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W&P Newsletter – Indonesia’s Recent Policies On Carbon Emission And Carbon Reduction

In August 2021, the Intergovernmental Panel on Climate Change (IPCC) released a report indicating the likelihood of crossing the global warming level of 1.5 degrees Celsius in the next decades.[1] This study urges the state parties to the Paris Agreement, including Indonesia, to put in place policies aimed at immediate, rapid, and large-scale reduction of greenhouse gas emissions.

In this edition of our newsletter, we will update you on the recent policies issued by the Indonesian Government that may stimulate Indonesian private entities to participate in emission and carbon reduction by, among others, going into clean energy business.

  1. Indonesia’s Updated Nationally Determined Contribution (“NDC”)
    In 2016, Indonesia submitted an ambitious NDC target, aiming to reduce emissions by 29% (unconditional) up to 41% (conditional) by 2030.To strengthen the above, earlier this year, the Indonesian Government updated Indonesia’s NDC through Letter No. B-272/M/S/HK.09/04/2021 dated 21 April 2021 (“Updated NDC”). Some of the key points set out in the Updated NDC may significantly affect Indonesia’s carbon emission reduction scheme in the future, including, the endeavors to conserve and manage wetlands (mangroves and peatlands), improve waste management, and increase efficiency in energy consumption in all energy-consuming sectors (industrial, commercial, transportation, and residential). From the Indonesian law perspective, the Updated NDC does not seem to take form as a binding domestic law or regulation, yet it does have a significant political effect in that it reflects Indonesia’s commitment to the implementation of the Paris Agreement, based on which the Government may issue various implementing regulations for the relevant sectors.
  2. Forestry Sector
    The Updated NDC includes Indonesia’s target for the restoration of 2 million hectares of peatland and rehabilitation of 12 million hectares of degraded land. The financing and cooperation framework through the mechanism known as ‘Reducing Emissions from Deforestation and Forest Degradation’ (REDD+) will play an essential role in achieving the set target.To date, REDD+ in Indonesia has been implemented through various means, including cooperation with private entities, such as the implementation of (i) Indonesia Sustainable Palm Oil and (ii) Forest Carbon Partnership Facility (FCPF), a partnership between the World Bank and the Ministry of Environment and Forestry on the incentive given to regional governments in Indonesia to implement low emission development projects.
  3. Energy Sector
    Indonesia’s policy on the greater use of mixed energy is laid down in Government Regulation No. 79 of 2014 on National Energy Policy. The Updated NDC is still consistent with this, and Indonesia is aiming at achieving a primary energy supply mix by 2025 and 2050, with the following shares:

    1. The role of new and renewable energy at least 23% in 2025 and at least 31% in 2050;
    2. The role of crude oil (petroleum) should be less than 25% in 2025 and less than 20% in 2050;
    3. The role of coal should be a minimum of 30% in 2025 and a minimum of 25% in 2050; and
    4. The role of natural gas should be a minimum of 22% in 2025 and a minimum of 24% in 2050.
  4. Waste Management
    The Government of Indonesia also shows its commitment to accelerate the reduction of emissions from the waste management sector.Recently, the Government of Indonesia has started to develop a number of waste treatment facility projects, such as the Legok Nangka waste treatment facility in West Java and the Jatibarang waste treatment facility in Semarang.A lot of news reports also mention that the Government is planning to develop more waste treatment facility projects in other cities throughout Indonesia.
  5. Upcoming Carbon Pricing Regulation
    President Joko Widodo is currently finalizing the draft Presidential Regulation on Carbon Pricing Instruments for NDC Achievement and Carbon Emission Control in Development (“Carbon Pricing Regulation”).The Carbon Pricing Regulation aims to encourage business entities to take part in controlling carbon emissions from each of their business activities in accordance with the applicable emission standards.From the draft regulation circulating among the public, there will be two carbon pricing instruments, i.e., trade and non-trade instruments. The trade instrument includes carbon trading and carbon offset, allowing an entity to purchase the right to release more carbon dioxide from an entity with lower carbon emissions.  As for the non-trade instrument, the Government will introduce the imposition of tax/levies (Carbon Tax) when an entity purchases carbon-containing goods and/or performs activities that generate carbon emissions, The Ministry of Finance is now preparing the underlying regulation for the Carbon Tax, reportedly to be put into effect in 2022.In addition to the above, the Ministry of Energy and Mineral Resources recently enacted Regulation of Minister of Energy and Mineral Resources  No. 26 of 2021 on Rooftop Solar Power Plants Connected to the Electric Grids of Holders of Power Supply Business License for Public Interest. One of the key points of this new regulation is the possibility for Rooftop Solar Customers and holders of Power Supply Business License for Public Interest to trade “carbon”. More detail on its implementation will be further regulated in a separate ministerial regulation. This should be something keenly awaited by businesses in the energy sector.

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[1] IPCC, Climate Change 2021 The Physical Science Basis Summary of Policymakers, 2021, p.18. Accessible on here.