Indonesia and the UK signed an implementing arrangement (IA) on July 24 to assist this Southeast Asian country in establishing carbon pricing.
The IA is a follow-up to the cooperation memorandum of understanding (MoU) signed by the two countries during last year's G20 Summit in Bali. Under this MoU, the British government committed GBP 2.7 million (approximately USD 3.5 million) in funding to provide recommendations and policy studies for Indonesia's carbon pricing.
The carbon pricing cooperation is part of the British government's “UK Partnering for Accelerated Climate Transitions” (UK PACT) program, aimed at supporting partner countries' climate mitigation efforts. Through this program, the UK aims to provide technical assistance to support the development and coordination of carbon pricing policies.
The program will also support Indonesia's Coordinating Ministry for Maritime Affairs and Investment in chairing the Carbon Pricing Steering Committee and assist the Ministry of Finance in drafting carbon tax-related policies.
Indonesia's Coordinating Minister for Maritime Affairs and Investment, Luhut Binsar Pandjaitan, stated, "We should implement carbon pricing and establish a carbon market, with its trading value reaching between USD 1 to 15 billion annually. We are one of the few countries capable of carbon absorption".
According to Pandjaitan, the country's depleted oil and gas reservoirs and saline aquifers can absorb 400 Gtons of carbon, assisting to offset carbon emissions in other regions.
Indonesia plans to launch a carbon exchange this September to facilitate the implementation of a carbon emission quota trading system. A pre-launch of the exchange is scheduled for August. The Financial Services Authority of Indonesia will oversee the trading activities. Currently, the government has not made a final decision on carbon pricing.
Indonesia has updated its nationally determined contribution (NDC) targets. The country is now aiming to cut 31.89% of carbon emissions on its own by 2030, which is higher than the initially announced 29% reduction. The coal-reliant country will raise this target to 43.2% if it receives international assistance.Indonesia has set a goal to reach net zero emissions by 2060 or sooner.