Carbon Trading: Impacts, and Indonesia’s Readiness

Carbon trading is now increasingly discussed and is said to be an antidote to the increasingly severe climate change disaster.

It is said that the presence of carbon trading will not only overcome climate change disasters but can also improve the country’s economy.

According to the National Council for Climate Change, carbon trading is a transaction for the right to release or reduce greenhouse gas emissions in tons of CO2 equivalent.

In Kyoto Protocol 1, there are generally six types of greenhouse gas emissions that can be traded, namely: carbon dioxide (CO2), methane (CH4), nitric oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

Carbon Trading Goals

The main aim of carbon trading is to reduce carbon emissions released by industry in the most cost efficient manner possible.

Launching from thebalancemoney.com, it all started with The International Energy Agency issuing a recommendation that no more than one-third of fossil fuel reserves be burned by 2050.

This is because the atmospheric temperature will rise to 2 degrees Celsius, which means it is at a dangerous level. Scientists believe that the consequences of this increase in temperature cause floods, droughts and hurricanes.

POJK 14/2023 Carbon Trading Through the Carbon Exchange

As the party that oversees financial flows, the Financial Services Authority (OJK) issued carbon trading regulations (POJK 14/2023). This regulation, which came into effect on August 2 2023, functions to regulate requirements, permits, as well as procedures and implementation of carbon trading through the carbon exchange in Indonesia.

Important points from PJOK:

• Carbon Unit: proof of carbon ownership in the form of a certificate or technical approval expressed in 1 (one) ton of carbon dioxide recorded in the National Climate Change Control Registry System (SRN PPI).
• GHG Emission Reduction Certificate (SPE-GRK): a letter of proof of emission reduction by a business and/or activity that has gone through measurement, reporting and verification, and is recorded in the SRN PPI in the form of a number and/or code registry.
• Technical Approval of Upper Emission Limits for Business Actors (PTBAE-PU): determination of upper GHG emission limits for business actors and/or determination of emission quotas within a certain compliance period for each business actor.
• Securities: securities or investment contracts in conventional and digital form or other forms in accordance with technological developments which give the owner the right to directly or indirectly obtain economic benefits from the issuer or from certain parties based on the agreement and any derivatives of Securities, which may transferred and/or traded on the capital market.

The Impact of Carbon Trading (the good and the bad)

Carbon trading certainly has negative and positive effects for both natural and economic sustainability, here is a discussion of these impacts:

Positive impacts :

Helping to achieve international emissions targets

By starting to implement a carbon trading system, countries can effectively meet the international/regional carbon emission targets that have been implemented.

Industry stakeholders will work together by selling and buying each other’s emission standard quotas and making a profit.

For international emission reduction standards, they are based on the Paris Agreement, in order to ensure global warming does not exceed 1.5°C, emission reductions are required to reach 45% by 2030 and net zero by 2050.

Makes air quality improve

In accordance with the main objective of carbon emissions trading, the carbon released into the air when carbon emissions trading is implemented will also actually be reduced.

Considering that carbon emissions are the cause of air pollution, reducing carbon emissions in the air will improve air quality.

Encouraging green technology innovation

Research published by mdpi.com states that carbon trading will increase green technology innovation. In addition, if carbon trading is successful in areas with qualified human resources, then this trading system can increase the impact of carbon emissions trading policies on environmentally friendly technological innovation in those areas.

Lack :

Difficulty determining the number of carbon emission permits

When carrying out carbon trading, one aspect that must be prepared is a limit on the amount of carbon emissions released.

In issuing this number limit, it turns out that it is still difficult to get the right number. According to Economics Help in 2005-2007 in the European Union, the selling price of carbon emissions fell to zero because the organizers misjudged the amount of carbon emitted.

It is still considered ineffective in dealing with climate change disasters

According to investopedia.com, carbon trading is still considered ineffective as an answer to the climate change disaster. This is because there are still many parties who consider carbon trading to be a diversion and not a complete solution to the serious global warming disaster.

To what extent is Indonesia ready to implement carbon trading

Reporting from Indonesia.go.id, Indonesia is ready to implement carbon trading. This is because the government has issued regulations which have been signed by President Joko Widodo regarding the carbon market which is also a form of commitment in the form of programs and strategies towards Nationally Determined Contributions (NDC) in 2021.

Indonesia is committed to reducing carbon emissions in accordance with the contents of the NDC, estimated to reach 29 percent or 41 percent with international support in 2030 in terms of carbon reduction.

In order to achieve this target, the government needs to prepare necessary preparations such as a roadmap for carbon trading in organized markets, capacity building to prepare competent and professional human resources, infrastructure to support the implementation of an organized carbon market.