Carbon Trading in Indonesia: Key Projects and Investment Insights

The global fight against climate change is intensifying, but progress is slow. In 2023, the global decarbonization rate was only 1.02%, far from the 20.4% needed to limit global warming to 1.5°C. Indonesia is leveraging its vast natural resources and launching a structured carbon trading market to bridge this gap, creating significant investment opportunities.  

Carbon trading is a system that puts a price on carbon emissions, encouraging companies to reduce their carbon footprint and rewarding those who do so. With clear regulations, a new carbon exchange, and ambitious climate targets, Indonesia is becoming a key player in global carbon trading. But what makes this market attractive for foreign investors? Let’s dive in. 

Indonesia’s Carbon Trading Landscape 

Indonesia has set ambitious Nationally Determined Contributions (NDC) targets to reduce carbon emissions: 

• 31.82% by 2030 (without international aid) 
• 43.20% by 2030 (with international support) 
• Net-zero emissions by 2060 

To achieve these goals, Indonesia introduced the Carbon Economic Value (Nilai Ekonomi Karbon – NEK), a comprehensive framework integrating carbon pricing into its economy. This framework not only prices carbon emissions but also promotes low-carbon solutions, encouraging businesses to invest in clean energy and other sustainable practices. 

READ MORE:

• ESG Advisory for Green Financing in Indonesia 
• Indonesia’s Geothermal Energy: A 2025 Investment Guide 
• Renewable Energy Investment in The Manufacturing Sector 

Key Regulations Supporting Carbon Trading in Indonesia 

The government has established a strong regulatory framework to facilitate carbon trading. These regulations provide a clear legal structure for carbon trading, ensuring a stable investment environment for foreign investors. 

Opportunities for Foreign Investors in Indonesia’s Carbon Trading Sector 

Indonesia is rapidly becoming a global hub for carbon offsetting, offering foreign investors verified carbon credits from renewable energy, reforestation, and emission reduction projects.  

Forest Conservation and REDD+ Projects 

Indonesia’s vast rainforests, peatlands, and mangroves store massive amounts of carbon. Protecting these ecosystems through REDD+ (Reducing Emissions from Deforestation and Forest Degradation) projects presents a high-value investment avenue. 

Renewable Energy Development 

Indonesia aims to shift away from coal dependency, opening doors for clean energy investments. The government actively promotes: 

• Solar & wind farms 
• Geothermal power plants 
• Hydroelectric projects 

Carbon Capture, Utilization, and Storage (CCUS) 

With Presidential Regulation No. 14/2024, Indonesia is expanding carbon capture technology in the oil, gas, and industrial sectors. Companies investing in CCUS solutions can sell captured carbon credits in domestic and international markets. 

Carbon Offsetting for Multinational Corporations 

With stricter ESG (Environmental, Social, and Governance) regulations, corporations worldwide are under pressure to offset their carbon footprints. Indonesia’s voluntary carbon market provides a cost-effective solution for businesses looking to meet sustainability targets. 

International Partnerships and Bilateral Agreements 

Indonesia has actively signed bilateral agreements to enhance carbon trading collaborations. For example, in 2022, Indonesia and Japan signed a Joint Crediting Mechanism (JCM) agreement, which allows Japanese companies to purchase carbon credits from Indonesia. Furthermore, during the COP29 summit, Indonesia and Japan signed a Mutual Recognition Agreement (MRA) for bilateral carbon trading. 

Challenges and Risks in Carbon Trading in Indonesia 

While Indonesia’s carbon trading market presents exciting opportunities, foreign investors must navigate challenges and risks before entering. These include regulatory hurdles, project costs, market access issues, and technical requirements. 

• High Project Costs: Carbon projects like renewable energy and reforestation need significant development, operations, and compliance investments. 
• Regulatory Complexity: Companies must comply with strict emissions monitoring and reporting rules, and frequent policy updates add to compliance challenges. 
• Technical Expertise: Specialized knowledge in renewable energy, forestry, and carbon capture is required, and local partnerships are often needed. 
• Market Access Issues: Finding buyers for carbon credits can be tricky, especially for smaller companies, due to limited access to trading platforms. 
• Project Risks: Carbon projects face weather disruptions, price fluctuations, and regulatory delays, affecting profitability. 
• Social and Environmental Considerations: Projects must balance economic and ecological priorities and ensure community benefits and environmental protection. 

How Foreign Investors Can Enter Indonesia’s Carbon Trading Market 

In August 2023, Indonesia introduced Financial Services Authority Regulation No. 14 of 2023 (POJK No. 14/2023), allowing foreign investors to participate in the carbon exchange. Here’s how foreign investors can get involved: 

• Share Ownership: Foreign entities can invest but are limited to 20% ownership in carbon exchange organizers. 
• Regulatory Compliance: Investors must meet eligibility standards and be regulated by financial authorities in their home country. 
• Leadership Roles: Foreign investors can hold leadership positions, contributing to market strategy and decision-making. 
• Market Development: Foreign investment helps increase liquidity, introduce new technologies, and strengthen Indonesia’s carbon market. 
• Compliance Requirement: Investors must follow POJK No. 14/2023 and consult local legal and financial experts before entering the market. 

Outlook for Carbon Trading in Indonesia 

Indonesia’s carbon trading market is expanding rapidly, with new projects, increasing investor participation, and strong government backing. The country aims to become a leading global carbon credit supplier, supporting its net-zero emissions goal by 2060. 

• New Projects Added: In 2025, the IDXCarbon platform registered three new PLN emission reduction projects, adding 1.2 million carbon credits for trade. Currently, six carbon credit programs are available on the exchange. 
• Indonesia’s Global Potential: Experts predict that Indonesia could become the world’s largest carbon credit supplier, capable of generating 1 billion carbon credits. 
• Price Fluctuations: The average spot price of carbon credits in 2024 was $4.80 per ton, marking a 20% decline from 2023 and 32% from 2022 due to increased supply in global markets. 
• Market Expansion: As of 2024, over 6,200 carbon credit programs were registered globally, with an annual issuance of 305 million carbon credits. 
• Growing Demand: Despite price fluctuations, companies continue to use carbon credits, with a market value of $1.4 billion in 2024. 

With new projects, rising global demand, and government support, Indonesia is on track to becoming a key player in international carbon trading. However, investors should monitor price trends and regulatory developments to navigate this evolving market.

 

Invest in Indonesia’s Carbon Trading Market with InCorp 

Navigating Indonesia’s carbon trading sector requires expert knowledge of ESG compliance, investment regulations, and business permits. If you’re an investor looking to enter this growing market, InCorp Indonesia can assist you with the following: 

• ESG Advisory: Get expert guidance on regulatory compliance and sustainability strategies. 
• Investor KITAS: Secure the necessary permits to invest and operate legally in Indonesia. 

Act and position yourself at the forefront of the global carbon market by filling out the form below.