Two Years into IDX Carbon: Analyzing Indonesia’s Carbon Market Challenges
September 2025 marked a significant milestone for Indonesia’s carbon exchange, IDX Carbon, as it celebrated two years since its launch. However, despite an auspicious beginning, the market is currently experiencing stagnation, with trading activity trailing behind international counterparts, raising concerns about its effectiveness.
The Aspirational Launch of IDX Carbon
Launched on September 26, 2023, IDX Carbon was positioned as a key pillar of Indonesia’s climate strategy. This initiative demonstrated the country’s commitment to becoming part of the global transition toward market-based mechanisms for reducing carbon emissions and attracting foreign investment.
Global Context: A Booming Carbon Market
Globally, carbon markets have been flourishing. According to the World Bank, carbon transactions—including taxes and emissions trading systems—yielded over USD 100 billion in revenue in 2024. In stark contrast, Indonesia’s total transactions stood at only IDR 78 billion (approximately USD 4.9 million) since the market’s inception. The vast disparity is further highlighted by the mere eight projects listed and 132 participants registered to trade.
Initial Momentum and Subsequent Decline
While IDX Carbon started strong in 2023—recording transaction values of IDR 31 billion (about USD 2 million) in just the last quarter—the momentum quickly faltered. By February 2024, trading came to a halt, with the average carbon price dropping from IDR 62,533 (USD 4.1) per tonne to IDR 55,985 (USD 3.9) by the end of the year. The market seemed to only experience brief spikes, such as in October 2024, during political transitions, before retreating to lower levels.
Indonesia’s Role in International Climate Discussions
At the recent COP29 climate summit in Baku, Indonesia aimed to enhance discussions around carbon trading while seeking to generate additional revenue from carbon credits. The country made strides in international climate cooperation, signing a Mutual Recognition Arrangement (MRA) with Japan, allowing for bilateral carbon credit trading—marking a significant step in aligning with global efforts under the Paris Agreement.
A New Strategy for Global Integration
In January 2025, IDX Carbon opened its doors to international buyers, a strategic shift intended to rekindle interest in the market. However, the transaction values remained low, indicating that mere accessibility to global players is not enough to invigorate the market. From March to September 2025, transactions plummeted to IDR 1 billion (approximately USD 72,621) and trade volume accounted for only 27,613 tCO₂e.
Comparative International Performance
Compared to Japan’s GX-ETS, which launched in 2024 with over 700 participants and aims to cover nearly 50% of national emissions, Indonesia’s progress looks dismal. Similarly, the European Union’s Emissions Trading System (EU ETS) stands out as the most robust worldwide, involving over 11,000 participants and an average carbon price exceeding USD 70.
Reasons for Stagnation
Several factors contribute to IDX Carbon’s stagnation. One major issue is its design—currently a hybrid carbon pricing model incorporating both cap-and-trade and a fallback carbon tax. While the theory contains flexibility and fiscal discipline, practical challenges abound. The system primarily targets coal-fired power plants (CFPPs), where emission caps are set high, limiting the incentives for companies to seek emission reduction credits.
Detailed Design Flaws
The high carbon caps mean few facilities exceed their limits, diminishing the demand for credits or tax enforcement. Moreover, the carbon tax, initially proposed at IDR 30,000/tCO₂e (about USD 2/tCO₂e), faces delays due to implementation challenges, including measurement and reporting issues.
Administrative Hurdles
Unclear trading procedures have compounded the problem. The regulations that guide IDX Carbon remain hampered by overlapping legal mandates and inefficient processes, dissuading potential investors from participating in the market.
Regulatory Revisions: Presidential Regulation No. 110/2025
To address these shortcomings, the Indonesian government issued Presidential Regulation No. 110/2025, aiming to enhance governance in the carbon market. This regulation offers a blueprint for improved transparency and inter-ministerial collaboration.
Key Features of PR 110/2025
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Carbon Allocations: Aligns economic strategies with emissions reductions.
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Ministerial Authorization: Allows entities to utilize carbon units for international obligations and NDCs.
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Refined Trading Framework: Distinguishes between domestic and international transactions.
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Transparent Mechanisms: Provides clearer guidelines for trading and certification.
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Cross-Ministerial Committee: Establishes a dedicated team to oversee market strategy and collaboration.
The Need for Strategic Reforms
To unlock Indonesia’s carbon market potential, several strategic reforms must be implemented:
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Implement Robust Caps and Taxes: Stronger caps and more substantial tax structures are needed to drive participation and accountability in emissions reductions.
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Ensure Transparent Regulations: Comprehensive regulations are vital for attracting global investment.
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Conduct Market Reforms: Any carbon tax should be accompanied by stakeholder engagement to minimize socio-economic impacts.
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Develop a Low-Carbon Transition Pathway: Provide clear pathways for renewable energy investments and ensure accessibility beyond the state-controlled electric utility.
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Enhance Certification and Monitoring: Establish robust protocols for certification and monitoring, supported by a dedicated governance agency to streamline processes.
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Strengthening Institutional Capacity: Reinforce IDX Carbon’s oversight capabilities to ensure integrity and trustworthiness in carbon trading.
The Path Towards a Net-Zero Future
As Indonesia strives for net-zero emissions by 2060, establishing a credible carbon market will be crucial. Aligning emission caps with climate targets can send strong signals to investors, encouraging low-carbon investments and fostering significant environmental transformation within the country.
Balancing domestic priorities with a strategic international approach will empower Indonesia to realize its potential in the global carbon market. With the right reforms, Indonesia can transition from a nascent market player to a leader in climate governance, offering a valuable model for emerging economies seeking similar pathways.