Carbon Emissions Trading as an Instrument for Emissions Control in Indonesia in 2025

Abstract

Climate change requires every country to reduce greenhouse gas (GHG) emissions through policy instruments that are both effective and economically efficient. Indonesia has positioned carbon emissions trading as one of the main instruments for achieving its Nationally Determined Contribution (NDC) target through the implementation of carbon economic value and the operation of the Indonesia Carbon Exchange (IDXCarbon). This study aims to analyse the development of carbon emissions trading in Indonesia in 2025, explain its trading mechanisms, and identify the benefits and obstacles of its implementation as an emission control instrument. The study applies a descriptive qualitative approach using secondary data obtained from government regulations, publications of the Ministry of Environment and Forestry, data from the Indonesia Carbon Exchange, and related journal articles. The results show that carbon trading in Indonesia operates through two main mechanisms, namely emission allowance trading (cap-and-trade) in the power generation subsector and carbon credit (offset) trading in the form of GHG Emission Reduction Certificates (SPE-GRK), which are equivalent to the concept of Certified Emission Reduction (CER). These instruments provide economic incentives for emission-reducing businesses, financing for mitigation actions, and improved transparency of emission data. Nevertheless, the implementation still faces obstacles such as low market liquidity, carbon prices that do not yet reflect the social cost of carbon, limited verification capacity, and incomplete sectoral coverage. The study concludes that carbon emissions trading can become an effective emission control instrument if supported by stronger regulation, broader sectoral coverage, and stricter emission caps.