Indonesia – Update On Indonesian Carbon Exchange Operator.

Following the enactment of Financial Services Authority (OJK) Regulation No. 14 of 2023 which took effect on 2 August 2023, the Indonesian Government, through the Financial Authority Services, has granted approval to the Indonesian Stock Exchange (IDX) as a carbon exchange organizer by the issuance of Decree No. KEP-77/D.04/2023 dated 18 September 2023 (“Decree“). The carbon exchange has officially commenced on 26 September 2023. An official confirmed that in addition to the IDX, the Indonesia Central Securities Depository (KSEI) will also take part in the fund settlement mechanism. During the initial stage, IDX aims to build a good infrastructure and ecosystem for the carbon exchange.

After its appointment, the IDX has issued several regulations concerning carbon exchange to facilitate the operation of carbon trading in Indonesia, namely:

1. Kep-00295/BEI/09-2023 dated 20 September 2023 on Unit Carbon Registration in Carbon Exchange Operator;
2. Kep-00296/BEI/09-2023 dated 20 September 2023 on Unit Carbon Trading through Carbon Exchange Operator;
3. Kep-00297/BEI/09-2023 dated 20 September 2023 on Carbon Exchange User Regulation; and 
4. Kep-00298/BEI/09-2023 dated 20 September 2023 on Carbon Exchange Trading Supervision;

(hereinafter will be referred to as IDX Regulations). 

A glance at carbon exchange trading’s regulations in Indonesia

Tradable Carbon Unit

Based on our quick overview of the IDX Regulations, up to now, there are only two types of carbon units that are tradable in the carbon exchange, namely: (i) Undertakings Emission Ceiling Technical Approval (Persetujuan Teknis Batas Atas Emisi Pelaku Usaha / PTBAE-PU) and (ii) GHG Emission Reduction Certificate (Sertifikat Pengurangan Emisi Gas Rumah Kaca / SPE-GRK). The exchanges can also facilitate foreign carbon unit trading provided that such carbon unit is registered in the OJK.

Users of Carbon Exchange

Users of carbon exchange include:

1. Emissions Trading Undertakings;
2. Non-Emission Trading Undertakings;
3. Project owner; And
4. Other parties who have received approval from the OJK.

To become a user of carbon exchange, the undertakings must comply with among others the following requirements:

1. have an official who is responsible for the facilities provided by the IDX;
2. have a minimum of two users that have taken part in the training convened by the carbon exchange operator;
3. pay for the registration fee (this obligation would only be applicable on 25 September 2024);
4. for domestic entities, they must have a taxpayer identification number (NPWP) or business registration number (NIB);
5. for foreign legal entities, they must have a legal entity identifier registered in the Regulatory Oversight Committee.

Supervision of Carbon Trading

IDX as the carbon exchange organizer carries out supervision on the trading of registered carbon units in the exchange (e.g., the price and volume fluctuation, orders, transaction patterns). During the trading, the carbon exchange users are prohibited from carrying out the following actions, among others:

1. submit orders and/or carry out transactions with the aim of providing a false picture of the activities and/or price movements of a carbon unit;
2. carry out trades that have the potential to cause market manipulation, either for one’s self-interests or those of other parties;
3. involves with, either directly or indirectly, or collaborates with other parties in carrying out transactions that are fraudulent, manipulative, and/or use insider information;
4. carry out transactions if the transaction is based on a statement or information that is false or misleading;
5. involves, either directly or indirectly, or collaborates with other parties in an act or action that could give a misleading impression as if an Active Carbon Unit is being traded or encourage unfair transactions.

If there is an indication of violation, the IDX has the authority to among others (i) request for clarification from the users or (ii) impose a temporary suspension of the carbon units trading.

Carbon Units Market and Trading Time

Furthermore, there are several market segments in the carbon exchange operators, namely:

1. Auction Market;
2. Regular Market;
3. Negotiation Market; and
4. Non-Regular Market.

Carbon exchange trading is carried out in the trading time that is based on the time that is stated in the carbon exchange (Carbon Exchange Time or CET), i.e., 9 AM to 3 PM CET. Upon the issuance of the supporting regulations, the carbon units’ users must pay transaction fees to the IDX.

Commentary

Through the appointment of IDX as a carbon exchange organizer, Indonesia is one step ahead in supporting the actions of lowering greenhouse gas emissions. Indonesia may also benefit from the sales of carbon credits as it is located in a tropical country. However, there are a few challenges that may be faced by Indonesia in the implementation of the carbon tradings, among others lack of self-awareness of the related parties and lack of robust regulations concerning carbon tradings. Considering the IDX has just been appointed and the carbon trading has just begun on 26 September 2023, this is a relatively new thing which realization is untested yet. If Indonesia can effectively manage the carbon trade through 

IDX then it may lead to a successful implementation of carbon trading in Indonesia – and hopefully can also bring more benefits in terms of other economic and social aspects.

For Further Information, Please Contact:

MetaLAW, Legal Consultant, Jakarta, Indonesia

general@metalaw.id