Exploring Indonesia’s carbon trading market
In 2022, Indonesia raised its target for the reduction of carbon emissions to 31.89 per cent by 2030 as part of its commitments to the Paris Agreement. To achieve this, the country introduced a carbon pricing and trading market that sets the value for each unit of greenhouse gas released. The Indonesia Carbon Exchange, or IDX Carbon for short, officially launched in September 2023 to facilitate the trading of carbon credits among the country’s five electric power plants. It recently opened its doors to international trading this year to draw in foreign investors. Investors can purchase IDX-issued carbon credits to essentially offset their emissions, with the money going into sustainability projects.
Beyond the goal of competing in this space globally, former President Joko Widodo sees the carbon market of Indonesia rising up to IDR 3 trillion (USD 18 billion). He is confident in Indonesia’s potential in the global carbon market – that is, if the country sticks to its zero-emission goal by 2060. With Indonesia making waves in carbon trading and aiming for a greener economy, investors should be on the lookout for opportunities in this space.
Economic value of carbon trading
Prior to the launch of IDX Carbon’s international trades, Indonesia and Japan signed a Mutual Recognition Agreement for bilateral carbon trading to encourage the private sector to enter this market and drive innovation towards carbon reduction. Indonesia is also looking into renewables and nature-based solutions, such as the planting of 125 million hectares of tropical forest to counter global warming. According to Deputy for Coordination of Environmental and Forestry Management Nani Hendiarti, tapping into this natural resource could potentially absorb 6.7 gigatons of carbon dioxide in the atmosphere. This expands the potential of Indonesia’s carbon trading market in generating huge demand for economic partnerships and investments towards green projects.
Graph 1 shows the average opening price of the carbon market that started at IDR 58,800 (USD 3.57) with a volume of 108 tons of carbon dioxide equivalent (CO2e), accumulating a total value of IDR 6.35 million (USD 382.70). Since then, there have been fluctuations in the average carbon price. The price per unit of carbon has dropped to IDR 32,612.02 (USD 1.98) in March 2025, sustaining five straight months of decline. Despite the dip in the opening prices, total carbon trading value for February reached a high of IDR 14.32 billion (USD 871,200), with the volume totalling 397,188 tons of CO2e. This volume of tradable carbon in Indonesia shows the country’s ability to supply a significant amount of carbon credits and the market’s readiness to go global.
President Prabowo Subianto also plans to open a green economy fund to raise USD 65 billion in revenues by 2028. Although Subianto is highly confident that Indonesia will be able to generate carbon credits through green projects such as reforestation and mangrove replanting, one might wonder how realistic this goal is. According to Subianto’s special envoy during the UN Climate Change Conference, Hashim Djojohadikusumo, Indonesia has 577 million tons of carbon credit reserves, plus IDX Carbon’s 1.78 million CO2e carbon credit thanks to the five state-owned power plants.
Bridging renewable energy and Islamic finance
According to PwC, Indonesia has the capacity to generate as much as 3,687 gigawatts (GW) of renewable energy. This also gives some insight into the country’s potential in the creation of carbon credits. However, the reality is that only 12.6 GW or 0.3 per cent of this has been utilized.
Based on an Asian Development Bank report on Indonesia’s green infrastructure requirements in Graph 2, sustainability projects under the National Medium Term Development Plan 2020-2024 are estimated to cost USD 235 billion, of which renewable energy power plants will have an investment requirement of USD 5.2 billion. Other projects in the sample pipeline include the development of low carbon transport such as new train routes and new dams for better water supply management.
Indonesia has been working towards energy transition and building a green economy. For instance, with the Asia Zero Emission Community initiative, Japan has been helping Indonesia with decarbonisation projects. Indonesia has also eased its local content requirements to further encourage foreign investments into renewables. This has yielded promising results, which paved the way for Batam island to start supplying solar power to Singapore.
Beyond supporting the development of renewable energy sources, it is also worth looking into how the carbon market will intersect with Indonesia’s Islamic finance. While the carbon market is still new for Indonesia, we believe that Islamic finance will attract more foreign investments. The government has issued green sukuk, or Shariah-compliant bonds, to fund projects aimed at reducing carbon emissions, and it has been reported that the country has issued bonds worth USD 7.07 billion from 2018 to 2023. By aligning carbon credit principles with Islamic law, we believe that Indonesia can attract a broader range of foreign investors who are looking to achieve two goals in one go: sustainability and religious compliance.
With the growing global demand, we see potential in Indonesia’s economic growth as the country is able to combine its carbon market with other financial instruments – after all, it enjoys a short list of economies offering carbon trading in the region. We are keeping an eye on how this carbon market evolves, along with Indonesia’s efficiency in implementing green projects into fruition.
