Carbon Offset: The Way To Achive Indonesia's NDC Target In 2030

In October 2021, Presidential Regulation Number 98/2021 on the Implementation of Carbon Economic Value for Achieving Nationally Determined Contribution Targets and Controlling Greenhouse Gas Emissions in National Development (“PR 98/2021”) was officially signed by President Joko Widodo. PR 98/2021 regulates the carbon market which is believed to be able to support the achievement of the target of reducing Greenhouse Gas (“GHG”) emissions in Indonesia as reflected in the Nationally Determined Contribution (“NDC”) document, in which Indonesia’s target is to achieve GHG emission reductions of 41% (forty-one per cent) or equivalent to 1.02 (one point two) billion tons of carbon dioxide equivalent (CO2e) by 2030.

Carbon trading is a market-based scheme to reduce GHG emissions through the sale and purchase of carbon units, which can be carried out through domestic and international trade. Based on Article 48 of PR 98/2021, domestic or international carbon trading is carried out through the associated National Registry System of Climate Change Control (“SRN PPI“) or by prioritizing the use of GHG Emission Reduction Certificates produced through the national emission reduction certification mechanism.

A. Carbon Offset Scheme

In carrying out carbon trading in Indonesia, one of the options that can be carried out based on PR 98/2021 is carbon offset. Carbon Offset is also known as a baseline-and-crediting scheme, which does not require quotas (allowances) at the beginning of the period because what is used as a commodity (referred to as carbon credits) is the result of certification of carbon emission reductions due to the implementation of projects that reduce carbon emissions. One unit of carbon credit is usually equivalent to a reduction in emissions of one tonne of carbon dioxide (“CO2”).

Pursuant to Article 52 of PR 98/2021, carbon offset is applied in case a business and/or activity does not have a GHG Emission Limit that provides a statement of emission reductions using the results of climate change mitigation actions from other businesses and/or activities. The GHG Emission Limit is the maximum GHG emission level for a certain period of time determined by arranging and determining the GHG emission levels in sub-sectors and businesses and/or activities by the minister.

Further, Article 52 paragraph (2) of PR 98/2021 stipulates that Carbon Offset is applied in the case of a business and/or activity:

that has no determined limit of emissions;
of which the results of the GHG emission reduction from climate change mitigation actions carried out are below the targets and baselines determined;
of which the results of the GHG emission reduction from climate change mitigation actions carried out are above the target and below the baseline determined.

**B. Emission Reduction Certificate (*Sertifikat Penurunan Emisi***)

In carrying out carbon trading, a business and/or activity is required to be equipped with an emission reduction certificate to conduct the sale and purchase of carbon units. Based on Article 1 number 31 of PR 98/2021, Emission Reduction Certificate is a form of proof of emission reductions carried out by businesses and/or activities, which have gone through Measurement, Reporting, and Verification (“MRV”), and have been recorded in the SRN PPI in the form of a registry number and/or code.

Further, based on Article 71 of PR 98/2021, national GHG emission reduction certificates can be obtained after going through several stages, as follows:

Registration at SRN PPI;
Verification by independent verifiers; and
Reporting, where the verification results are reported to the Minister and become the basis for consideration for the issuance of certificates.

Not only can the holder of Emission Reduction Certificate use the certificate to participate in carbon offset scheme, in accordance with Article 73 paragraph (1) of PR 98/2021, the certificate can also be used to:

take part in emission trading scheme with authorization from the Minister and result-based payment scheme;
serve as the basis for the organization or product-related carbon label;
serve as the basis for providing information to consumers and supply chains, and serve as sustainability reports and information instruments; and
serve as the basis for applying for environmentally friendly financing, or financing the sustainability of financing instruments.

C. Subordinate Legislation

Even though the carbon offset scheme has been regulated in PR 98/2021, there are still many practical issues that have not been regulated and are waiting for subordinate legislations to be issued, for example regarding SRN PPI, procedures for MRV, and the Indonesia Certified Emission Reduction (ICER). The Minister of Environment and Forestry Regulation related to this is targeted to be issued in October 2022.

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