At COP29 in Baku, Indonesia took center stage with its bold pitch for the country’s carbon market, spearheaded by President Prabowo Subianto’s brother, Hashim Djojohadikusumo. This marked a significant departure from the previous administration’s cautious approach, signaling a new era of ambition and innovation in the environmental sector. With a commitment to raise $65 billion by 2028 through carbon credit sales for reforestation and conservation efforts, Indonesia is poised to become a global powerhouse in carbon trading.
Yulia Indrawati Sari, a lecturer at Parahyangan Catholic University, and Frans Siahaan, an independent consultant on environmental governance, played key roles in shedding light on the potential impact of Indonesia’s carbon market. Through a study conducted between November 2023 and October 2024, they delved into the political economy of the forestry and land use sector to uncover the various perspectives of stakeholders involved in this burgeoning industry.
Big Business Takes the Lead
Indonesia’s vast expanse of tropical rainforests has long attracted attention as a prime candidate for carbon trading. Major corporations, particularly those in the palm oil and timber industries, are seizing this opportunity to pivot from exploitative practices to conservation efforts. Companies with Forest Utilization Business Licenses, as reported by the Indonesian Forest Concession Holders Association (APHI), have already begun investing in carbon-related services. For instance, one industrial timber estate company plans to allocate a significant portion of its land concession for carbon trading, showcasing a shift towards sustainability within the private sector.
However, concerns have been raised about the motivations behind these moves. While industry associations like APHI and the Indonesian Chamber of Commerce and Industry (KADIN) advocate for policies that prioritize corporate interests, questions linger about their commitment to environmental protection and Indigenous rights. A civil society representative working closely with Indigenous communities expressed skepticism about the profit-driven nature of some companies’ engagement in carbon trading, highlighting the need for a more holistic approach to emissions reduction and climate justice.
Regulatory Hurdles and Certification Concerns
Despite the eagerness within the business community, regulatory challenges pose a significant obstacle to the smooth operation of Indonesia’s carbon market. Companies have voiced concerns about the emission reduction buffer requirement, which mandates setting aside a percentage of carbon credits as a buffer against potential risks like fires and natural disasters. While intended to ensure credibility, some companies view this requirement as overly burdensome, limiting their trading capabilities.
Certification issues also loom large, with Indonesia’s National Registry System for Climate Change Control (SRN PPI) still in its nascent stages and lacking alignment with global certification standards. The absence of mutual agreements with established bodies like Verra or Gold Standard further complicates the credibility of Indonesia’s carbon credits. This lack of clarity in regulatory processes has caused many climate-conscious actors to adopt a cautious approach to participating in the carbon market.
As the carbon trading landscape evolves, it is imperative to address these regulatory and certification challenges to foster a transparent and trustworthy market environment. With the potential for greenwashing and inequalities to arise, stringent safeguards must be put in place to ensure that the benefits of carbon trading reach communities in need and drive meaningful emissions reductions.
In conclusion, Indonesia’s foray into the carbon market represents a significant step towards combating climate change and promoting sustainable practices. However, the road ahead is fraught with challenges that require careful navigation to uphold the integrity of the market and protect vulnerable populations. As the country embarks on this new chapter in environmental policy, the world watches with anticipation to see if Indonesia’s carbon market will be a true climate solution or merely a profit-driven venture. The stakes are high, and the need for responsible stewardship of this emerging market is more critical than ever.
