Indonesia launches first carbon exchange to help offset emissions

IDXCarbon will allow local companies to offset emissions, help Indonesia fight climate change

Indonesia launched its first carbon exchange on Tuesday, a move that is expected to help the country fulfill its global climate commitments.

The Indonesian Carbon Exchange, or IDXCarbon, which will allow local companies to offset their emissions, is in line with the country's pledge to attain carbon neutrality. The launch was also held ahead of the United Nations Climate Change conference in Dubai beginning from late November.

In his opening speech, President Joko Widodo said IDXCarbon is Indonesia's contribution to the global fight against climate change. He said the exchange can create a green economy, which has the potential to grow to 3,000 trillion rupiah ($194.3 billion).

"I am very optimistic that Indonesia can become the world's carbon hub if those concrete steps are consistently materialized together by all stakeholders," Widodo said.

Analysts said Indonesia, home to the world's third-largest tropical rainforest, can provide the "carbon surplus" needed to offset huge emissions.

"The carbon market can support Indonesia, in the long run, to achieve its zero-emission target," Josua Pardede, chief economist at Bank Permata in Jakarta, said.

Citing data from Indonesia's Ministry of Energy and Mineral Resources, Pardede said the power generation industry can potentially trade off 9.9 million metric tons of carbon emissions, which is worth 298.62 billion rupiah.

Pardede said the forestry sector and companies that are ready to reduce emissions are those that will benefit most from the carbon exchange, as they can potentially sell their carbon surplus.

Putra Adhiguna, energy technologies research lead for Asia at the Institute for Energy Economics and Financial Analysis, said the carbon exchange's launch is Indonesia's first step to put a price on carbon emissions.

While Indonesia is not the first country in Asia to set up such an exchange – China and Singapore have done it too — Adhiguna said this is Indonesia's effort in "onshoring anything carbon-trade related". He pointed to the country's huge forestry sector, which can generate massive carbon credits.

Carbon trading was held at the Indonesia Stock Exchange, or IDX, with the Financial Services Authority overseeing the trade. IDXCarbon said 459.953 tons of carbon units and 27 transactions were recorded during Tuesday's morning trade.

Iman Rachman, IDX's president director, said the carbon exchange is an "important milestone for Indonesia's decarbonization commitment".

"IDXCarbon strives for transparency, reliability, and security in providing the best solution for carbon trading in Indonesia and creating fair, orderly and efficient trading," he said.

Teguh Hidayat, capital market analyst and director of Avere Investama, said IDXCarbon will allow renewable energy companies to sell carbon credits to coal power producers. This will not only boost renewable energy firms' revenues, but can also reduce consumption of fossil fuels.

"So far, the profits gained by new and renewable energy companies is small because the production cost of energy like geothermal energy is higher than the production cost of coal energy," he said.

"As a result, state power firm PLN, as the largest consumer, prefers coal energy for its power plant because it is cheaper. But, with the presence of the carbon exchange, even if PLN prefers coal, for the future, new and renewable energy firms are expected to gain bigger profits, which is derived from the 'cost' paid by those coal power companies."