Indonesia

A presidential regulation that provides a national framework for carbon pricing instruments, including an ETS, was signed in October 2021. This regulation extends the “Government Regulation on Environmental Economic Instruments”, which provided a first mandate for an emissions and/or waste permit trading system to be implemented by 2024 (within seven years from its passage). The ETS will eventually work as a hybrid “cap-trade-and-tax” system alongside a carbon tax to be imposed from April 2022, which was regulated in the “Law of the Harmonization of Tax Regulations”. Once the mandatory ETS is in place, facilities that fail to meet their obligations under the system will be subject to the tax, the rate of which will be linked to the price of the domestic carbon market.

These developments follow a period of intense preparation. The MRV guidelines for the power sector were released in mid-2018 based on inputs from a study outlining the emissions profiles and marginal abatement cost curves of the power and industry sectors, in addition to completing the design and governance framework of an MRV system. Following this, an online GHG reporting platform for electricity generators and a pilot MRV program for electricity generators in the Java-Madura-Bali grid (covering ~70% of Indonesia’s electricity demand) were launched in late 2018. The Ministry of Industry has also developed an online GHG emissions reporting system. Pilot MRV programs are being conducted in the cement and fertilizer sectors.

A study completed in late 2018 examined four market-based instrument options: an ETS for the power and industry sectors; energy efficiency certificates for industry; a cap-and-tax system; and a carbon offset mechanism. Based on the study and stakeholder consultations, an ETS scenario was selected for further development, and a voluntary pilot was conducted for the power sector in 2021.