The Republic of Indonesia (Indonesia) possesses the world's third-largest tropical rainforest, the most extensive mangrove forests, and massive carbon storage in its peatlands. Its carbon sink potential is significant enough to influence the global progress of greenhouse gas (GHG) emission reductions. However, for a long time, this vast "green carbon asset" remained largely untapped.

In recent years, the Indonesian government's stance on the carbon economy has undergone a radical transformation. In 2021, Indonesia established the legal framework for carbon pricing. In 2022, Indonesia raised its Enhanced Nationally Determined Contribution (Enhanced NDC) target to 43.2%. In 2025, the issuance of Presidential Regulation No. 110 signaled a formal shift from "closed carbon management" to "open carbon trade," reflecting Indonesia's intent to develop carbon assets as the "third strategic mineral." Additionally, in mid-2023, the Ministry of National Development Planning (Bappenas) announced the National Long-Term Development Plan 2025-2045 (Rencana Pembangunan Jangka Panjang Nasional or RPJPN). The RPJPN includes the "Golden Indonesia 2045" vision, which is divided into five distinct goals, including "achieving Net Zero Emissions (NZE) and reducing greenhouse gas emissions."

Indonesia has not only proposed a net-zero commitment but also seeks to attract global capital for its energy transition and ecological restoration by constructing a transparent, compliant, and internationally aligned Carbon Economic Value (NEK) system. For Chinese enterprises operating in or seeking to invest in Indonesia, this signifies not only a reshaping of the regulatory environment but also the arrival of a "Green Gold" era driven by both "electricity prices and carbon prices." The Carbon Compliance Research Center of East & Concord Partners, through this article, will provide a deep analysis of the underlying rules of the Indonesian carbon market, its recent policy evolutions, and the substantive opportunities it brings to investors.

Lawyers from the Carbon Compliance Center of East & Concord Partners, stationed in Indonesia and other Southeast Asian countries, have found through local research that the Indonesian government has built a "NEK (Carbon Economic Value)" system with Southeast Asian characteristics through a series of Presidential Regulations and ministerial decrees. In 2021, Presidential Regulation No. 98 first defined carbon as a commodity with economic value and established four pillars for Indonesia's emission reduction: carbon trading, carbon tax, Result-Based Payments (RBP), and other supporting mechanisms. However, during the implementation of Regulation No. 98, international developers once adopted a wait-and-see approach due to Indonesia's overly cautious control over the international export of carbon assets.

Presidential Regulation No. 110/2025, issued in 2025, revised the old policies. Its core breakthrough lies in resolving the "cross-border liquidity" problem of carbon credits. The new policy clarifies that as long as the buffer space for the national emission reduction target (NDC) is met, surplus emission reductions can enter the international market through a "Corresponding Adjustment" mechanism. This shift marks Indonesia's official transition from "closed carbon management" to "open carbon trade."

In Indonesia, the lifecycle of carbon assets is subject to cross-supervision by two core departments. This dual regulatory system ensures both the "physical authenticity" and "financial compliance" of assets. **The Ministry of Environment and Forestry (KLHK)** is responsible for the "identity verification" of carbon assets. Through the SRN-PPI (National Registry System for Climate Change), KLHK approves the methodology, baseline, and actual emission reductions of every reduction project. Carbon credits that have not obtained an "Identity Card" in the SRN system are not legally qualified for trade. **The Financial Services Authority (OJK)** is responsible for the "financing liquidity" of transactions. According to OJK Regulation No. 14/2023, carbon credits are included in the scope of securitization supervision. This means that carbon trading is not only an environmental protection act but also a financial act. The Indonesia Carbon Exchange (IDXCarbon), under the supervision of OJK, prevents the risks of fraud and price manipulation in over-the-counter (OTC) transactions through standardized trading processes, strictly regulating the compliance of carbon trading.

To align with Article 6 of the Paris Agreement, Indonesia detailed the operational procedures for ITMO (Internationally Transferred Mitigation Outcomes) in Regulation No. 110/2025. The decree stipulates that any carbon credit exported abroad must obtain a "Letter of Authorization" issued by KLHK. This regulation sets a "price stratification" for carbon assets. Unauthorized carbon credits can only be used to offset carbon taxes or fulfill quotas domestically, with prices limited by domestic supply and demand; whereas carbon credits with ITMO authorization are qualified to flow in high-premium global markets. The Carbon Compliance Research Center of East & Concord Partners believes that understanding this authorization threshold is a key variable in assessing the return on investment for green energy projects in Indonesia.

Indonesia possesses the world's third-largest tropical rainforest and the most extensive peatlands, which constitute the "ballast" of Indonesia's carbon asset vault. To systematically develop this endowment, Indonesia proposed the ambitious FOLU Net Sink 2030 target.

In 2022, KLHK officially released the implementation roadmap for "Forestry and Other Land Use (FOLU) Net Sink 2030." By 2030, the total amount of greenhouse gases absorbed by Indonesia's forestry sector must exceed its total emissions, achieving a net sink target of at least -140 million tons of . "Indonesia’s FOLU Net Sink 2030 adalah sebuah kondisi yang ingin dicapai melalui penurunan emisi GRK dari sektor kehutanan dan penggunaan lahan di mana tingkat penyerapan eksisting sudah lebih tinggi dari tingkat emisi." (Indonesia's 2030 Forestry Net Sink refers to a state achieved by reducing greenhouse gas emissions from the forestry and land use sectors so that the existing absorption level is higher than the emission level.) This policy integrates originally scattered forest protection, afforestation, peatland restoration, and Sustainable Forest Management (SFM) into a unified emission reduction performance evaluation system.

Regarding peatlands and mangroves: In Indonesia's natural carbon vault, peatlands and mangroves are regarded as "high-value assets" due to their extremely high carbon storage per unit area. **Peatlands:** Indonesia possesses approximately 50% of the world's tropical peatlands. Since the degradation or burning of peatlands releases massive amounts of carbon, SPE-GRK certificates generated from "peatland restoration and protection" often command high price premiums in the international market. **Mangroves:** Indonesia has approximately 3.3 million hectares of mangroves, and their carbon sequestration rate far exceeds that of terrestrial forests.

The prospects for Indonesia's forest carbon sinks are broad. Indonesian law establishes a concession system (PBPH) for their development: investors must apply for a "Business License for Forest Utilization (PBPH)" according to Government Regulation No. 23 of 2021 (PP 23/2021), clarifying carbon emission reduction as part of the business activities. **FPIC Principle:** During the development process, the principle of "Free, Prior, and Informed Consent (FPIC)" must be followed to ensure the rights of local indigenous communities. "Pemanfaatan Hutan untuk Penyerapan dan/atau Penyimpanan Karbon wajib melibatkan masyarakat setempat." (Utilizing forests for carbon absorption and/or carbon storage must involve the participation of local communities.) Forest carbon sink development is the biggest carbon economy commercial highlight in Indonesia's future.

On September 26, 2023, as then Indonesian President Joko Widodo personally inaugurated the Indonesia Carbon Exchange (IDXCarbon), Indonesia officially entered the era of standardized trading of carbon assets. IDXCarbon is regulated by the Financial Services Authority (OJK) and operated by the Indonesia Stock Exchange (IDX). "Penyelenggara Bursa Karbon wajib menyediakan sistem yang terhubung dengan SRN PPI." (Carbon exchange operators must provide a system connected to the national emission reduction registry SRN PPI.) This ensures that every carbon unit traded on the exchange can achieve real-time ownership change and retirement in the KLHK ledger, eliminating the risk of double counting at the technical level.

Regarding transaction varieties: On the IDXCarbon platform, two types of assets with completely different natures mainly circulate: **PTBAE-PU (Emission Allowances)**, issued by competent authorities such as the Ministry of Energy and Mineral Resources based on historical emission intensity. If a company's actual emissions are lower than the quota, the surplus can be sold; if they exceed it, it must buy. **SPE-GRK (Reduction Certificates)**, which are actual emission reductions generated through projects such as solar power and afforestation. They can be used not only for trading on the exchange but also for carbon offset across industries.

IDXCarbon has designed four trading modes: **Regular Trading**, similar to the centralized bidding in the stock market; **Negotiated Trading**, allowing buyers and sellers to complete registration and transfer in the system after reaching an intent for large transactions OTC; **Auction**, usually initiated by project sponsors or the government; **Marketplace**, providing listings for non-standardized projects.

For those interested in the price fluctuations and trends of Indonesian domestic carbon quotas (PTBAE-PU), you may follow the "Carbon Compliance Law News" monthly published by the Carbon Compliance Research Center of East & Concord Partners. Although the current unit price of Indonesian carbon quotas is lower than the EU ETS, its growth potential is huge.

The Indonesian mandatory carbon market has first started in the power sector. According to the Ministry of Energy and Mineral Resources regulations, hundreds of coal-fired power plants have participated in the first batch of quota trading. These power enterprises are not only buyers but also important sellers—emission reductions achieved through energy efficiency improvement and carbon reduction are being transformed into non-electricity income on the companies' financial statements. As the scope of Indonesia's mandatory carbon market (ETS) expands, high-energy-consuming **Captive Power** plants are expected to be included in quota management. We believe that with the gradual improvement of Indonesia's green and low-carbon legal system and the accelerated process of carbon sink development, this resource endowment and institutional dividend bring dual opportunities for Chinese enterprises in Indonesia—not only can they deeply participate in the construction and operation of the local carbon market, but they also possess very considerable financial prospects and commercial value in the field of cross-border carbon trading.

In Indonesia, renewable energy represented by solar and wind power is the most explosive "incremental asset." Under the open signal released by Presidential Regulation No. 110/2025, green power providers of renewable energy projects can also function as "carbon asset producers."

The introduction of the carbon economy provides a new income curve for improving the profitability of renewable energy projects. **First income curve:** traditional electricity sales income (PPA signed with PLN). **Second income curve:** carbon credit (SPE-GRK) monetization income.

According to calculations by local Indonesian institutions, for example, a 100MW ground-mounted solar park project located on Java Island produces approximately 120,000 to 150,000 tons of emission reductions annually. If it can connect to the global voluntary carbon market through the international export window of IDXCarbon (ITMO mechanism), calculated at the market premium, it can bring more than $1 million in additional net income to the project every year.

In this context, the SPE-GRK generated by distributed solar built within industrial parks has dual value. **Internal offset:** directly offset the emission gap of coal-fired units in the park, avoiding the cost of buying expensive quotas. **Green premium:** enhance the international competitiveness of products produced in the park (such as "Green Nickel") when facing green trade barriers such as the EU Carbon Border Adjustment Mechanism (CBAM).

To accelerate the energy transition, the Indonesian government clearly supports renewable energy projects to prioritize entering the SRN-PPI registry channel in Regulation No. 110/2025. Technical innovation to reduce dependence on fossil fuels is encouraged. For wind, solar, and geothermal projects, their baseline calculation process is more standardized than complex forest carbon sinks, meaning the "monetization cycle" from project construction to carbon credit issuance is shorter.

Chinese institutions possess world-leading supply chain advantages in solar modules, wind turbines, long-duration energy storage, and smart energy management systems. Through the **EPC+C model**, where the EPC (Engineering, Procurement, and Construction) of Chinese builders occurs alongside the development of carbon assets for Indonesian owners using China's mature CCER development experience, value addition throughout the entire lifecycle can be achieved.

The competitiveness of Indonesian carbon asset exports comes from low-cost supply and smooth cross-border high-premium channels. In Indonesia, the cost of emission reduction based on green energy is relatively low, while in compliance markets or high-standard voluntary markets in Europe, America, and Singapore (such as the CORSIA aviation emission reduction mechanism), carbon prices are usually much higher than domestic levels in Indonesia. This huge cross-border premium space has attracted a large number of international buyers seeking to sign long-term purchase and sale agreements with Indonesia. Consequently, Indonesia has attracted global capital to invest directly in its green infrastructure construction.

Buyers of Indonesian carbon credits are mainly concentrated in three types of institutions: **Multinational enterprises**, technology and energy giants with global "Net-Zero" commitments; **Sovereign governments**, purchasing emission reductions through bilateral agreements (such as the Indonesia-Japan JCM mechanism) to fulfill national NDCs under Article 6 of the Paris Agreement; **Financial intermediaries and carbon funds**, reserving and redistributing carbon credits as a green alternative asset.

To improve carbon credits, Indonesia specified the export authorization mechanism in detail in Regulation No. 110/2025. "Otorisasi diberikan dalam bentuk surat persetujuan menteri untuk pemindahan unit karbon luar negeri." (Authorization is granted in the form of a ministerial approval letter for the cross-border transfer of carbon units.) Once the Indonesian government authorizes the export of a certain amount of carbon credits, that reduction will be deducted from Indonesia's national emission reduction ledger and instead recorded in the buyer country's ledger.

Lawyers from East & Concord Partners remind that in participating in the energy and green low-carbon industry in Indonesia, besides deeply understanding Indonesia's climate policy, one needs to correctly face the "legal jungle" of Indonesia's "diverse but unified" land ownership.

Indonesia's 1960 Basic Agrarian Law (UUPA) established the legal effect of various rights certificates issued by the National Land Agency (BPN) (such as Ownership Certificate SHM, Business Use Right HGU). However, in vast forest areas and rural areas, customary law based on bloodline and region still possesses strong actual control. Even if investors hold legal land certificates issued by the government, if they do not obtain the recognition of local indigenous communities (Masyarakat Hukum Adat), the project may face long-lasting community protests or physical obstruction. Legal legality does not directly equal the feasibility of field operations. Indonesia's land is administratively divided into "Forest Area (Kawasan Hutan)" and "Non-Forest Area (APL)," managed by KLHK and BPN respectively. Due to historical reasons, there is a serious "overlapping map" phenomenon in Indonesia. A plot that shows as non-forest area during an inquiry at BPN may be classified as permanent forest area in the latest map of KLHK. For carbon economy projects, once the land category is redefined, its emission reduction calculation method and the possibility of approval will undergo radical changes.

In judicial practice, for example: who should the ownership of carbon emission reduction credits generated on purchased or leased land belong to—the landowner, the lessee, the project developer, or the funder? This uncertainty in ownership is extremely likely to induce disputes during the later profit-earning stage of the project.

The experience of China-Indonesia bilateral cooperation enlightens us: China possesses mature green energy industry technology and operational capabilities, while Indonesia possesses rich natural assets, an increasingly perfect legal system, and a huge population. Chinese energy enterprises going global to Indonesia can not only obtain stable electricity sales income but also share the dividends brought by Indonesia's economic takeoff and green energy transition.

Source: East & Concord Pariners

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