Indonesia’s Carbon Market Faces Credibility Challenges in Its Debut
On March 11, 2025, Indonesia launched its national carbon-trading market, with the ambition of transforming the country’s expansive forests and geothermal reserves into tradable emission credits. Operated by the Indonesia Stock Exchange under regulations endorsed by President Joko “Jokowi” Widodo the previous year, the market introduced 33 projects offering 1.8 million tonnes of carbon dioxide equivalents in the initial auction. Trading activity on the inaugural day totaled 462,000 tonnes, priced at an average USD 6.40 per tonne.
Moments after the market’s opening bell, environmental groups raised concerns about the authenticity of nearly half of the listed offsets, expressing apprehension over potential inflated baselines leading to the circulation of “phantom credits” that could undermine Jakarta’s 2060 net-zero commitment. The largest single offering comes from the 234,000-hectare Rimbo Paitan forest concession in East Kalimantan, where project developer PT Rimba Raya Conservation claims it will prevent 25 million tonnes of peat-fire emissions over 30 years.
The company’s reference scenario assumes the entire area would have been converted to oil-palm estates, a projection that Greenpeace Indonesia contends “bears no semblance to the current zoning maps.” In 2019, the Ministry of Environment and Forestry reclassified the site as a “protection forest,” effectively barring plantation licenses.
Tata Mustafa, climate policy lead at the Indonesian Forum for the Environment (Walhi), stated, “Once the government has ruled out conversion, the threat is no longer credible, so any credit issued is essentially selling hot air.” In response, the ministry’s director-general of climate control, Laksmi Dhewanthi, argued that the reference level was established using 2018 data, prior to the reclassification, and thus complies with the 2022 carbon-exchange decree. Analysts at Climate Analytics acknowledge the legal argument but express concerns that investors may still be hesitant to trust the credits.
Three geothermal plants on Sumatra also listed offsets, asserting that without carbon revenue, they would have built less expensive coal units instead. These plants, Sarulla (330 MW), Sorik Marapi (240 MW), and Ulubelu (220 MW), are already operational and have long-term power-purchase agreements with state utility PLN at feed-in tariffs that surpass coal costs. Market rules permit “financial-additionality” tests to be conducted at the investment-decision date; however, the plants began commissioning between 2014 and 2019.
Melissa Brown, director of energy finance at the Asia Society Policy Institute, stated, “Retroactive crediting is a red flag. Buyers require assurance that their investment moves the needle, not reward decisions made years ago.” The exchange requires project owners to publish additionality narratives, but there is no independent review board; verification is handled by domestic auditors licensed by the Ministry of Environment.
The ministry indicates that international standards such as Verra’s VCS may be adopted voluntarily, but only two of the 33 inaugural projects have submitted third-party certification. Oversight gaps and price volatility are concerns for the new market.
