The Implementation Of Carbon Economic Value In Indonesia: Key Points Of Presidential Regulation No. 98 Of 2021

According to the United States Environmental Protection Agency, the increases in carbon emissions have been caused by human activities over the last 150 years. Notwithstanding the limited activities during the COVID-19 pandemic, the carbon footprint is persistently increasing due to lenient regulatory measures.

The attempts to control carbon emissions in Indonesia are regulated under Presidential Regulation No. 98 of 2021 on the Implementation of Carbon Economic Value for Achieving Nationally Determined Contribution Targets and Controlling Greenhouse Gas Emissions in National Development (“PR 98/2021”). The issue is also addressed in our previous article Tax Harmonization Law.

PR 98/2021 is part of the Indonesian implementation of the Paris Agreement, previously ratified under Law No. 16 of 2016 on Ratification of the Paris Agreement to the United Nations Framework Convention on Climate Change. PR 98/2021 underlies the hope that Indonesia would be able to manage the adverse impacts of the climate change and reduce the greenhouse gas emissions (“GGE”) to achieve the nationally determined contribution (“NDC”).

To achieve NDC, PR 98/2021 introduces two general methods, (i) mitigation and, (ii) adaptation. Furthermore, PR 98/2021 also conceptualizes the Carbon Economic Value (“CEV”), where it regulates carbon pricing and carbon trading arrangements including but not limited to economic incentives, carbon levies, and taxes. Those measures involve the relevant ministries, institutions, local governments, business actors, and the public (“Organizers”). In this article, we focus on the key provisions of PR 98/2021 in relation to the business actors involved in the mitigation/adaptation actions. We also point out the key features business actors should pay attention to, and how CEV is implemented as a tool to achieve NDC. In short, PR 98/2021 marks the regulatory readiness of Indonesia to become adaptable to change from a voluntary to compliance carbon market.

A. Involved Business Sectors

PR 98/2021 stipulates several business sectors that are responsible for achieving NDC. These sectors are:

  1. Energy;
  2. Waste;
  3. Industrial process and products usage;
  4. Agriculture;
  5. Forestry; and/or
  6. Other sectors in accordance with the development of science and technology.

The above business sectors are further divided into the following sub-sectors:

  1. Power plants;
  2. Transportation;
  3. Buildings;
  4. Solid waste;
  5. Liquid waste;
  6. Garbage;
  7. Industry;
  8. Farms;
  9. Husbandry;
  10. Plantation;
  11. Forestry;
  12. Peat and mangrove management; and/or
  13. Other sectors in accordance with the development of science and technology.

Nationally, the sectors and sub-sectors are supervised by the relevant, governing ministries. Within the provincial scope, they are supervised by the relevant governor in coordination with the regional government.

B. Mitigation and Adaptation Actions

According to PR 98/2021, the measures to mitigate and adapt to climate change are divided into three stages:

  1. The planning of the mitigation/adaptation actions;
  2. The implementation of the actions to mitigate/adapt to climate change; and
  3. The supervision and evaluation of the actions to mitigate/adapt to climate change.

With regard to the planning of mitigation/adaptation actions, the business actors shall:

  1. process the inventory of GGE;
  2. formulate and determine the baseline of GGE;
  3. set the targets of mitigations/adaptations; and
  4. plan the actions to mitigate/adapt to climate change.

C. Objectives and Implementation of Carbon Economic Value

The main objectives of NDC in PR 98/2021 are to: (i) decrease the GGE emissions by 29% to 40% by the year 2030; and (ii) build the national, regional, and public security against the risks of climate change ("Indonesia NDC Objectives”).

To further implement the mitigation and adaptation actions to achieve NDC, PR 98/2021 introduces the implementation of CEV (Carbon Economic Value), which consists of the preliminary compliance by business actors through the Measurement, Reporting, and Verification Process in the National Registry System for Climate Change Control (Sistem Registri Nasional Pengendalian Perubahan Iklim or “SRNPPI”).

Business actors in the abovementioned sectors/sub-sectors shall register and report their mitigation and adaptation performances, as well as their CEV implementation to SRNPPI on an annual basis. The related reports will be verified by an independent auditor as a recommendation to the Minister of the Environment and Forestry ("Minister”) for the issuance of the Greenhouse Gas Emission Reduction Certificate ("GGE Certificate”). If they fail to register and submit the reports, the business actors may be subject to administrative sanctions, such as:

  1. Letter of warnings;
  2. Forced measures by the Indonesian government;
  3. Administrative fines;
  4. Suspension of GGE Certificate; and
  5. Revocation of GGE Certificate.

D. Benefits of Obtaining GGE Certificate

GGE Certificate is used as a basis of compliance by the business actors of their performances for participating in the NDC Objectives. Furthermore, GGE Certificate can be utilized to obtain several benefits:

  1. Carbon trading: Business actors may use GGE Certificate as additional documentation for conducting domestic or foreign carbon trading. Currently, there are no implementing regulations with regard to the carbon trading system. However, PR 98/2021 allows international carbon trading as long as it does not contravene Indonesia's NDC Objectives.
  2. Result-Based Payments: Business actors may benefit from certain incentives obtained through GGE Certification. Before the implementation of PR 98/2021, the Minister of Environment and Forestry regulated Result-Based Payments pursuant to Regulation No. P.70/MELHK/SETJEN/KUM.1/12/2017 on the Implementing Guidelines on Reducing Emissions from Deforestation and Forest Degradation, Role of Conservation, Sustainable Management of Forest and Enhancement of Forest Carbon Stocks (“MoEF 70/2017”), which accommodates the result-based payment mechanism for business actors in the forestry industry. Upon the implementation of PR 98/2021, the issuance of regulations on Result-Based Payments by the respective ministries will be possible.
  3. Carbon Tax and Levies: Based on Law No. 7 of 2021 on the Harmonization of Taxation Regulation ("HPP Law”), the government of Indonesia introduced “Carbon Tax”, taxation imposed on business actors that produce carbon emissions with massive and adverse impacts on the environment. By obtaining GGE Certificate, a business actor may have an estimation of less carbon tax and levies.

Transitional Provisions

Business actors already implementing the carbon trading and result-based payments before the implementation of PR 98/2021 are subject to registration and report on the mitigation of climate change and carbon units through SRNPPI no later than one year after the enactment of PR 98/2021.

Failure to comply with such requirements may prohibit these business actors from trading their remaining carbon credits, while their recorded and reported credits may only be traded domestically.

The article above was prepared by Marshall S. Situmorang (Partner) and Audria Putri (Senior Associate).

Disclaimer: The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances. For more information, please contact us at