Indonesia has announced that the initial phase of rolling out a carbon trading mechanism for coal power plants has begun. It will cover 99 plants which will be provided a quota of 20 million tonnes of CO2 equivalent.
The mechanism will enable plants that exceed their emissions quota to purchase carbon allowances from producers who stayed below their quota, or alternatively from plants that produce renewable energy.
The scheme will only apply to plants that have a minimum of 100 MW production capacity but energy minister Arifin Tasrif did clarify that smaller coal and fossil fuel plants (both private and state-owned) will be included.
“Carbon pricing is one of the policies that could increase energy efficiency, reduce dependence on carbon energy, imported energy and can be a source of income for the company and government,” Arifin commented at the launch event.
Officials in Indonesia expect that carbon trading will lead to a reduction of 36 million tonnes of emitted carbon dioxide by 2030. Pricing will be left to the market itself but energy ministry representative Mohamad Priharto Dwinugroho expressed expectations of prices between $2 and $18 per tonne.
In 2022 Indonesia aligned itself with other global economies and set an ambitious goal for carbon emission reductions. The target was set at a 32% reduction by 2030 with internal efforts and 43% with international support.
As it stands Indonesia is the tenth largest greenhouse gas emitting country (from 2020 data) and its reliance on coal is set to continue in the near future. But the development of a carbon trading exchange is a step forward on the path to decarbonization and achieving its goal to be net zero by 2060.