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In an effort to reduce carbon emissions in the industrial sector, the Ministry of Industry (Kemenperin) has designed a carbon trading policy that will be specifically applied to industries in Indonesia. This policy aims to control greenhouse gas (GHG) emissions through an emission quota system that can be traded. Initially, Kemenperin will implement this system for four industrial subsectors with high emissions. Then, by 2027, nine industrial subsectors will be required to participate in carbon trading. This initiative aligns with Indonesia's commitment to the Enhanced Nationally Determined Contribution (ENDC) to reduce emissions by 912 million tons by 2030.
Carbon trading is a mechanism that allows companies or industries that successfully reduce their carbon emissions to sell their surplus to others who still need it. Through this system, carbon emissions can be better controlled, encouraging industries to adopt environmentally friendly technologies.
There are two types of carbon markets currently recognized:
Kemenperin is designing a mandatory carbon market, which differs from the existing voluntary carbon market in Indonesia, such as IDX Carbon. This policy will require high-emission industries to comply with emission restrictions and trading systems to support national decarbonization targets.
In the initial phase, this policy will be mandatory and applied to four industrial subsectors with the highest emissions. These subsectors are:
These four industries were chosen due to their high energy consumption and challenging emission reduction processes (hard to abate sectors).
The carbon trading system implemented by Kemenperin will work based on the emission allowance concept, where each industry is allocated a certain emission limit. If an industry emits less than its allocated quota, the surplus can be sold to another industry. Conversely, if an industry exceeds the set emission limit, it must pay a penalty or purchase carbon credits from others.
By 2027, Kemenperin will expand the scope of the carbon trading policy to include nine industrial subsectors.
Kemenperin assesses that these nine subsectors significantly impact national carbon emissions and must implement stricter emission mitigation strategies.
To help these industries adapt to the carbon trading policy, Kemenperin will provide a preparation period and technical guidance, including emission inventory development and a more transparent monitoring system.
Each industry will be allocated an emission quota that must be adhered to. If an industry can reduce emissions below its limit, it can sell carbon credits to others.
Industries exceeding their assigned emission limits will be subject to an emission levy of 5% of the total excess emissions[1]. Alternatively, they can purchase carbon credits from other companies with surplus allowances.
Industries that are more efficient in reducing emissions can sell their surplus carbon allowances to industries that have yet to meet their reduction targets. This will create a dynamic carbon market and encourage the adoption of green technologies.
One of the main challenges in implementing this policy is ensuring accurate emission measurements. Without a proper monitoring system, there is a risk of data manipulation or inaccuracies in emission calculations.
Kemenperin cannot implement this policy alone. Collaboration with related ministries, such as the Ministry of Environment and Forestry (KLHK), and other stakeholders is necessary to ensure the effectiveness of the carbon trading system.
Many industries still rely on fossil fuels, making the transition to a green economy require significant investment in low-carbon technologies.
Industries can transition to renewable energy sources such as solar, wind, and hydro to reduce dependence on fossil fuels.
Using digital technology for real-time emission monitoring can help industries manage their emissions more effectively.
Emission reporting will be conducted through SIINas (National Industrial Information System) to simplify administration and enhance transparency in carbon trading.
This carbon trading policy is expected to help Indonesia achieve its Enhanced Nationally Determined Contribution (ENDC) target of 912 million tons of CO2 by 2030[2]. Through this mechanism, industries will have incentives to reduce their carbon emissions more effectively.
The carbon trading system regulated by Kemenperin is a strategic step to reduce industrial carbon emissions in Indonesia. By implementing this policy, large industries are expected to be more accountable for their carbon emissions. Additionally, the inclusion of nine industrial subsectors by 2027 will accelerate the transition to a sustainable green industry. For the successful implementation of this policy, support from various parties, including the government, industries, and society, is crucial. With the right approach, Indonesia can set an example in effective and sustainable carbon trading.
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