Historical of Carbon Policy in Indonesia (Part 1)

On June 14th, a new chapter in the development of carbon trading in Indonesia began. This was triggered by the issuance of Regulation of the Minister of Environment and Forestry (PermenLHK) No. 7 of 2023 concerning the Procedure for Carbon Trading. This regulation governs carbon trading in the forestry sector, aimed at achieving the Nationally Determined Contribution (NDC) targets for the forestry sector. Carbon trading is a market-based mechanism for reducing greenhouse gas emissions through the buying and selling of carbon units (SPE-GRK).

This policy was not created overnight; it underwent a long journey until finally there were regulations that addressed carbon trading in Indonesia. If traced back from the beginning, this policy originated from the Earth Summit, also known as the United Nations Conference on Environment and Development, held in Rio de Janeiro, Brazil, in 1992. The summit was attended by 108 heads of state from a total of 172 participating countries. The discussions at the Earth Summit included alternative energy sources to replace fossil fuels to reduce climate change, highlighting public transportation systems to reduce vehicle emissions, congestion, health issues caused by air pollution, and water scarcity. These points/issues raised during the Earth Summit opened the world’s eyes to be more concerned about the environment.

One of the binding agreements reached by the participants of the Earth Summit was the United Nations Framework Convention on Climate Change (UNFCCC). This document aimed to stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent human interference with the climate system. Two years later in Indonesia, then President Soeharto enacted Law No. 6 of 1994 concerning the Ratification of the United Nations Framework Convention on Climate Change, as a commitment from Indonesia to prevent the increasing concentration of greenhouse gases in the atmosphere.

In 1997, at the UNFCCC conference in Kyoto, Japan, an agreement was signed containing a collective reduction target of 5.2% in greenhouse gas emissions from industrialized countries compared to the 1990 levels. This reduction was achieved by reducing the average emissions of six greenhouse gases, namely Carbon dioxide, Methane, Nitrous oxide, Sulfur hexafluoride, HFCs, and PFCs. The majority of the provisions in the Kyoto Protocol applied to developed countries listed in Annex I of the UNFCCC. It’s evident that specific targets for emission reductions and greenhouse gases were set.

In the same year, the Indonesian government finally issued regulations on environmental management through Law No. 23 of 1997 concerning Environmental Management. This law improved upon Law No. 4 of 1982 concerning the Basic Provisions of Environmental Management. Law No. 23 of 1997 served as the foundation for all legislation related to environmental matters, including regulations concerning water resources, mining and energy, forestry, conservation of biological resources and ecosystems, industry, settlements, spatial planning, land use, and others. A practical example of this is Law No. 41 of 1999 concerning Forestry, which became the basis for sustainable forestry management based on the principles of benefiting the people, justice, equality, openness, and integration of various forest functions. Until today, Law No. 41 of 1999 continues to be a reference for forestry management, as it covers forest planning, forest management, research and development, education and training, as well as forest extension and supervision. This law also regulates the utilization of forest areas through granting permits for area utilization, which was later elaborated in Government Regulation No. 34 of 2002 concerning Forest Zoning and the Preparation of Forest Management Plans, Forest Utilization, and the Use of Forest Areas, which provides more detailed explanations on forest management.

Seven years after the signing of the Kyoto Protocol, precisely on July 28, 2004, Indonesia finally ratified the Kyoto Protocol, making it a law (Law No. 25 of 2004). This ratification undoubtedly contributed to fulfilling the requirement of the “55% threshold,” and as a result, on February 16, 2005, the provisions within the Kyoto Protocol began to be implemented.

Not long after that, in 2007, the government of the Republic of Indonesia issued Law No. 20 of 2007 concerning the National Long-Term Development Plan for the period 2005 – 2025. One of the key objectives of this plan was to “Creating a Beautiful and Sustainable Indonesia” by harnessing renewable natural resources, managing non-renewable natural resources, ensuring energy security, preserving and conserving water resources, developing the potential of marine resources, increasing the added value of the unique and distinctive tropical natural resources, considering and managing the diversity of natural resources in each region, mitigating natural disasters according to Indonesia’s geological conditions, controlling pollution and environmental damage, enhancing the capacity for managing natural resources and the environment, and raising public awareness to love the environment.

In 2009, two interrelated ministerial regulations were issued as part of efforts to reduce greenhouse gas emissions. These regulations are Minister of Forestry Regulation No. 30 of 2009 and Minister of Forestry Regulation No. 36 of 2009.

First, Minister of Forestry Regulation No. 30 of 2009 concerning the procedures for reducing emissions from Deforestation and Forest Degradation (REDD). This regulation was a follow-up to the 13th Climate Change Convention and aimed to curb deforestation and forest degradation to achieve sustainable forest management and improve community welfare. Emission reduction activities can be carried out in various forest areas, such as natural forests, plantations, community forests, people’s plantations, ecosystem restoration, Forest Management Units (KPH), production forests, protection forests, conservation forests, as well as customary forests, conservation forests, and customary forests with rights. The permit holders of these forest areas will coordinate with local governments to propose the implementation of REDD projects. Once they obtain emission reduction permits under the REDD scheme, the permit owners will receive payments from international entities for the emissions reduction achieved. These international entities use REDD certificates as commitments for emissions reduction for developed countries.

Minister of Forestry Regulation No. 36 of 2009 shares a similar theme, focusing on the economic benefits derived from emissions reduction, particularly carbon. This regulation is derived from Government Regulation No. 6 of 2007, which mentions the utilization of environmental services in production forests and protection forests, including carbon absorption or storage, granted through Environmental Services Utilization Permits (IUPJL). Specifically, Minister of Forestry Regulation No. 36 of 2009 addresses the Business of Carbon Absorption and/or Carbon Storage (RAP-KARBON) carried out in permitted forest areas (IUPHHK) covering natural forests, plantations, people’s plantations, and ecosystem restoration. The methods for RAP-KARBON include tree planting, extending logging cycles, enriching species, maintaining and securing trails, expanding protected and conserved areas, and protecting and securing forest areas. For areas not covered by permits, individuals, cooperatives, state-owned or regional-owned enterprises, and private Indonesian enterprises can apply for RAP-KARBON permits (IUP RAP-KARBON). According to this regulation, if a voluntary domestic carbon market is not yet established, developers can market their credits in the international voluntary carbon market.