[Jakarta, 26 September 2023] Without systemic change, the launch of Indonesia’s carbon exchange—marked by the appointment of the Indonesia Stock Exchange (IDX) as the carbon exchange operator by the Financial Services Authority (OJK)—risks becoming merely a profit-driven platform rather than a meaningful contribution to safeguarding humanity from the climate crisis. This was stated by Nadia Hadad, Executive Director of MADANI Berkelanjutan, in response to the launch of the Indonesia Carbon Exchange.
“Global temperatures have already risen by 1.1°C and are projected to exceed 1.5°C in the early 2030s. The impacts of climate change are now unavoidable. Therefore, deep and simultaneous mitigation and adaptation actions are no longer optional—they are imperative,” Nadia Hadad added.
“As an archipelagic country, Indonesia is experiencing significant impacts from the climate crisis, particularly among vulnerable groups such as low-income communities, persons with disabilities, children, older people, women, Indigenous Peoples and local communities, as well as those living on the frontlines of climate-related disasters including droughts, floods, storms, sea-level rise, forest and land fires, and others. Over the past decade (2013–2022), the National Disaster Management Agency recorded 28,471 weather- and climate-related disasters, affecting 38,533,892 people, displacing more than 3.5 million people, and causing over 12,000 injuries, disappearances, and deaths. Meanwhile, the National Development Planning Agency (Bappenas) estimates economic losses of up to IDR 544 trillion between 2020 and 2024 due to climate impacts,” Nadia explained.
Carbon trading is one of the three mechanisms under Indonesia’s Carbon Economic Value (Nilai Ekonomi Karbon/NEK) framework as stipulated in Presidential Regulation No. 98 of 2021. Carbon trading can be conducted either bilaterally or through a carbon exchange. There are two types of carbon trading: emissions trading and greenhouse gas (GHG) offsetting.
In emissions trading schemes, entities that exceed their emissions limits may purchase emission allowances or caps (PTBAE-PU). Under offset schemes, emitters may compensate for their emissions by purchasing offset credits (SPE-GHG).
Meanwhile, Giorgio Budi Indrarto, Deputy Director of MADANI Berkelanjutan, outlined seven key conditions that must be met to prevent carbon trading from becoming a tool for greenwashing.
“First, all countries—including Indonesia—must significantly increase their Nationally Determined Contribution (NDC) ambition to align with the 1.5°C pathway and ensure that development policies across all sectors are consistent with these climate commitments. Second, strict and transparent emissions caps must be established. Currently, only coal-fired power plants are subject to emissions caps. Obligations to reduce emissions in the forestry sector must also be strengthened, as business actors control vast areas of forest and land,” Giorgio explained.
“Third, offsets must be strictly limited to residual emissions—those remaining after all feasible emission reductions have been fully implemented. Without this restriction, offset schemes risk becoming perverse incentives that delay ambitious mitigation action. Fourth, carbon trading regulations must ensure strong social and environmental integrity, including additionality, reliability, and permanence. Offsetting emissions from the energy sector using forest and land-based credits should be avoided due to unresolved integrity issues. The application of social and environmental safeguard frameworks—currently fragmented across various national and international standards—must be clarified and strengthened,” he added.
The regulatory framework for forest-based carbon trading must also promote policies that address unequal forest and land tenure—one of the main barriers to meaningful community participation. This includes accelerating the recognition of community rights, especially those of Indigenous Peoples and local communities; speeding up social forestry and genuine agrarian reform; prioritizing landless communities in forest tenure conflicts with corporations; and developing public, scientifically robust carbon standards that are freely accessible to forest guardian communities.
The government must also ensure transparency and accountability throughout the entire carbon trading value chain—from the development of the carbon market roadmap, project licensing, allocation of emissions caps, to the operation of the carbon exchange itself. This includes preventing speculation, market manipulation, and potential conflicts of interest involving regulators or other stakeholders.
Finally, given that forests and ecosystems themselves are highly vulnerable to climate impacts, building ecosystem and community resilience is critical. Therefore, the Carbon Economic Value framework—designed to achieve NDC targets and control GHG emissions—must ensure adequate and fair financing for climate adaptation. Without meeting these preconditions, it will be extremely difficult for carbon trading to meaningfully contribute to climate justice.
Climate justice is a fundamental principle amid persistent environmental and ecological injustices—rooted in development and economic growth models driven by extraction, environmental destruction, biodiversity loss, disregard for human rights, and unchecked greenhouse gas emissions. These patterns result in inequality, poverty, declining resilience, loss of livelihoods, and shrinking access to healthy living environments.
Such forms of climate injustice ultimately weaken the capacity of both ecosystems and communities to withstand and respond to the climate crisis. Therefore, all climate mitigation and adaptation interventions—including the governance and implementation of the carbon exchange—must adopt justice as a core and operational principle.
About MADANI Berkelanjutan
Manusia dan Alam untuk Indonesia (MADANI) Berkelanjutan is a non-profit organization addressing the climate crisis through research and advocacy. Established in 2016, MADANI Berkelanjutan promotes development pathways that balance economic, ecological, and social dimensions. The organization formulates and advances innovative climate solutions by fostering collaboration among diverse stakeholders. Its current focus areas include forests and climate, sustainable commodities, subnational sustainable development, and biofuels.
