Unpacking the UK and Indonesia’s carbon market tie-up
Published on July 27, 2023
Indonesia and the United Kingdom recently signed an implementing arrangement that paves the way for Indonesia’s ambitious plan to launch a carbon exchange later this year. This carbon pricing mechanism, a result of an agreement signed at the G20 Summit in Bali last year, brings Indonesia a step closer to realizing its vast potential for green growth.
The British government has committed £2.7 million (around $3.5 million) to provide recommendations and policy studies for Indonesia’s carbon pricing initiative. Last year, Indonesia implemented a presidential regulation for carbon pricing, suggesting a cap-and-trade system that sets an emissions limit and allows businesses to trade allowances. This regulation also allows companies to offset their emissions, resulting in a significant step toward creating a more sustainable and green economy.
Coordinating Minister of Maritime and Investment Affairs Luhut Binsar Pandjaitan told reporters on Monday, “A concrete step that we should take is to implement carbon pricing and open up a carbon market, where trading value can reach between US$1 billion and US$15 billion annually. We are one of the countries that are capable of absorbing carbon dioxide.”
The much-anticipated launch of the carbon exchange will take place in September, with the Financial Services Authority overseeing its operations. This collaboration forms part of the British government’s UK PACT, which aims to support partner countries’ climate mitigation efforts.
The news comes just days after the launch of the nation’s premier report on the decarbonization sector, titled “Catalyzing Indonesia’s Green Growth Potential,” jointly released by Indonesia’s leading early-stage venture capital firm AC Ventures (ACV) and Boston Consulting Group (BCG).
The report outlined the potential for green growth in Indonesia across three main areas – strategy and professional services, solutions that optimize greenhouse gas intensity, and emission offsetting – which collectively could create a market worth US$400 billion by 2030.
ACV’s Head of ESG Lauren Blasco explained, “Indonesia also possesses the immense potential to transition to a green economy. This shift is an opportunity for startups, small businesses, and investors to lead in fostering sustainable economic development and combating climate change.”
She went on to highlight the booming international demand for voluntary carbon credits, set to increase by about 27% annually until 2030, with Indonesia poised to be a frontrunner in this burgeoning market.
The report emphasized the role of startups, small businesses, and policymakers in driving the nation’s transition toward a green economy. Indonesia is taking significant steps to address its talent shortage in the green startup sector by establishing the National Talent Management body and promoting sustainable finance practices.
Marc Schmidt, Managing Director and Partner at BCG in Singapore, said, “We’re calling on businesses, citizens, financiers, and investors to join us in building a future that’s sustainable and equitable for all.”
Indonesia, the largest economy in Southeast Asia, is making a name for itself on the global stage as it strives to transform its economy. It’s clear that the country is making great strides in becoming a decarbonization leader, providing a pathway for others to follow.
Lauren added, “This is a very exciting time. Global investors and institutional capital would do well to keep an eye on Indonesia’s decarbonization sector in the months to come.”