The carbon exchange trades carbon units produced by carbon-emitting companies with emission reduction projects from innovation-based companies.
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By
ERIKA KURNIA
·3 minutes read
The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Bursa Karbon Dorong Pendanaan Hijau
JAKARTA, KOMPAS — Indonesia has prepared a funding strategy for reducing carbon emissions from the forestry sector and land use in general through carbon exchanges. This mechanism is considered promising because global investment is also starting to move towards it.
Chairman of the Board of Commissioners of the Financial Services Authority (OJK) Mahendra Siregar said that President Joko Widodo will launch the Indonesian Carbon Exchange, Tuesday (26/ 9/2023). This exchange trades carbon units produced by carbon emitting companies with emission reduction projects from innovation-based companies.
"This aims to provide a market mechanism that will support the government's NDC targets while balancing the transition to a sustainable economy," he said when opening the 2023 OJK International Research Forum, in Jakarta, Monday (25/9/2023).
NDC is a national contribution document which is Indonesia's stepping stone to reduce carbon emissions in order to control climate change. From the results of the update in 2022, the target was increased by 31.89-43.2 percent until 2030, with a total reduction of more than 3,000 million tons of CO2, from the estimated emissions in 2010 (Kompas, 7/26/2023).
In that scenario, the five emission sectors that are targeted are energy, waste, agriculture, forestry, as well as product use and industrial processing. The carbon market that will be established in Indonesia will focus on the energy, forestry, and industrial sectors.
Mahendra believes that Indonesia is on the right track. This is not only because 60 percent of carbon emissions in this country come from the forestry and land use sector, but also because the stock exchange will become the most unique in the world.
"This carbon trading could be the most unique in the world because it offers so many variations of carbon units from natural capital or energy based on compliance or market offsets," he said.
In the first discussion of the event, economist from The London Institute of Banking and Finance, Stanley Yip, conveyed that in 2023, the majority of sustainable funding worldwide will be directed towards the restoration of nature, forest conservation, and agriculture.
"The project in the context of nature restoration, forest protection, and agriculture takes up more than 60 percent of all investments. Other sectors, such as renewable energy and energy efficiency, are beginning to decrease," he said.
Based on data from the Global Carbon Credit Investment Report 2023 and Trove Research, in 2021-2025, as much as 17 billion US dollars or 80 percent of the total 21 billion US dollars in green funding in the world will be dedicated to nature-based initiatives. This funding finances 246 initiatives with a beneficiary area of 30 million hectares of land, which is almost the size of Italy. Also read: Carbon Market Accelerates Global Decarbonization
This funding has the potential to enter Asia, including Indonesia, as the largest carbon market in the world. Looking at 2018-2022 data, as many as 478 projects or 55 percent of global green funding projects target countries in Asia. By country, India and China dominate the recipients of voluntarycarbon exchange projects.
"The majority of funding in Asia during that period was focused on renewable energy sectors, such as solar and wind projects that were still in their early stages more than 10 years ago. Now, large-scale projects for renewable energy are decreasing since they are no longer a priority. The future lies in land use, agriculture, and waste management projects," said Yip.
He also believes that whatever green funding strategies are made in Asia, including Indonesia which already has a carbon exchange, will attract global funding. This is because countries in Asia are still facing population growth and urban development that opens up opportunities for circular economy and technological innovation for carbon emission reduction.
"Next is how Asia creates a mechanism for reducing risk and ensuring long-term project certainty, especially for projects in the natural resources sector. Then, how to present project quality and transparency in the market," he suggested.
Editor:
MUHAMMAD FAJAR MARTA
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