Indonesia’s Carbon Exchange (IDXCarbon) has been operating since September 2023, open only to domestic entities – see our previous analysis on IDX Carbon here.
Applying the average price per credit seen in IDX transactions over this time period (IDR 58,000 or USD 3.5/t), the value of Indonesian carbon trading so far totals around USD 3.3 million. For comparison, the international exchange CME saw 126.8 million carbon credit futures transactions in 2024, amounting to USD 98.4 million – about 30 times the size of Indonesia’s emerging market.
The 20 January auction offered 1.7 million carbon credits – nearly double the amount traded on IDXCarbon so far. During the inauguration day, IDXCarbon sold 41.8 thousand tons of carbon credits at IDR 96,000/t (USD 5.8/t) for credits generated from energy efficiency projects and IDR 114,000/t (USD 7/t) for credits generated from mini-hydro project.
According to the exchange’s announcement of – and government information about – the auction, the credits on offer will be “correspondingly adjusted” in Indonesia’s accounting toward its nationally determined contribution (NDC) under the Paris Agreement. Applying corresponding adjustments – essentially foregoing that amount of greenhouse gas mitigation in its accounting toward its own national climate target – is what makes a carbon credit into a unit of mitigation other countries or companies can apply toward their mitigation targets without double counting. Credits authorized for sale by a government that are not correspondingly adjusted are limited in terms of claims buyers can make: other countries cannot use them toward their NDCs, and private entities may only claim to have contributed to or sponsored the mitigation efforts of the seller country, not actually reduced or offset emissions.
Thus the statement that the 1.7 million tonnes are “correspondingly adjusted” has the potential to affect prices, with buyers typically paying more for credits that have corresponding adjustments – especially governments, who can only use correspondingly adjusted units to meet their Paris targets under Article 6. “Proof” that corresponding adjustments will be applied comes from a seller country government’s Letter of Authorisation (LoA) outlining essential factors such as the procedures used to quantify mitigation outcomes, and general recognition (a “promise”) that the mitigation will be deducted from its tally as enshrined in required biennial emissions reports to the UN. The Indonesian credits offered at the auction, however, lack LoAs.
While the adopted Article 6.4 guidance on COP29 (see our in-depth analysis on this here) permits host countries to convert issued Mitigation Contribution Units (MCUs) into internationally transferable units, the issuance of an LoA remains mandatory to confirm authorization and facilitate cross-border transfers.
Regardless of whether they are compatible under Article 6 of the Paris Agreement, the credits offered at the IDX auction are also questionable with respect to their additionality. Although the crediting methodologies used by these projects are not clearly displayed on the project registry page, the national registry lists 49 methodologies from which the credits come (almost entirely in Bahasa Indonesia rather than English, despite the express goal of selling to non-domestic buyers). Many of these methodologies lack an explanation of how the reductions or removals of greenhouse gas associated with the carbon credit go beyond what would have happened without credit revenue, i.e. they fail to prove additionality
Some of the credits for sale at the IDX auction even reference the outdated CDM ACM0002 for grid-connected renewable energy methodology going back to the Kyoto Protocol, which was rejected by the Integrity Council for the Voluntary Carbon Market (ICVCM) last year precisely because of its questionable additionality. Projects using ACM0002 are likely to have been implemented regardless of financial incentives from carbon credit sales, raising doubts about the legitimacy of the emission reductions claimed. See here for our analysis of ICVCM’s verdict on renewable energy projects.
Lack of clarity about the methodologies behind carbon credits does not bode well for the country’s ability to sell mitigation units internationally. LoAs are critical the legitimacy of carbon credits in international markets. Their absence in Indonesia’s national registry raises concerns about the transparency of the country’s carbon trading framework. One reason LoAs are missing is likely that Indonesia’s NDC is simply not formulated in a way that corresponding adjustments can be applied – which mitigation targets are conditional vs. unconditional, as well as which sectors of the economy they even apply to, remains unclear. Until these concerns about the quality of credits being sold to international buyers are addressed, we do not foresee major interest in IDX auctions going forward.
Veyt specialises in data, analysis, and insights for all significant low-carbon markets and renewable energy.
