Establishment of Carbon Exchange Mechanism a Priority

To ensure that carbon trading will run according to the government's target, there needs to be a standardized and independent institution that is tasked with calculating the amount of carbon.

ATIEK ISHLAHIYAH AL HAMASY

Discussion on the topic "Welcoming the Carbon Exchange" in Central Jakarta, Thursday (11/5/2023).

JAKARTA, KOMPAS — In the midst of the political year ahead of the 2024 general election, the government is targeting carbon trading to begin operation in September 2023. To ensure the target can be realized and the trading operation can be carried out professionally, the government needs to prioritize the establishment of an institution that will be tasked to calculate the amount of carbon and to organize carbon trading.

The term carbon trading appears in Presidential Regulation Number 98 of 2021 concerning the Implementation of the Carbon Economic Value for Achieving Nationally Determined Contribution Targets and Controlling Greenhouse Gas Emissions in National Development. The regulation defines carbon trading as a system that regulates the recording of reserves, trading and ownership status of carbon units.

Law (UU) Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector also discusses carbon trading. In this law, carbon trading is defined as a system that regulates carbon trading and/or carbon unit ownership. Article 23 of this law states that the carbon unit is called stock or securities.

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Next, Article 24 states that market operators must obtain a business license from the Financial Services Authority (OJK) to run carbon trading. Organizers can develop carbon-based activities or products based on OJK regulations.

To ensure carbon trading can begin operation in 2023 according to the government's target, the director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira, said there needed to be a standardized and independent institution tasked with calculating the amount of carbon, both from emitters and absorbers, and issuing certification.

“This entity must have a methodology and accounting technology that can be accounted for. Thus, Indonesia has a system for calculating the amount of carbon that can be used as a reference for carbon trading and carbon taxes," he said in a discussion held by Celios, on Thursday (11/5/2023), in Jakarta.

Don't let this carbon trading be political in nature and just exist so it can't be trusted.

On the operational side, Bhima said, carbon should be treated as a commodity, not as stock or securities. Therefore, there will be more than one operator but not the Indonesia Stock Exchange (IDX). The form of the organizer can be a technology startup that has the capacity to design a carbon trading operational system in a professional manner. In terms of supervision, the OJK needs to form a separate board of commissioners for carbon trading.

In executing its operations, Bhima warned that there could be a conflict of interest in the current political year, which has the potential to affect the design of carbon trading. "Don't let this carbon trading be political in nature and just exist so it can't be trusted," he said.

KOMPAS/AGUS SUSANTO

Smoke from open burning is carried by the wind in East Jakarta, Wednesday (5/4/2023). The biggest contributor to pollution is motor vehicle exhaust, followed by open burning and construction activities.

Meanwhile, a member of Commission XI of the House of Representatives (DPR), Mukhamad Misbakhun, said carbon trading could not be treated as a stock exchange because they were different in terms of management, risk assessment and how to calculate them. Therefore, the IDX is not yet the right organizer to run carbon trading.

Misbakhun added that tropical rainforests, mangroves and peatlands that have the potential to absorb carbon should not be traded on foreign exchanges, but only in Indonesia. This is important to strengthen the position of Indonesia's carbon market at the international level.

At the same event, House Commission XI member Kamrussamad estimated that the economic potential of Indonesia's carbon market came from tropical rainforests covering an area of 125.8 million hectares and can absorb 25.18 billion tonnes of carbon emissions; mangroves covering an area of 3.31 million hectares and can absorb 33 billion tonnes; and peat forests covering an area of 7.5 million hectares can absorb 55 billion tonnes. Revenue potential for Indonesia can reach trillions of rupiah a year.

Being finalized

In a press conference held by the Financial System Stability Committee in Jakarta, on Monday (8/5), chairman of the OJK, Mahendra Siregar, said carbon trading was scheduled to start operating in September 2023. "Hopefully, in September, the exchange will conduct its first trade," he said.

He explained that in the initial plan carbon trading would be carried out with a result-based payment (RBP) of 100 million tonnes of carbon dioxide. Currently, the Environment and Forestry Ministry is finalizing the RBP.

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The OJK is also coordinating with the government to start the operation of carbon trading. In June the OJK will issue a regulation related to carbon trading.

Head of the Finance Ministry's Fiscal Policy Agency, Febrio Kacaribu, said the implementation of the carbon tax would first be based on the achievement of carbon trading’s initial exchange. The government also wants to ensure that the carbon tax implementation roadmap that has been prepared is in line with those implemented in other countries. (Z09)

This article was translated by Hendarsyah Tarmizi