[ISAFIS Gazette #8] Indonesia’s New Carbon Market Regulations: Flop or Not? 

Written by: Fatimah Azzahra Staff of Research and Development

When President Prabowo Subianto signed Presidential Regulation No. 110 of 2025 on the Implementation of Carbon Economic Value, it was heralded as the next leap for Indonesia’s commitment to sustainability. The regulation aims to strengthen the country’s carbon trading framework, which was first introduced under Presidential Regulation No. 98 of 2021, and to revitalise the role of IDXCarbon, Indonesia’s official carbon exchange. The move signals the government’s intention to not only reduce emissions but also monetise environmental action. Carbon credits are now seen as both a climate tool and a tradable commodity.  

Yet, beneath the optimism lies a question that remains unresolved: will this new rule bring Indonesia closer to its net-zero target, or  merely create a new market for pollution rights? As the world’s largest archipelagic nation steps deeper into the carbon market, Indonesia faces two pressing challenges: first, ensuring governance and transparency in how carbon credits are verified aand second, preventing the market from collapsing under the weight of its own supply. 

Governance and Transparency 
At first glance, Presidential Regulation No. 110/2025 looks promising. It introduces the Carbon Unit Registry System (SRUK), separating it from the National Registry System for Climate Change Control (SRN PPI). This distinction is designed to streamline the management of carbon units and to integrate various types of credits, both domestic and international. It also opens the door for recognition of carbon credits issued under global standards such as Verra or the Gold Standard. 

However, the problem does not lie in the system’s scope, but in its credibility. While the regulation expands the architecture, it remains unclear how the Measurement, Reporting, and Verification (MRV) mechanism will operate in practice. Who verifies these credits? What ensures that each ton of carbon reduction represents a real, permanent, and measurable change? Without a robust MRV framework and independent oversight, Indonesia risks producing “phantom credits,” which are numbers on paper that fail to reflect actual emission cuts. 

This issue is further complicated by Indonesia’s unique definition of what counts as a “green project.” Standards that may pass domestically could fall short of stricter benchmarks abroad. As a result, carbon units traded on IDXCarbon may carry lower international credibility, limiting their competitiveness in global markets. In short, the Perpres improves the legal foundation, but it does little to fix the trust deficit surrounding Indonesia’s carbon governance. 

Market Risk 
Carbon markets, like any other, obey the laws of supply and demand, and therein lies their biggest risk. In 2007, the European Union Emissions Trading System (EU ETS) almost collapsed due to oversupply; prices plunged close to zero, rendering the scheme ineffective as a climate instrument. The EU eventually stabilised its market through the Market Stability Reserve (MSR), which automatically removes excess allowances to balance the system. 

Indonesia could face a similar dilemma. With abundant forestry, peatland, and renewable energy projects, the potential supply of carbon credits is massive. However, domestic demand that comes primarily from industries under emission limits still remains low. As of 2025, carbon prices in Indonesia hover around USD 2–5 per tonne of CO₂, a mere fraction of the EU’s USD 60–90. The gap reflects a market that is still immature, where credits are traded more for compliance than conviction. 

Such price disparities matter. When carbon is too cheap, it ceases to be an incentive for genuine decarbonisation. Worse, it could encourage companies to buy credits rather than cut emissions, effectively turning the market into a licence to pollute. The regulation, while comprehensive, offers no clear mechanism to prevent oversupply or stabilise prices — no floor price, no reserve, and no adaptive cap. This lack of economic safeguards could push Indonesia’s carbon market toward the same pitfalls the EU once faced. 

The danger, then, is not just economic but reputational. If Indonesia’s carbon units are seen as low-value or poorly verified, the country risks marginalising itself in the emerging global carbon economy where credibility, not quantity, determines value. 

Policy Review and Conclusion 
To its credit, Presidential Regulation No. 110/2025 represents progress. It lays out a clearer structure for carbon governance and acknowledges the role of both state and private actors in achieving emission targets. Yet, the regulation’s strength on paper must be matched by institutional capacity, market discipline, and public accountability. 

Indonesia stands at a crossroads: it can build a credible, well-regulated carbon market that accelerates the transition to net-zero, or it can let the system devolve into a carbon casino, a marketplace where emission rights are traded freely, but the planet remains just as warm. 

If the goal is to sell carbon responsibly, transparency and price integrity must be the currency. Otherwise, we may end up trading not in carbon, but in the illusion of progress. 

References
Institute for Energy Economics and Financial Analysis. “Two Years after Launch, Indonesia’s Carbon Market Struggles to Find Momentum.” Ieefa.org, 2025. https://ieefa.org/resources/two-years-after-launch-indonesias-carbon-market-struggles-find-momentum.

Kementerian Kehutanan RI. “Menhut Raja Antoni: Perpres 110/2025 Jadi Komitmen Kuat Pemerintah Prabowo – Gibran Dalam Pengembangan Ekonomi Hijau.” Kehutanan, 2025. https://www.kehutanan.go.id/news/article-89.

Razak, Imanuddin. “Prabowo Signs New Regulation on Indonesia’s Carbon Market, Emission Control Framework.” https://indonesiabusinesspost.com/. Indonesia Business Post, October 16, 2025. https://indonesiabusinesspost.com/5468/markets-and-finance/prabowo-signs-new-regulation-on-indonesia-s-carbon-market-emission-control-framework.

Mulyana, F. (2023). Indonesia’s carbon pricing: Understanding the basic regulatory framework. PwC Legal Indonesia. https://www.pwc.com/id/esg

Pemerintah Republik Indonesia. (2025). Peraturan Presiden Republik Indonesia Nomor 110 Tahun 2025 tentang Penyelenggaraan Instrumen Nilai Ekonomi Karbon dan Pengendalian Emisi Gas Rumah Kaca Nasional. Lembaran Negara Republik Indonesia.

PwC Indonesia, & Indonesia Carbon Trade Association. (2024, December). Indonesia carbon market white paper. PwC Indonesia. https://www.pwc.com/id

Siagian, A. P. (2023, November 10). Indonesian carbon market: Hope or hype? CSIS Commentaries CSISCOM00423. Centre for Strategic and International Studies (CSIS) Indonesia.

Stankova, Theodora. “Indonesia Is Back in the Global Carbon Market, but with Stronger Safeguards.” Carbon Herald, October 17, 2025. https://carbonherald.com/indonesia-is-back-in-the-global-carbon-market-but-with-stronger-safeguards/