This essay proposes that the legal infrastructure in Indonesia necessitates strengthening to ensure investor confidence and certainty in the application of legal principles. To that end, efforts to streamline legislation and Ministry-specific regulations are necessary. Despite legislative amendment of FDI restrictions in Law No. 11 of 2020 on Job Creation and the subsequent Presidential Regulations, the new investor capital requirements implemented by the BKPM send a mixed signal to investors

1. AHRP Legal Alert Page 1 of 8
Legal Alert April 2023
Development of Regulatory Framework for Carbon
Exchange in Carbon Trading Arrangements
I. Introduction
By virtue of Law 16/2016, the Government of the Republic of Indonesia
(“Government”) ratified Paris Agreement to the United Nations Framework
Convention on Climate Change purposes of Paris Agreement comprise:1
1. limiting the increase in the global temperature rise to below 2°C (two degrees
Celsius) above pre-industrial levels and pursuing efforts to limit the
temperature increase to 1.5°C (one point five degrees Celsius); and
2. affirming the obligation of each country to convey the Nationally Determined
Contribution (“NDC”)2
.
In light of the foregoing, the Government considers that the carbon economic
value/nilai ekonomi karbon (“NEK”) is one of the instruments to realize the
Government’s contributions to the achievement of the Paris Agreement’s
purposes.3
Following that, the Government has issued PR 98/2021 concerning the
implementation of NEK to achieve NDC targets and control of greenhouse gas
emissions/emisi gas rumah kaca (“GHE”) in national development.4
On 21 September 2022, the Minister of Environment and Forestry of the Republic
of Indonesia ("MoEF”) enacted MoEF Reg. 21/2022 with consideration to
complement the legal provision in order to achieve the NDC targets and control
GHE at 29% (twenty-nine percent) up to 41% (forty-one percent) in 2030.5
In connection with the attempt to control the GHE, MoEF Reg. 21/2022 stipulates
that the said regard can be done through the management of NEK, namely the
value for each unit of GHE produced from human activities and economic
activities.6
Pursuant to Article 3 (2) MoEF Reg. 21/2022, the management of NEK
can be enforced through several mechanisms, one of which is the carbon trading.7
Carbon trading is a market-based mechanism for reducing GHE through the
purchase and sale activities of carbon units.8
In particular, carbon trading can be
conducted through domestic carbon trading and/or international carbon trading by
way of 2 (two) mechanisms, namely: (i) emissions trading; and (ii) GHE offsets. 9
1
Point 1 (a) and (b) of Letter B Section I of the Elucidation of Law 16/2016.
2
Pursuant to Article 1 (1) PR 98/2021, NDC is the national commitment for handling the
global climate change in order to achieve the purpose of Paris Agreement to the United
Nations Framework Convention on Climate Change.
3
The Consideration of PR 98/2021.
4
The Consideration of PR 98/2021.
5
The Consideration of MoEF Reg. 21/2022.
6
Art. 2 (1) jo. Art. 1 (1) MoEF Reg. 21/2022.
7
Art. 3 (2) (a) MoEF Reg. 21/2022.
8
Art. 1 (19) MoEF Reg. 21/2022.
9
Art. 4 (1) jo. Art. 5 (1) MoEF Reg. 21/2022.
Carbon trading is one of
the mechanisms in the
management of NEK to
achieve the NDC targets
and control GHE, and one
of the means that can
conducted to do it is by
organizing the carbon
exchange. Since the
enactment of PR 98/2021
to the MoEF Reg. 21/2022,
the Government has
provided overviews toward
the implementation of
carbon trading through the
carbon exchange.
Recently, Law 4/2023
provides further general
provisions of the carbon
trading through the carbon
exchange.

2. AHRP Legal Alert Page 2 of 8
Further, the said carbon trading mechanisms can be conducted through carbon
exchange and/or direct trading.10
In brief, direct trading is where carbon trading
occurs outside of the carbon exchange between sellers and buyers who demand
the carbon units.11
On the other hand, the Government recently issued Law 4/2023
which provides further general provisions of the carbon trading through the carbon
exchange.
Based on the above, this article will elaborate the latest development on the
regulation of carbon exchange in Indonesia.
II. General Overview of Carbon Trading
Pursuant to Article 4 (2) MoEF Reg. 21/2022, it is specified that the following
provisions must be fulfilled when conducting the carbon trading:
1. it shall be in accordance with the carbon trading roadmap;
2. it shall provide emissions reduction reserves (buffers); and
3. it shall be in the form of GHE reduction certificate for cross-sector carbon
trading.
In addition to the above, the following additional provisions also must be fulfilled
when conducting the international carbon trading:12
1. it shall be conducted after the Relevant Minister13
within its jurisdiction
determines and submits plans and strategies for the achievement related to
NDC in sectors and sub-sectors to the MoEF;
2. it has achieved NDC targets in sectors or sub-sectors for international
carbon trading; and
3. secured the authorization from the MoEF.
As previously stated, carbon trading can be conducted by way of: (i) emissions
trading; and (ii) GHE offsets. Further elaboration on both are provided below.
1. Emissions Trading
Emissions trading is a transaction mechanism between business actors who
have emissions exceeding the specified Upper GHE Limit.14
Specifically,
emissions trading applies for businesses and/or activities which have Upper
GHE Limit specified under Technical Approval for Upper Emissions
Limit/Persetujuan Teknis Batas Atas Emisi (“PTBAE”) by the Relevant
Minister.15
PTBAE is the basis for the Relevant Minister in determining
10
Art. 5 (2) MoEF Reg. 21/2022.
11
Art. 1 (21) MoEF Reg. 21/2022.
12
Art. 4 (3) MoEF Reg. 21/2022.
13
Based on Art. 1 (44) MoEF Reg. 21/2022, Relevant Minister means the minister who is
the coordinator in the sector or the responsible person of the sub-sector in the NEK
implementation procedures.
14
Art. 1 (23) MoEF Reg. 21/2022. In addition, based on Art. 1 (4) MoEF Reg. 21/2022,
Upper GHE Limit means the highest GHE level specified in a certain period.
15
Art. 9 (1) MoEF Reg. 21/2022.

3. AHRP Legal Alert Page 3 of 8
PTBAE for Business Actors/PTBAE bagi Pelaku Usaha (“PTBAE-PU”),
which can be conducted based on (i) the proposal of business actors; or (ii)
direct determination.16
On conditions that the actual emissions are above the PTBAE-PU, business
actors must offsets, which can be done by purchasing carbon units from
other business actors.17
In contrast, if the actual emissions are below the
PTBAE-PU, the carbon units can be traded between business actors in sub-
sectors or sub-sub-sectors who have the same Upper GHE Limit and/or
emissions quota.18
2. GHE Offsets
GHE offsets is GHE reduction conducted by businesses and/or activities to
compensate the emissions that are made in other places.19
Based on MoEF
Reg. 21/2022, GHE offsets applies to businesses and/or activities that:20
a. do not have the Upper GHE Limit, provided that if the relevant
business and/or activity does not have Upper GHE Limit, then, the
MoEF and governor in accordance with their authorities will determine
the GHE Baseline21
and emissions reduction targets;
b. have an emissions surplus, if the achieved GHE reduction from
climate change mitigation actions undertaken are below the targets
and the GHE Baselines determined; or
c. have an emissions deficit, if the achieved GHE reduction from climate
change mitigation actions undertaken are above the targets and
below the GHE Baselines determined.
Within the emissions surplus condition, business actors may sell the
emissions surplus to other parties.22
On the other hand, in the emissions
deficit condition, business actors may offset the difference in emissions by
purchasing from business actors who have emissions surplus.23
III. Preliminary Provisions on Carbon Exchange
Looking back into PR 98/2021, it has been regulated that carbon trading can be
conducted by way of carbon market mechanism through the carbon exchange.24
16
Art. 10 (1) and (2) MoEF Reg. 21/2022.
17
Art. 13 (1) and (2) MoEF Reg. 21/2022.
18
Art. 13 (3) MoEF Reg. 21/2022.
19
Art. 1 (14) MoEF Reg. 21/2022.
20
Art.14 (1) and (2) MoEF Reg. 21/2022.
21
Based on Art. 1 (15) MoEF Reg. 21/2022, GHE Baselines is an estimate of emission
levels and projections of greenhouse gases in sectors or activities that have been identified
within a predetermined period without policy intervention and/or mitigation technology.
22
Art. 14 (4) MoEF Reg. 21/2022.
23
Art.14 (5) MoEF Reg. 21/2022.
24
Art. 54 (1) (a) PR 98/2021.

4. AHRP Legal Alert Page 4 of 8
Carbon exchange is defined by PR 98/2021 as a system that regulates the
recording of carbon stocks, carbon trading, and ownership status of carbon units.25
In 2022, MoEF provides further provisions related to carbon exchange under MoEF
Reg. 21/2022 as an implementing regulation of PR 98/2021. MoEF Reg. 21/2022
further defines carbon exchange as stock exchanges or market organizers that
have obtained a business license from the authority that organizes an integrated
system of regulation and supervision of all activities within the financial services
sector regarding carbon trading and/or carbon unit ownership records.26
In particular, carbon trading through carbon exchange is conducted by way of:27
1. the development of carbon trading infrastructure, which is carried out by
MoEF together with ministers/heads of related institutions and can be
connected with international carbon exchange;28
2. the regulation of utilization of state revenue from carbon trading, which is
non-tax state revenue derived from levies on sales and purchase
transactions of carbon units;29
and/or
3. the carbon transaction administration, which is carried out through recording
and documenting the implementation of carbon trading.30
Moreover, MoEF has not provided any minister regulation related to carbon
exchange following the enactment of MoEF Reg. 21/2022. However, recently, Law
4/2023 enacted on 12 January 2023 regulates general provisions regarding carbon
exchange, such as carbon units, carbon trading organizers, the role of Financial
Services Authority/Otoritas Jasa Keuangan (“OJK”) in carbon trading, and the
implementation of carbon trading through carbon exchange.
Below is a further explanation of the provisions regarding carbon trading, including
the carbon exchange provided by Law 4/2023:
1. Carbon Units
According to Law 4/2023, carbon trading is a market-based mechanism for
reducing greenhouse gas emissions through the trading of carbon units.
Carbon units themselves are categorized as securities/efek under Law
4/2023, which are negotiable paper/surat berharga or investment contracts
both in conventional and digital form or other forms in accordance with
technological developments that give the owner the right to directly or
indirectly obtain economic benefits from the issuer or from certain parties
based on the agreement and each derivative of securities, which can be
transferred and/or traded in the capital market.31
25
Art. 1 (23) PR 98/2021.
26
Art. 27 (2) MoEF Reg. 21/2022.
27
Art. 54 (2) PR 98/2021.
28
Art. 54 (3) PR 98/2021 and Art. 27 (3) MoEF Reg. 21/2022.
29
Art. 54 (4) PR 98/2021.
30
Art. 54 (5) PR 98/2021 and Art. 27 (5) MoEF Reg. 21/2022.
31
Art. 1 (5) Law 8/1995 (after amended by Law 4/2023).

5. AHRP Legal Alert Page 5 of 8
In comparison to the definition of securities before the enactment of Law
4/2023, securities are defined as negotiable paper, namely debt
acknowledgment letters, commercial papers, stocks, bonds, proof of debt,
participation units of collective investment contracts, futures contracts on
securities, and any derivatives of securities.32
Accordingly, it is understood
that the change in securities definition by Law 4/2023 is purposed to cover
the definition of carbon units.
2. Market Organizers
Carbon exchange can only be held by market organizers who have obtained
a business license from OJK.33
The definition of market organizers in
question is the party that organizes and provides systems and/or facilities to
bring together parties conducting transactions on securities or financial
instruments on the capital market or organized financial markets.34
In particular, the parties that can carry out business activities as market
organizers in the capital market consist of the stock exchange and market
organizers outside of the stock exchange.35
Further details are as follows:
a. Stock Exchange
Stock exchange is a market organizer in the capital market for
exchange transactions (“Stock Exchange”).36
Presently, Indonesia
Stock Exchange/Bursa Efek Indonesia is the primary stock exchange
in Indonesia.
b. Market Organizers outside the Stock Exchange
Market organizers outside the Stock Exchange include parties that
organize and provide a system to continuously reconcile securities
transactions between service users outside the Stock Exchange,
where the implementation and provision of the system can be carried
out electronically.37
Moreover, market organizers outside of the Stock Exchange are
companies that have obtained a business license from the OJK.38
Presently, provisions regarding the requirements and procedures for
licensing of market organizers outside the Stock Exchange are further
regulated by the OJK under OJK Reg. 8/2019.39
32
Art. 1 (5) Law 8/1995 (before amended by Law 4/2023).
33
Art. 24 (3) Law 4/2023.
34
Elucidation of Art. 24 (3) Law 4/2023 and Art. 1 (31) Law 8/1995.
35
Art. 5D (1) Law 8/1995.
36
Art. 1 (4) Law 8/1995.
37
Elucidation of Art. 5D (1) Law 8/1995.
38
Art. 5D (3) Law 8/1995.
39
Art. 5D (7) Law 8/1995.

6. AHRP Legal Alert Page 6 of 8
In addition to carbon trading, market organizers may also develop activities
or products based on carbon units.40
3. OJK’s Duties and Authorities
In general, OJK serves to organize an integrated regulatory and supervisory
system for all activities in the financial services sector, actively maintain
financial system stability in accordance with its authority and provide
protection to consumers and the public.41
Prior to the enactment of Law
4/2023, OJK had regulatory and supervisory duties on several financial
service activities in the following sector:42
a. banking;
b. capital market; and
c. insurance, pension funds, financing institutions, and other financial
services institutions.
By virtue of Law 4/2023, OJK is given with additional sectors on its
regulatory and supervisory duties of several financial service activities, one
of which is the carbon exchange.43
To carry out its duties related to carbon
exchange, OJK has the regulatory authority to regulate the secondary
trading of instruments related to the economic value of carbon in carbon
exchanges.44
In relation to OJK’s authorities mentioned earlier, Law 4/2023 also specifies
that OJK’s authorities shall include:45
a. licensing of companies that carry out trading activities on the carbon
exchange; and
b. supervision, which also includes the governance of companies that
engage in trading activities on the carbon exchange, such as
environmental friendly commitments.
Moreover, one of OJK’s member of board of commissioners, namely the
Chief Executive of the Capital Market Supervision, is now the Chief
Executive of the Capital Market, Derivative Finance, and Carbon Exchange
Supervision.46
4. Implementation of Carbon Trading through the Carbon Exchange
As mentioned earlier, there are several ways to conduct carbon trading
through the carbon exchange, one of which is the development of carbon
trading infrastructure. In connection with the said regard, Article 24 (6) Law
40
Art. 24 (4) Law 4/2023.
41
Art. 5 Law 21/2011.
42
Art. 6 (1) Law 21/2011 (before amended by Law 4/2023).
43
Art. 6 (1) (b) Law 21/2011.
44
Art. 5 (a) (8) Law 8/1995.
45
Elucidation of Art. 25 Law 4/2023.
46
Art. 10 (4) (d) Law 21/2011 (before and after amended by Law 4/2023).

7. AHRP Legal Alert Page 7 of 8
4/2023 regulates that the development of the carbon trading infrastructure
is carried out in a coordinated manner between ministries/agencies and the
carbon stock exchange supervisory authority.
The above coordination is carried out to achieve the overall goal of carbon
market development through synergized policies in terms of greenhouse
gas control effectiveness, state income and economic growth, and financial
sector development.47
Besides, it is also regulated that the carbon exchange
center shall be based in Indonesia.48
Furthermore, Law 4/2023 stipulates that carbon trading through the carbon
exchange must meet the requirements and have obtained the license from
the OJK.49
Further provisions regarding carbon trading through carbon
exchange will be regulated in the OJK regulation after consultation with the
People’s Representative Council of the Republic of Indonesia/Dewan
Perwakilan Rakyat Republik Indonesia and coordination with ministries
and/or other relevant authorities.50
Coordination at least includes the development of carbon trading
infrastructure, regulation of utilization of state revenues and carbon trading,
and administration of carbon transactions.51
For instance, coordination
related to the implementation of carbon exchange is carried out between the
OJK and the Ministry of Environment and Forestry.52
In addition to what has already been stated, OJK regulation(s) that provides
further provisions regarding carbon trading through carbon exchange has
not been issued yet but is much-looked-forward-to.
47
Elucidation of Art. 24 (6) Law 4/2023.
48
Art. 24 (7) Law 4/2023.
49
Art. 25 Law 4/2023.
50
Art. 26 Law 4/2023.
51
Elucidation of Art. 26 (2) Law 4/2023.
52
Elucidation of Art. 26 (2) Law 4/2023.

8. AHRP Legal Alert Page 8 of 8
Bibliography/References
1. Law Number 4 of 2023 on the Development and Reinforcement of
Financial Sector (“Law 4/2023”).
2. Law Number 16 of 2016 on Ratification of the Paris Agreement to the
United Nation Framework Convention on Climate Change (“Law
16/2016”).
3. Law Number 21 of 2011 on Financial Services Authority as amended by
Law Number 4 of 2023 (“Law 21/2011”).
4. Law Number 8 of 1995 on Capital Market as amended by Law Number 4
of 2023 and partly revoked by Government Regulation in leu of Law
Number 1 of 2017 (“Law 8/1995”).
5. Presidential Regulation Number 98 of 2023 on the Implementation of
Carbon Economic Value to Achieve Nationally Determined Contribution
Targets and Control over the Greenhouse Gas Emissions in relation to
National Development (“PR 98/2021”).
6. Minister of Environment and Forestry Regulation Number 21 of 2022 on
Procedures for the Application of Carbon Economic Value (“MoEF Reg.
21/2022”).

9. We will continue to follow the developments on this topic and provide additional information
as it becomes available. If you have any questions on this topic, please contact:
Merina Elfian
merina@ahrplaw.com
Fatya Alesi Ahmad Farizi
fatya@ahrplaw.com
This publication has been prepared by AHRP for educational and informational purposes only. The information contained in this publication is not
intended and should not be construed as legal advice. Due to the rapidly changing nature of law, AHRP makes no warranty or guarantee
concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it
applies to your circumstances before deciding to take any action.
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