Indonesia Stock Exchange (IDX) Launches Carbon Trading Operations
The Indonesia Stock Exchange (IDX) has launched carbon trading operations, enabling the trade of carbon units to support Indonesia’s emission reduction goals. With active participation from various sectors, the system aims to facilitate the transition to renewable energy and drive the early retirement of coal power plants.
The Indonesia Stock Exchange (IDX) officially launched carbon trading operations on September 26, 2023, following the issuance of a carbon exchange license by the Financial Services Authority (OJK) on September 18, 2023.
This move, in line with Indonesia’s proactive approach towards achieving its ambitious emission reduction target of 31.89 percent by 2030, is part of the country’s broader strategy to foster a greener economy. By overseeing the carbon trading market, the IDX aims to incentivize positive environmental practices and bring about significant changes in the energy sector.
Based on the guidelines of OJK Rule No. 14 of 2023, the IDX has put in place a comprehensive set of regulations, including the IDX Decree No. KEP-00296/BEI/09-2023 for Carbon Units Trading (hereinafter, “Decree on Carbon Trading”) and the IDX Decree No. KEP-00297/BEI/09-2023 for Carbon Exchange Users (hereinafter, “Decree on Carbon Exchange Users”).
This article examines the primary rules governing carbon unit trading on the IDX and the necessary requirements for entities participating in carbon exchange operations, highlighting the impact of these developments.
Key highlights of carbon trading unit on IDX
Tradable units in the carbon exchange
Based on the Decree on Carbon Trading, in the Indonesian carbon exchange there are two main types of carbon units available for trading, namely:
- Undertakings Emission Ceiling Technical Approval (PTBAE-PU): These units represent approvals for technical emissions ceilings granted to business entities operating in specific sectors.
- GHG Emission Reduction Certificate (SPE-GRK): These certificates signify the reduction of greenhouse gas emissions and can be traded among various entities within the exchange.
The IDX also allows the facilitation of foreign carbon unit trading, provided that the carbon units are duly registered with the OJK.
Carbon exchange users
As per the Decree on Carbon Exchange Users, entities eligible for participation in the carbon exchange include:
- Emission trader business actors operating in specific sectors with PTBAE-PU allocations
- Non-emission trader business actors operating in sectors without PTBAE-PU allocations
- Project owners, responsible for the initial sale of GHG Emission Reduction Certificates (SPE-GRK), who must register these certificates as per prevailing rules
- Other parties approved by the OJK
To qualify for carbon exchange participation, entities must meet the following general requirements:
- Designate officers responsible for utilizing IDX facilities
- Attend carbon exchange training provided by the IDX
- Possess a company email address
- Have at least two representatives who have completed IDX’s carbon exchange raining and are registered with the IDX
- Maintain a bank account linked to BI-FAST and BI-RTGS systems
- Provide annual financial statements for the preceding financial year
Additional requirements for Indonesian legal entities include:
- Possession of the company’s articles of association
- Holding a taxpayer registration number (NPWP) and a business identification number (NIB)
Foreign legal entities must have a legal entity identifier registered with the Regulatory Oversight Committee (ROC).
Entities seeking participation in the carbon exchange must submit an application letter to the IDX, utilizing the provided forms in the Decree on Carbon Exchange Users, to obtain approval from the IDX.
Supervision of carbon trading
The IDX, as the overseeing body of the carbon exchange, monitors the trading of registered carbon units, overseeing aspects such as price and volume fluctuations, order placements, and transaction patterns.
During the trading process, carbon exchange users are prohibited from engaging in the following actions:
- Placing orders or conducting transactions to manipulate the perception of carbon unit activities and price movements
- Executing trades that could potentially manipulate the market for personal gain or that of other parties
- Directly or indirectly participating in transactions that involve fraud, manipulation, or the use of insider information
- Conducting transactions based on false or misleading statements or information
- Engaging in activities that may misrepresent the trading of Active Carbon Units or promote unfair transactions
In cases where violations are detected, the IDX holds the authority to request clarification from users or temporarily suspend carbon units trading, among other measures.
Currently, the IDX carbon trading unit hosts four distinct market types, as illustrated in the table below.
Market Types Hosted on IDX Carbon Trading
This market allows relevant ministries and Project Owners to conduct auctions with Users.
Users utilize this market to input the outcomes of negotiation agreements into the Carbon Exchange, subsequently confirmed by the counterparty.
Users can use this market to submit selling offers and/or buying requests. The Carbon Exchange continuously engages in the trading of selling offers and buying requests for the same series of Carbon Units, either wholly or partially.
Project owners can use this market to submit selling offers of SPE-GRK. Users, acting as counterparties, can submit buying confirmations or provide offers with varying prices for the SPE-GRK accordingly.
Trading takes place on weekdays (excluding public holidays or days designated as public holidays by the IDX) from 9:00 to 15:00 Jakarta time.
Impact of the launch of carbon trading on IDX
The recent launch of carbon trading on IDX marks a crucial step towards supporting Indonesia’s sustainability goals. This move allows companies in renewable energy and decarbonization to sell carbon credits, while coal power plant operators can purchase credits to offset their emissions. Indonesian President Joko Widodo himself highlighted the potential economic benefits and the shift towards a greener economy.
Indeed, the carbon trading system is expected to drive the early retirement of coal power plants and reduce Indonesia’s reliance on coal. With active participation from various sectors, including state-owned energy companies and major financial institutions, the system could significantly contribute to Indonesia’s ambitious emission reduction targets. Moreover, this initiative also aligns with the country’s pursuit of alternative energy sources, including solar, micro-hydro, bioenergy, wind turbine, geothermal, and sea currents, indicating a comprehensive approach to reducing carbon emissions.
By fostering a conducive environment for carbon trading, Indonesia can position itself as a leading advocate for sustainable economic growth and environmental stewardship both among ASEAN and on the global stage.
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