Indonesia’s Carbon Trading Roadmap in Forestry: ESG & Climate Update 2024

1.??? Introduction

As the government’s seriousness in realizing the implementation of carbon trading in the forestry and peatland sector,??Refer to the official decree here?SK 1027/2023 is a follow-up to the Regulation of the Minister of Environment and Forestry Number 21 of 2022 (“PMLHK 21/2022”) and Regulation of the Minister of Environment and Forestry of the Republic of Indonesia Number 7 of 2023 (“PMLHK 7/2023”) which requires that the implementation of carbon trading shall be by the carbon trading roadmap.

As previously known, PMLHK 21/2022 and PMLHK 7/2023 are follow-ups to the Presidential Regulation Number 98 of 2021 which regulates the implementation of carbon economic value to meet the Government’s commitment in Nationally Determined Contributions (“NDC”) related to??Refer to Indonesia’s Enhanced NDC and carbon reduction targets here.?Through the preparation of a forestry sector carbon trading roadmap, the government can achieve the objectives of controlling greenhouse gas (“GHG”) emissions from the forestry sector, improving carbon sequestration/storage performance, and achieving the forestry sector’s NDC targets.

The scope of the forestry sector carbon trading roadmap covers two sub-sectors, namely the forestry sub-sector and the peat and mangrove management sub-sector. The implementation of the Forestry Sector Carbon Trading Roadmap stipulated in SK 1027/2023 will form the basis for the establishment of the Technical Agreement on Upper Emission Limit (PTBAE) and can be integrated with the NDC Roadmap and Folu Net Sink 2030. With these measures, the government seeks to achieve environmental sustainability and play an active role in global efforts to address climate change through the forestry sector, both the forestry sub-sector and the peatland management sub-sector.

2. Forestry Sector Carbon Trading Mechanism

The mechanisms are detailed by the Ministry of Environment and Forestry as part of the overall strategy to support national climate control efforts【18?source】. Forestry sector emission trading is a transaction mechanism between Business Actors who have emissions above or below the specified GHG Emission Upper Limit. Forestry Sector GHG Emission Offsets are GHG Emission reductions made by businesses and/or activities to compensate for emissions made elsewhere through the performance of carbon sequestration/storage businesses.

The Forestry Sector Carbon Trading Roadmap is used as a reference to assess the appropriateness of Emission Trading and GHG Emission Offset activities in the Forestry Sector. Each forestry sector's carbon trading location has different mechanisms, business actors, and legalities.

3. Climate Change Mitigation Action for Forestry Sector Carbon Trading

Climate change mitigation actions for forestry sector carbon trading include GHG emission reduction and forest carbon storage and/or sequestration. The?Details on FOLU Net Sink 2030 activities can be found here

Climate change mitigation action activities in the forestry sector can be grouped into 6 (six) main activities, namely: Reducing deforestation, Reducing forest degradation, Plantation forest development, Sustainable forest management, Increasing carbon stocks, and Improving peat water management.

4.?Principles of Carbon Trading in the Forestry Sector

Forestry sector carbon trading must meet the following principles:

·?????? Emissions reduction commitments and appropriate and aligned policies: Carbon trading in the forestry sector plays a strategic role in supporting the achievement of NDC targets.

·?????? Fairness: This principle requires the implementation of carbon trading in the forestry sector to reflect general principles in environmental management, such as the principle of “polluters pay.”

·?????? Credibility: Closely related to the certainty that each unit of carbon actually represents an emission or emission reduction of one ton of CO2e equivalent.

·?????? Integrity: The integrity of carbon trading is determined by its transparency.

·?????? Flexibility: Flexibility is needed to address any issues that may arise, especially to maintain carbon unit price levels and transaction cost levels.

·?????? Participation: Every member of the community is encouraged to play an active role in the decision-making process and implementation of environmental protection and management, either directly or indirectly.

5. General Criteria: GHG Emission Profile of the Forestry Sector

The disaggregation of GHG emission baselines and the disaggregation of GHG emission targets are described in the Forestry Sector Carbon Trading Roadmap. As published in the 2021 GHG Inventory and Monitoring, Reporting, Verification Report from the Ministry of Environment and Forestry (“MoEF”) (March 2022), the average GHG emissions of the forestry sector in the 2000-2020 period were 499.33 million tons of CO2e. Meanwhile, the average GHG emissions of the forestry sector in the period 2010-2020 were 620.26 million tons of CO2e. The increase in the average value of emissions in the period was influenced by extreme GHG emission levels that occurred in 2014, 2015, and 2019 caused by the elnino phenomenon, which resulted in high areas of forest and land fires that contributed significantly to GHG emissions in the forestry sector.

In Indonesia’s NDC, GHG emissions in the Forestry Sector under Business-as-Usual (BAU) conditions are expected to increase from 647 million tons of CO2e to 714 million tons of CO2e, or an increase of 10% between 2021-2030. The GHG emission reduction baseline and targets used in Forestry Sector carbon trading do not exceed the GHG emission baselines and targets specified in Indonesia’s NDC document.

In relation to the foreign carbon trading strategy, foreign carbon trading cooperation can be carried out, among others, in 5 (five) forms, namely:

·?????? Between Ministers Concerned with Cooperation Partners Abroad with authorization and corresponding adjustments;

·?????? Between Local Governments and Overseas Partners in accordance with their authority with authorization and corresponding adjustments;

·?????? Between Business Actors or the Community and Partners Abroad:

1.??? With authorization and corresponding adjustment;

2.??? With authorization and without corresponding adjustment or corresponding adjustment of zero percent (nil); and

3.??? No authorization and corresponding adjustment;

·?????? Cooperation between relevant Ministers, Regional Governments, Business Actors, and Communities with foreign cooperation partners through grant assistance mechanisms or non-market mechanisms, carried out in accordance with applicable laws and regulations, without authorization and without corresponding adjustment;

·?????? Cooperation between National Business Actors and Foreign Business Actors for labeling, market demands, and environmentally friendly financing, without authorization and corresponding adjustments can be carried out in accordance with applicable laws and regulations.

6.?Special Criteria: Forestry Sector Emissions Trading Implementation Plan

To achieve the NDC target for the Forestry Sector, the Government has prepared a roadmap for NDC implementation in 2019. Mitigation actions to achieve NDC targets include reducing deforestation and degradation of planned and unplanned natural forests, sustainable forest management, increasing carbon stocks, and peat management which includes peat water management and land and fire management.

Emission trading in the forestry sector can be carried out in the peat and mangrove management sub-sector located within forest areas and outside forest areas. The implementation of emission trading in the peat and mangrove management sub-sector is only carried out on peatlands that have been damaged within forest areas and outside forest areas.

Forestry sector emission trading is carried out through the following stages:

·?????? Preparation and establishment of a Carbon Trading roadmap in the forestry sector;

·?????? Determination of the provision of emission reduction reserves (buffers);

·?????? Determination of peat management PTBAE in the peat and mangrove management sub-sector;

·?????? Determination of PTBAE-PU;

·?????? Peat management quotas for peat and mangrove management sub-sectors;

·?????? Actual emission measurement;

·?????? Submission of PTBAE-PU reports;

·?????? Verification of PTBAE-PU reports;

·?????? Report on the results of verification; and

·?????? Implementation.

The implementation of forestry sector emission trading is carried out through domestic Emission Trading and/or fellow PTBAE-PU owners or storage, against the remaining GHG Emission Upper Limit and/or unused GHG Emission quota.

7.?Allocation of Technical Approval of Upper Emission Limit (PTBAE)

PTBAE for Business Actors, hereinafter referred to as PTBAE-PU, is the determination of the Upper Limit of GHG Emissions for Business Actors and/or the determination of emission quotas within a certain compliance period for each Business Actor. The determination of PTBAE is carried out by considering historical emissions and in accordance with applicable regulations. The determination of PTBAE and actual emission measurements are carried out based on methodologies following international standards (approved by the UNFCCC) and/or Indonesian national standards that have been set by the government (National Standardization Agency and/or MoEF).

8.?Special Criteria: Forestry Sector GHG Emission Offset Implementation Plan

The GHG emission offset period and the Compliance Period for measuring the performance of forestry sector emission reduction until 2030 will be held in what needs to be agreed, for example, Period-1: 2023-2026 and Period-2: 2027-2030.

Foreign carbon trading is carried out in accordance with the provisions of laws and regulations. In the event that foreign carbon trading is carried out for the purposes of offsetting or fulfilling partner countries’ NDC obligations or other international interests, MoEF can determine implementation strategies, including limiting the amount of carbon transferred abroad each year, collecting tariffs for carbon transfers abroad, and regulating the timing of foreign carbon trading.

GHG Emission Offsets in the Forestry sector are carried out through the following stages:

·?????? Preparation and establishment of a Carbon Trading roadmap for the Forestry sector;

·?????? Determination of the provision of emission reduction reserves (buffers);

·?????? Determination of GHG Emission Baseline in the Forestry sector;

·?????? Setting emission reduction targets in the forestry sector;

·?????? Preparation of the Climate Change Mitigation Action Plan Document (“DRAM”);

·?????? DRAM validation;

·?????? DRAM Validation result report;

·?????? Report on the results of the implementation of Climate Change Mitigation Actions;

·?????? Verification of reports on the results of Climate Change Mitigation Actions;

·?????? Preparation of reports on the results of Verification of the implementation of Climate Change Mitigation Actions;

·?????? Formation and review by the Measurement, Reporting and Verification (“MRV”) team; and

·?????? Issuance of GHG Emission Reduction Certificate (SPE-GHG).

9.?Recording and Reporting

The transfer of PTBAE-PU and SPE-GRK as well as the recording and reporting of emission trading results are carried out in the National Registry System for Climate Change Control (“SRN PPI”). GHG emission reports in the forestry sector that participate in emission trading are validated and verified by independent Validators and Verifiers in accordance with applicable laws and regulations. The Government (MoEF) will develop various programs to increase the number of institutions and experts in Validation and Verification of forestry sector emission reports.

Recording and reporting of GHG emission offsets as well as validation and verification of emission reductions in the Forestry Sector are carried out in accordance with applicable laws and regulations in the field of environmental protection and management. The avoidance of double counting between offsets and emissions trading in the forestry sector is carried out in the SRN PPI carbon registry by canceling the SPE-GHG used for Offsets in emissions trading from the SPE-GRK registry and republishing it as PTBAE-PU in the PTBAE-PU registry.

10.Forestry Sector Carbon Trading Action Plan 2023-2030

The plan of activities/actions in the implementation of carbon trading in the Forestry Sector according to this roadmap includes socialization, capacity building, evaluation, and facilitation.

11. Monitoring and Evaluation

In accordance with the mandate of the Minister of Environment and Forestry Decree Number 679 of 2017, monitoring refers to the MRV mechanism that has been developed, using an information system through SRN-PPI. The implementer or person in charge of implementing carbon trading submits information that includes the type of mitigation activity and the status of its development (in planning/being implemented/has ended) and claims of GHG emission reduction achievements that have occurred to be verified, through SRN-PPI.

References :

1.??? Keputusan Menteri Lingkungan Hidup dan Kehutanan Nomor: SK.1027/MENLHK/PHL/KUM.1/9/2023 tentang Peta Jalan Perdagangan Karbon Sektor Kehutanan (“SK 1027/2023

2.??? Peraturan Menteri Lingkungan Hidup dan Kehutanan Republik Indonesia Nomor 21 Tahun 2022 (“PMLHK 21/2022“).

3.??? Peraturan Menteri Lingkungan Hidup dan Kehutanan Republik Indonesia Nomor 7 Tahun 2023 (“PMLHK 7/2023”).

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