Indonesia’s state-owned electricity company, PT PLN (Persero), has officially entered the international carbon trade, marking a significant milestone in the country’s ongoing efforts to combat climate change and attract foreign investment. This move positions PLN as the first Indonesian company to actively participate in the global carbon market, reinforcing its commitment to environmental sustainability and energy transition.

The decision comes as Indonesia ramps up efforts to achieve its net-zero emissions target by 2060. PLN’s participation in carbon trading is seen as a crucial step in monetizing carbon reduction efforts while strengthening the nation’s renewable energy transition. The move is expected to increase foreign interest in Indonesia’s carbon credits and drive investments in sustainable projects across various sectors.

Government Support for Carbon Trading

The Indonesian government has been actively supporting carbon trading initiatives to create a robust and transparent carbon market. The President’s Special Envoy for Climate and Energy, Hashim Djojohadikusumo, praised PLN’s initiative, emphasizing that it has the potential to unlock new opportunities for foreign investors looking to purchase carbon credits in Indonesia.

Speaking at the ESG Sustainability Forum 2025, organized by CNBC Indonesia on January 31, Hashim highlighted how international participation would inject much-needed liquidity into the domestic carbon market, thereby accelerating the growth of Indonesia’s green economy.

“These are significant steps that will encourage foreign investors to participate in Indonesia’s carbon market, ensuring that liquidity flows into our domestic system,” Hashim stated.

The decision to open Indonesia’s carbon trading to foreign players was made after extensive discussions involving the Ministry of Environment, the Ministry of Forestry, and the National Economic Council. Hashim noted that Indonesia holds a competitive edge in nature-based solutions, particularly in the forestry sector, which has been underutilized due to previous market restrictions.

“By opening foreign carbon trading, we can attract global investments to strengthen the national carbon market without affecting domestic emissions reporting,” he added.

PLN’s Commitment to Green Investment

PLN President Director Darmawan Prasodjo reaffirmed the company’s dedication to developing green investment strategies and mitigating climate change through carbon trading. He described this move as a pivotal step in addressing global climate challenges and integrating Indonesia into the broader international sustainability agenda.

“Climate change is a global issue that requires a global solution. The launch of this foreign carbon trade is a concrete step by PLN and the Indonesian government to mitigate the worsening climate crisis,” Darmawan said.

Since 2023, PLN has been actively involved in carbon trading through multiple mechanisms, including direct trading, emission offsets, and its proprietary PLN Climate Click platform, which facilitates carbon transactions. Darmawan emphasized that PLN aims to lead the development of Indonesia’s carbon trading ecosystem, positioning itself as a key player in Southeast Asia’s transition to a greener economy.

First International Carbon Trade and Market Authorization

PLN officially entered the international carbon market on January 20, 2025, after initially restricting carbon trading to domestic players since September 2023. According to PLN’s Executive Vice President of Energy Transition and Sustainability, Kamia Handayani, the company is set to trade 1.78 million tons of CO2e Emission Reduction Certificates (SPE) with foreign buyers, with full government authorization.

“This government approval is essential to prevent double counting of carbon credits traded internationally,” Kamia explained.

The decision aligns with Indonesia’s commitment to Article 6 of the Paris Agreement, following discussions at the Conference of the Parties (COP29) in Azerbaijan in November 2024. Kamia described the move as a significant step in expanding demand for carbon credits and driving domestic green investment.

“We appreciate the government’s efforts in facilitating this transition. This move will strengthen Indonesia’s role in the global carbon market and promote sustainable economic growth,” she concluded.

Indonesia’s Carbon Market Landscape

As one of the world’s largest carbon emitters, Indonesia has been taking significant steps to reduce its greenhouse gas emissions. The nation recently launched its national carbon exchange to facilitate the trade of carbon credits, aiming to incentivize renewable energy adoption and achieve emissions reduction targets.

Indonesia’s Financial Services Authority (OJK) has been instrumental in developing regulations to support this initiative, ensuring a robust framework for carbon trading. The carbon exchange, known as IDXCarbon, has already facilitated multiple transactions, demonstrating growing interest in carbon credit investments.

Challenges and Opportunities

While Indonesia’s entry into the international carbon market presents numerous opportunities, it also faces challenges. Critics have raised concerns about the potential for double counting of emission savings and the reliance on outdated methodologies for calculating carbon offsets. Ensuring the credibility and integrity of carbon credits will be essential for attracting high-quality buyers and achieving genuine emissions reductions.

To address these concerns, Indonesia has introduced new rules on carbon trading to establish a market mechanism that aligns with the country’s greenhouse gas reduction targets by 2030. The policy, known as “the Economic Value of Carbon,” sets out clear guidelines for carbon credit verification, transparency, and compliance, ensuring that credits generated within Indonesia meet international standards.

PLN’s Role in the Energy Transition

As Indonesia’s state-owned electricity company, PLN plays a pivotal role in the country’s energy transition. The company has made significant commitments to achieving net-zero emissions and is leading several initiatives to reduce reliance on fossil fuels. PLN has:

• Canceled 13.3 GW of planned coal-fired power plants to minimize future emissions.
• Terminated power purchase agreements for 1.3 GW of coal projects to redirect focus on cleaner energy sources.
• Halted the development of new coal-fired power plants to align with global sustainability targets.
• Led the expansion of Indonesia’s electric vehicle ecosystem, including charging infrastructure and incentives for EV adoption.
• Pioneered carbon trading and green hydrogen projects to support the long-term transition towards clean energy.

These initiatives highlight PLN’s strategic vision to position itself as a leader in Indonesia’s just energy transition. By integrating renewable energy projects with carbon trading mechanisms, the company aims to create a more sustainable and financially viable energy ecosystem.

Global Context and Future Prospects

Indonesia’s move to open its carbon market to international investors aligns with global efforts to establish robust carbon trading systems. At the COP29 climate summit, countries continued to negotiate rules for trading carbon offset credits under the Paris Agreement. Article 6 of the agreement allows for international carbon trading, and Indonesia has been proactive in forming bilateral agreements to attract foreign participation.

However, global carbon markets remain complex, with ongoing discussions about safeguarding mechanisms, credit verification processes, and pricing structures. Countries with well-regulated carbon markets, such as the European Union, have set high standards for carbon credit validity, and Indonesia is working to ensure its credits meet these criteria.

With continued government support, increased foreign investment, and a growing domestic green economy, Indonesia’s carbon trading sector is expected to expand significantly in the coming years. PLN’s entry into international markets marks the beginning of a broader movement to position the country as a key player in global climate action.

As the demand for carbon credits increases, Indonesia has the opportunity to leverage its vast natural resources—including its forests and renewable energy potential—to generate high-quality carbon credits that benefit both the environment and the economy.

Conclusion

PT PLN’s entry into the international carbon market represents a landmark achievement for Indonesia’s green investment agenda. Backed by government policies, international agreements, and a commitment to sustainability, the company is poised to play a leading role in shaping the nation’s energy future.

While challenges remain in ensuring transparency, preventing double counting, and maintaining high standards for carbon credits, Indonesia is taking critical steps to build a credible and efficient carbon market. With foreign investors showing increasing interest in carbon trading, PLN’s initiative could set the stage for a thriving green economy that benefits both local businesses and global climate goals.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

4th January, 2025