of carbon trading will depend on the following:

  • SRN PPI: Proper implementation of (i) measuring, reporting and verification activities in determining the carbon economic value, and (ii) recording the carbon economic value to be registered on the SRN PPI. Currently, there are four validators/verifiers registered with the SRN PPI that are authorised to validate and verify the carbon economic value.
  • PTBAE-PU: Clarity on the issuance of the technical approval on the emission ceiling by the relevant technical ministries. In this regard, we note that a PTBAE-PU will be issued by the relevant technical ministries for any business entity whose emissions are equivalent to or less than the emission ceiling for their sector (as set by that ministry). Currently, the emission ceiling has only been determined for two industry sectors – energy (particularly coal-fired power plants) and forestry (for emission trading).

Despite our concerns regarding implementation, the introduction of the carbon exchange by OJK (with the IDX as the operator) is a welcome development, demonstrating Indonesia’s commitment to reducing carbon emissions.



1 These include: (i) Regulation on Registration of Carbon Units with Carbon Exchange Operator (Decision of the Board of Directors of IDX (IDX Decision) No. Kep-00295); (ii) Regulation on Trading of Carbon Units through Carbon Exchange Operator (IDX Decision No. Kep-00296); (iii) Regulation on Users of Carbon Exchange Services (IDX Decision No. Kep-00297); and (iv) Regulation on Supervision of Carbon Exchange Trading (IDX Decision No. Kep-00298), all dated 20 September 2023.

2 To trade foreign carbon units on the IDX that are not registered with the SRN PPI, they must (i) be registered, validated and verified by an institution accredited by an international registry system operator; (ii) meet the requirements for trading on any foreign carbon exchange; and (iii) comply with any other requirements set by OJK in coordination with the Ministry of Environment and Forestry.

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