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Indonesia has become the latest south-east Asian country to test the global carbon market kicked off by a recent UN agreement by selling carbon credits linked to energy projects.
Jakarta is betting that the drive to increase global carbon trading, by offering credits linked to emissions, may help fund its own transition to green energy. However, analysts have raised concerns that the credits on sale are too reliant on fossil fuel projects, which could put off investors.
The UN agreement signed at the Baku climate summit at the end of 2024 laid out rules for a global market for countries and companies to trade credits, which represent cuts in CO₂ emissions, as a way of offsetting their carbon footprints.
It raised expectations of a boost to the market for carbon credits outside of national pollution compliance schemes, where companies buy government allowances for carbon emissions, such as that operated by the EU.
Data provider MSCI Carbon Markets has estimated the market for voluntary carbon credits could grow from $1.4bn last year to up to $35bn by 2030.
Thailand said earlier this month that it expected to launch a carbon market in 2025, and Malaysia and Singapore are also vying to attract carbon trading.
Indonesia has offered 1.78mn credits, which represent the emission savings from five energy projects on IDX Carbon, a trading platform operated by its national stock exchange.
These include a hydropower project as well as natural gas projects that the country said were operating more efficiently than previously, leading to emission savings.
But analysts said carbon credits linked to fossil fuels might be a turn-off for some buyers more interested in solar or wind projects. “Big brands that seek high-quality carbon credits would not be interested in those projects,” said Shabrina Nadhila, an analyst at energy think-tank Ember.
The credits had “questionable integrity as defined by international carbon credit standards and may struggle to find international buyers”, MSCI said.
Fitri Wulandri, an analyst at Veyt, a carbon data provider, said the credits were based on outdated methodologies and there was a risk the emissions savings could be counted twice: once by buyers and once by Indonesia’s government to hit its national climate targets.
At the launch, Indonesia’s environment Minister Hanif Faisol Nurofiq said the government would safeguard against “double accounting, double payment and double claim”.
“There will be no double counting because it has been authorised for international trade and will later become the object of corresponding adjustment in Indonesia’s emission balance,” a ministry spokesperson told the Financial Times.
The carbon exchange sold 49,807 tonnes of credits on the first day of trading on Monday, and expected to sell 750,000 this year.
Indonesia is home to the world’s third-largest rainforest area after the Amazon and the Congo, and officials said the exchange could in future offer credits generated by forestry projects.
The country is also one of the world’s top emitters, with much of its electricity still derived from coal. Experts say that President Prabowo Subianto’s promise to achieve net zero emissions by 2050 would require massive reforms to laws favouring fossil fuels, and may also require the use of carbon offsets at a national scale.
Indonesia’s domestic emissions compliance scheme for the power sector, launched in 2023, has attracted criticism for doing little so far to curb pollution. It has no overall limit on the supply of emission allowances, unlike the EU’s carbon market, which is designed to lower industrial sector pollution over time by issuing a shrinking amount of allowances.
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