Indonesia and Japan Sign Bilateral Agreement for Carbon Trading

Indonesia and Japan recently signed a groundbreaking Mutual Recognition Agreement (MRA) for bilateral carbon trading during the COP29 summit. This agreement marks a significant milestone in international collaboration to combat climate change, allowing the two nations to exchange verified carbon credits and advance their commitments under the Paris Agreement. The partnership aligns with Indonesia’s plans to establish its international carbon market and Japan’s goal to achieve carbon neutrality by 2050.

Key details of the agreement

Under the terms of the MRA, both Indonesia and Japan will mutually recognize carbon credits generated from verified greenhouse gas (GHG) reduction projects. These credits can be traded between entities in both countries to fulfill their respective Nationally Determined Contributions (NDCs). The agreement includes mechanisms to prevent double counting, ensure transparency, and uphold environmental integrity.

The Indonesian Carbon Exchange (IDXCarbon) was launched on September 26, 2023, and has already achieved significant milestones. By the end of 2024, IDXCarbon had recorded a cumulative trading volume of 1,000,000 tons of CO2 equivalent (tCO2e) and attracted 100 registered users, reflecting growing interest in carbon trading. The first international carbon trading on IDXCarbon is scheduled to begin on January 20, 2025. This upcoming event has generated significant interest from international stakeholders, with numerous inquiries from foreign media and prospective buyers.

Indonesia’s carbon offsetting potential for foreign investors

Indonesia’s vast natural resources and ambitious climate goals position it as a global leader in carbon offsetting opportunities. The nation’s carbon exchange offers verified credits from renewable energy, reforestation, and emission reduction projects, making it a promising destination for international investors seeking to meet their sustainability targets.

As of January 10, 2025, Indonesia’s carbon market boasts 2.53 million tons of verified CO2 equivalent (CO2e) credits from six major projects. New projects added to IDXCarbon at the start of 2025 include PLN Indonesia Power’s Natural Gas-Fired Power Plant Project, contributing 763,653 tCO2e; the Single Cycle Conversion Project, contributing 407,390 tCO2e; and the Muara Tawar Conversion Project, contributing 30,000 tCO2e.

This robust supply, coupled with stringent regulatory oversight, assures foreign investors of these credits’ credibility and environmental impact. Moreover, Indonesia’s commitment to transparency and international cooperation through agreements like the MRA with Japan enhances its appeal as a carbon trading hub.

Participant Growth and Market Dynamics

The Indonesian Carbon Exchange (IDXCarbon) has witnessed remarkable growth since its inception. From September 2023 to February 2024, the number of registered carbon traders surged by 220%, increasing from 50 to 1,601 participants. This rapid growth reflects the increasing interest in carbon trading opportunities within Indonesia.

In January 2024, IDXCarbon recorded a total trading volume of 7,656 tons of CO2 equivalent (tCO2e), with a market value of approximately IDR 453.2 million. These numbers are projected to rise as more projects and participants join the exchange, further solidifying Indonesia’s position in the global carbon market. By September 2024, the exchange had three listed projects with a total of 1,356,991 available carbon units. The number of listed projects is expected to grow as more emission reduction projects are developed and verified.

Carbon Credit Pricing and Emission Reduction Impact

The average spot price of carbon credits in the international market is around $4.80 per ton of CO2 equivalent. This price represents a decline of 20% from 2023 and 32% from 2022. The entry of Indonesian carbon credits into the global market is expected to exert further downward pressure on prices due to increased supply.

Despite the price fluctuations, Indonesia’s carbon trading initiatives have a significant environmental impact. Projects listed on IDXCarbon, such as the New Priok Block 4 Natural Gas Fueled Power Plant and the Grati Block 2 Steam Gas Power Plant, contribute substantially to emission reductions, accounting for approximately 1.2 million carbon units. These efforts align with Indonesia’s NDC under the Paris Agreement, which aims to reduce GHG emissions by 29% by 2030.

A promising path forward

The bilateral carbon trading agreement between Indonesia and Japan is a significant step toward achieving global climate goals. It highlights Indonesia’s potential as a carbon trading hub and its commitment to sustainable development. The rapid growth of IDXCarbon, supported by a robust regulatory framework and an increasing number of projects, underscores the country’s readiness to become a key player in the international carbon market.

For foreign investors, Indonesia’s carbon trading market offers a unique opportunity to support emission reduction efforts while fulfilling sustainability commitments. As the market matures and international collaboration deepens, initiatives like this agreement pave the way for a greener and more collaborative future in combating climate change.

• Previous Article Meeting Cambodia’s Work Permit Deadline: What Businesses Need to Know
• Next Article