Carbon trading kicks off with 99 coal-fired power plants
Carbon trading in Indonesia is now on the horizon after the government finally set an emissions upper limit technical approval (PTBAE) for coal-fired power plants (PLTU) through Energy and Mineral Resources Ministerial decree No. 14/2023, dated Feb. 22. When carbon trading is finally in place, 99 PLTUs in the country will be able to trade carbon credits among themselves or pay carbon tax.
The emissions upper limit for PLTUs has been pending since carbon tax was included in Law No. 7/2021 on tax regulation alignment (HPP). Indonesia’s system for carbon trading, which integrates carbon tax and cap-and-trade mechanisms, requires both a carbon tax rate as well as a carbon emission limit to function. Now that both are available, all that’s left is a platform to host carbon trading activities.
The Indonesian Stock Exchange (IDX) is hoping to open its carbon trading market to the public sometime within this year.1 It is currently waiting for the Financial Services Authority (OJK) to issue regulations on carbon trading. If everything goes smoothly, the IDX believes it can expect to begin applying for carbon trading licenses in the second and third quarters of 2023.2
Until then, the government has mandated a carbon trading trial run involving 99 coal-fired power plants owned by 47 different companies and allowed a total of 500,000 tons of CO2e up for trade. This trial run includes only direct trades between the 47 companies that are then reported to the energy ministry’s Electricity Directorate General’s APPLE-Gatrik application, which will record the total amount of greenhouse gasses emitted.3
The trial run will also allow for controlled observation on how the cost of Indonesia’s carbon may develop, as the price of traded carbon is not fixed and depends on agreements between companies. The Finance Ministry has estimated that the price may range between US$2 and $18 per ton of CO2e, while international buyers may have prices ranging between $2 to $99 per ton once carbon trading becomes public and open to foreigners.4
The $2 per ton minimum price projected by the Finance Ministry is based on the Rp 30 per kilogram (or Rp 30,000 per ton) of carbon in excess of the emissions limit stipulated within the HPP. This carbon tax rate sets a benchmark for the price of Indonesia’s carbon. Although it is similar to the carbon tax rate of other Asian countries such as Japan and Singapore, which have carbon tax rates of $2 and $4 respectively, as of April 2022,5 Indonesia’s carbon tax was still far below the recommendations from the International Monetary Fund, which suggested a minimum carbon tax of $35 per ton of CO2e for Indonesia to make good with the Paris Agreement pledge.6
An argument for Indonesia’s low carbon tax rate is that, according to the carbon trading mechanism presented in December 2021, the government wants to focus more on giving a monetary incentives for reducing emissions, as opposed to using heavy tax rates to penalize emissions. If a company manages to offset its carbon emissions below the emission limit either through improving its efficiency or developing renewable energy, it will have a “surplus” of prevented emissions. That surplus of prevented emissions can then be used as proof to apply for an emission reduction certificate (SPE), which is essentially usable as tradeable carbon credit.
On the other hand, companies who exceed the emissions limit have a prevented emissions deficit. This deficit must then be resolved by either paying the carbon tax or buying tradeable carbon, such as an SPE. Despite the relatively low carbon tax rate, companies that exceed the emissions limits will be burdened by the opportunity cost of not issuing and selling an SPE.
Energy ministry Decree No. 14/2023 sets the highest emission limit of 1.297 tons CO2/MWh for smaller power plants with a total capacity between 25 and 100 MW. For larger power plants, the ministry had to take into consideration the different properties of mine-mouth and non-mine-mouth power plants, such as the lower transport emissions for mine-mouth power plants. Because of this, the capacity and limit margins vary between the types and size of the power plants.
The decree also mentions that the emission limits are only applicable up to 2024. It is possible that the ministry will adjust its emissions upper limit moving forward depending on the results of the trial run.
|
Type of coal-fired power plant |
Installed capacity |
2023 and 2024 emissions limit |
|
Non-mine-mouth and mine-mouth |
25 MW – 100 MW |
1.297 |
|
Non-mine-mouth |
100 MW – 400 MW |
1.011 |
|
Non-mine-mouth |
> 400 MW |
0.911 |
|
Mine-mouth |
≥ 100 MW |
1.089 |
Source: Energy and Mineral Resources Ministerial Decree No. 14/2023 on the technical approval of greenhouse gas emissions quotas for coal-fired power plants connected to PLN power grids
PREV NEXT