Strategy to Achieve Indonesia’s Nationally Determined Contribution Target by Developing a Sustainable Carbon Market

Climate change has become a global concern, and as a reaction to global climate change, 196 parties, including Indonesia, have adopted the Paris Agreement to the United Nations Framework Convention on Climate Change, a legally enforceable international convention on climate change. The carbon market is expected to help Indonesia meet its Nationally Determined Contribution (“NDC”) target in alignment with the requirements of the Paris Agreement. IDXCarbon, the first licensed carbon market in Indonesia, was launched on September 26, 2023. During the launch, the President of the Republic of Indonesia stated that the potential of the carbon market can reach a value of IDR 3000 trillion or more. The carbon emissions in Indonesia require urgent attention and prompt action from the regulator, given that Indonesia is ranked as the 7th largest emitter globally. For many years, air pollution in Jakarta, the capital city of Indonesia, has been classified as unhealthy. IDXCarbon is expected to contribute to the reduction of greenhouse gas (GHG) emissions in Indonesia. Nearly a year after its launch, the carbon trading volume in IDXCarbon remains relatively small. The business issue in this study is how to develop a sustainable carbon market in Indonesia, which will ultimately support Indonesia in achieving its NDC target. This paper focuses on: i) analyzing regulations regarding carbon market ecosystem, including its background, ii) identifying IDXCarbon’s existing products, iii) analyzing strengths, weaknesses, opportunities, and threats (SWOT) of IDXCarbon, (iv) identifying IDXCarbon’s main stakeholders’ concerns, v) identifying business practices of carbon market and comparison with carbon market in several countries, and analyzing vi) political, economic, sociocultural, technological, legal, environmental (or ecological) (PESTLE) related to carbon market analysis. Finally, this study develops SWOT Matrix and provides improvement suggestions and proposed actions for consideration of IDXCarbon to develop a sustainable carbon market. The necessary improvement suggestions and proposed actions are treated as the business solution. By executing the implementation plan, the author believes IDXCarbon will become a sustainable carbon market that can help Indonesia meet its NDC target.

Introduction

The President of the Republic of Indonesia officially launched IDXCarbon (IDXCarbon), the first licensed carbon market in Indonesia, on Tuesday, September 26, 2023 (IDXCarbon, 2023). The carbon market operator business license for PT Bursa Efek Indonesia (Indonesia Stock Exchange or “IDX”) was issued by the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) under Decree Number KEP-77/D.04/2023 dated 18 September 2023. In compliance with OJK Regulation (POJK) No. 14 of 2023 concerning Carbon Trading through the Carbon Market, IDX provides a carbon trading system through one of its business units, IDXCarbon.

The carbon market is expected to help Indonesia meet its NDC target. Indonesia has determined its NDC target to meet the requirements of the Paris Agreement, a legally enforceable international convention on climate change.

Indonesia’s Commitment to Paris Agreement

Indonesia has ratified the Paris Agreement, as specified in Law of the Republic of Indonesia Number 16 of 2016, concerning the Ratification of the Paris Agreement to the United Nations Framework Convention on Climate Change, and at the end of 2021, the Government issued Presidential Regulation of the Republic of Indonesia No. 98/2021 (Presidential Regulation No. 98 of 2021), which regulates the implementation of the Economic Value of Carbon (Nilai Ekonomi Karbon) to achieve the NDC target and control the Greenhouse Gas (GHG) Emissions.

Potential of Indonesia’s Carbon Market

During the launch of IDXCarbon, the President of the Republic of Indonesia remarked, “According to my records, there is a potential of approximately 1.3 billion tons of CO₂ carbon credits potential that can be captured. If we calculate the potential of the carbon market, it can reach a value of IDR 3000 trillion or more, a substantial amount” (Kurnia, 2023).

Indonesia possesses significant potential for the economic value of carbon (NEK) across five sectors, with emission reductions originating from forestry and other land use (FOLU), energy, industry, waste, and agriculture. The FOLU Net Sink sector for forests, including 125 million hectares, corresponds to a decrease of 300 million tons of CO2 (carbon dioxide). Mangroves cover an area of 3.36 million hectares and possess a carbon absorption capability eight times that of regular forests. Indonesian peatlands, covering an area of 7.5 million hectares, can absorb 960 million tons of CO₂ annually. And this is just from the FOLU sector or what is usually called NBS (Nature Based Solutions) or EBA (Ecosystem Based Approaches). So, if we calculate all these potentials, the numbers are indeed very large, reaching up to IDR 3,000 trillion by 2030”, said Nani Hendiarti, Deputy for Environmental and Forestry Management Coordination at the Coordinating Ministry for Maritime Affairs and Investment (Wuri, 2024).

According to the daily report of IDXCarbon as of 28 August 2024, the business issue is that despite the projected potential of the carbon market, which could reach a value of IDR 3000 trillion or more, the current volume of carbon trading in Indonesia remains small.

The business issue addressed in this study is how to increase the number of carbon trading and develop a sustainable carbon market in Indonesia, which ultimately will support Indonesia in achieving its NDC Target.

Literature Review

This chapter provides the theoretical foundation for the research, detailing theories such as (i) analyzing regulations regarding the carbon market ecosystem, including its background, (ii) identifying IDXCarbon’s existing products, (iii) SWOT of IDXCarbon, (iv) identifying IDXCarbon’s main stakeholders’ concerns, (v) identifying business practices of carbon market and comparison with carbon market in several countries, and (vi) PESTLE analysis of carbon market.

Regulatory Analysis

This study analyzes the regulations related to the carbon market ecosystem to understand regulations applied to the carbon market ecosystem in Indonesia, including the background of such regulations. The regulatory analysis includes international treaties that are binding in Indonesia.

Identifying IDXCarbon’s Existing Products

IDXCarbon’s available products and synchronize them with the prevailing regulations in the carbon market ecosystem. This analysis aims to determine whether the existing products are complied with regulations and meet potential demand.

SWOT Analysis

This research will evaluate the current state of IDXCarbon to formulate an effective strategy for developing a sustainable carbon market. A SWOT Analysis, which stands for strengths, weaknesses, opportunities, and threats, is used to help make decisions and establish strategic plans (Speth, 2015).

Identify Stakeholders’ Perspectives

To develop a sustainable carbon market, IDXCarbon needs to identify the main stakeholders’ perspectives on carbon market ecosystems.

One of the key reasons for managing stakeholder interactions is to comprehend their perspectives, goals, and desires prior to presenting recommendations or, more critically, implement business changes. Comprehending the desires of the main stakeholders is essential for ensuring the the work is to go in the right direction. The majority of project stakeholders will possess opinions about direction it should take, the requirements to be addressed, the options for improvement and the solutions to be implemented. However, these ideas originate from their particular worries, beliefs, values, and priorities, and they frequently serve as the foundation for firmly held opinion, difficult-to-change. Failing to comprehend these ideas might lead to major issues later in the project when the differences of opinion grow into confrontations (Cadle, 2010).

In this analysis, the focus is on the main stakeholders of IDXCarbon. Considering the players in the carbon market are issuers/sellers and buyers, this study analyzes the perspectives of issuers and buyers in IDXCarbon. Additionally, the author has conducted a public survey to understand people’s awareness and concerns regarding climate change, carbon emissions, and the carbon market.

Identify Common Business Practices and Comparison Analysis

This study explores common business practices related to the carbon market, analyzing its methods, development, and opportunities. Additionally, this study explores carbon market products in several countries for comparison purposes, contrasting them with IDXCarbon’s products and strategies.

PESTLE Analysis

The PESTLE analysis framework allows for the investigation and analysis of an organization’s external environment. The framework identifies six critical areas to explore when determining the causes of change. These six areas are political, economic, sociocultural, technological, legal, and environmental (Cadle, 2010).

Research Methodology

The conceptual framework involves analyzing factors through i) regulatory analysis, ii) identifying IDXCarbon’s existing products, iii) IDXCarbon’s SWOT analysis, iv) identifying IDXCarbon’s main stakeholders’ perspectives, v) common business practices and comparison of carbon trading in other countries, vi) PESTLE analysis of carbon market, in order to identify key factors to develop a sustainable carbon market ecosystem.

Data and information for the study are gathered from primary and secondary sources. The primary sources are collected through interviews and survey, while secondary sources will be obtained from regulations, documents, reports, journals, and publicly available information. A list of questions is sent to the interviewee in advance and followed up in a meeting. Interviews are documented in writing and voice recording. The survey is conducted using an online application form for the general public, and the survey results are recorded.

Primary data is acquired through online interviews with IDXCarbon and its main stakeholders.

Secondary data sources include laws and regulations, books, journals, articles, news and published reports, annual reports, company reports, press release, official publications from official websites of reputable organization and also through survey of general public.

Based on the above analysis, the author provides a SWOT Matrix, Improvement Suggestions, and Proposed Actions, which can be considered by IDX to develop an improvement plan.

Results and Discussion

IDXCarbon’s Existing Strategy

Before conducting analyses, it is necessary to understand IDXCarbon’s existing strategy. Based on interview and information received from IDXCarbon, a summary of IDXCarbon’s existing strategies are as follows:

1. IDXCarbon has been actively developing a trading system and regulations that align with internationally recognized best practices and commonly accepted standards. IDXCarbon also maintains regular dialogues with several foreign institutions including foreign carbon market in some developed countries.

2. Collaborate proactively with OJK, the Ministry of Environment and Forestry (MoEF), and other relevant Ministries, as well as market participants, to ensure the synchronization and enhancement of carbon trading mechanisms.

3. Collaborate with OJK and Ministries to consistently carry out socialization and education efforts for all stakeholders, with the aim of enhancing public and business awareness and fostering the growth of supply and demand. Socialization and education activities include seminars, webinars, events, open discussions and responding to any queries, educating university students, and distribution through IDX’s subsidiaries, TICMI (The Indonesia Capital Market Institution), and IDXChannel (the official TV of IDX). IDXCarbon has also fostered partnerships with selected non-governmental organizations (NGOs) and consultants.

4. Integrate Environmental, Social, and Governance (ESG) investment in the Capital Market with carbon trading and explore possible incentives to promote the growth of the carbon market. One method of achieving alignment is through:

a) Launching the Net Zero Incubator program for listed firms to support them in calculating carbon emissions and promoting the implementation of decarbonization initiatives to achieve net zero emissions;

b) Creating an ESG-focused stock index as a means to motivate listed companies to enhance their sustainability practices and offer investment options for investors.

5. Collaborate with DSN-MUI (National Sharia Board-Indonesian Ulema Council) to explore possibilities for aligning carbon trading on the Indonesian Carbon Exchange with sharia principles, with the aim of obtaining a MUI (Indonesian Ulema Council) fatwa.

6. Collaborate with the government to implement development activities that facilitate the trade of PTBAE-PU carbon units.

IDXCarbon’s existing strategy will be used as a basis of improvement suggestions and proposed actions.

Analysis

Regulatory Analysis

Climate Change as Background of Carbon Emission Reduction Actions

Climate change is the most serious health danger to humanity. Human-induced climate change is the biggest, most widespread threat to the natural environment and society the world has ever seen, and the poorest countries are paying the heaviest price (OHCHR Office of the High Commissioner of United Nations Human Rights, 2022).

Many people associate climate change primarily with rising temperatures, but that is just the beginning. Since the Earth operates as an interconnected system, changes in one area can trigger changes in others. The United Nations’ website ( https://www.un.org/en/climatechange/science/causes-effects-climate-change) mentioned consequences of climate change now include intense droughts, water scarcity, severe fires, rising sea levels, flooding, melting polar ice, catastrophic storms, and declining biodiversity (United Nations Climate Action, n.d.).

Fossil fuels-coal, oil, and gas-are the largest contributors to global climate change, responsible for over 75% of global GHG emissions and nearly 90% of all carbon dioxide emissions. GHG emissions blanket the earth, trapping the sun’s heat and leading to global warming and climate change. Currently, the Earth is warming faster than at any time in recorded history. Rising temperatures change weather patterns over time, altering nature’s regular balance. This poses many concerns for humans and all other kinds of life on Earth.

The primary greenhouse gases responsible for climate change are carbon dioxide and methane. These arise from the utilization of gasoline for vehicular operation or coal for building heating, for instance. Deforestation and land clearing can also emit carbon dioxide. Agriculture and oil and gas industries are significant contributors to methane emissions. The primary sectors contributing to GHG emissions are energy, industry, transportation, buildings, agriculture, and land use (United Nations Climate Action, n.d.).

International Treaty

To manage global climate change, the Paris Agreement was adopted in Paris, France, on December 12, 2015, and came into force on November 4, 2016. This international treaty, which nearly all countries have adopted, aims to control GHG emissions and foster the development of a low-carbon economy.

Prior to the Paris Agreement, the Kyoto Protocol to the United Nations Framework Convention on Climate Change (“Kyoto Protocol”) was signed on December 11, 1997, and came into force on February 16, 2005. Kyoto Protocol required only developed countries to reduce carbon emission, while the Paris Agreement recognized that climate change is a shared global issue and called on all countries to set emissions targets or also known as NDC.

Indonesia has ratified the Paris Agreement as specified in Law of the Republic of Indonesia No. 16 of 2016 concerning the Ratification of the Paris Agreement to the United Nations Framework Convention on Climate Change and, therefore, shall conduct mitigation actions to comply with the Paris Agreement.

Understanding Condition of Indonesia

Indonesia as One of the Top Carbon Emitters

Carbon emissions in Indonesia need serious attention from the regulator. Indonesia was ranked as one of the top seven emitters in the world as of 2021 (United Nations Environment Programme, 2023).

In 2019, a group of 32 residents initiated a legal case against authorities, alleging their failure to mitigate air pollution and preserve the right to clean air. Two years later, they prevailed in the lawsuit when the Central Jakarta District Court issued a ruling in their favor. The report indicated that the government had breached the nation’s environmental protection statutes and urged top authorities to implement a national ambient air quality standard alongside further measures (Chen, 2023). The judge’s decision was stipulated in Central Jakarta District Court Ruling No. 374/Pdt.G/LH/2019/PN.Jkt.Pst, dated 16 December, 2021, whereas one of the decisions mentioning the obligation for tightening national ambient air quality standards sufficient to protect human health, the environment, and ecosystems, including the health of sensitive populations based on advances in science and technology.

Following the aforementioned legal action, the air quality in the capital city is still unchanged. Air quality index of Jakarta, the capital city of Indonesia, as of August 24, 2024, showed air pollutant level was unhealthy (IQAir, 2024).

Economic Value of Carbon and Indonesia’s NDC Target

The economic value of carbon serves as a metric for assessing the effectiveness of climate change mitigation efforts. It is a tool used by governments to adopt policies aimed at reducing GHG emissions. In order to achieve the NDC target and control GHG emissions in the National Development, the Government issued Presidential Regulation No. 98 of 2021 at the end of 2021. This regulation specifically regulates the implementation of the Economic Value of Carbon pricing.

Presidential Regulation No. 98 of 2021, in Article 2 paragraph (3), specifically governs two objectives of the NDC:

• Establishing policies and procedures, including carrying out actions in conformity with the government’s goal to reduce GHG emissions by 29% to 41% by 2030, compared to the baseline level of GHG emissions.

• Developing national, regional, and community capacity to withstand and adapt to the diverse hazards associated with climate change, also known as climate resilience.

One of the aspects of implementing NEK is the process of carbon trading, both in general and specific sectors, on carbon markets.

In October 2022, the Minister of Environment and Forestry of the Republic of Indonesia (MoEF) released Regulation of MoEF No. 21 of 2022, which outlines the procedures for implementing the Carbon Economic Value, in accordance with Presidential Regulation No. 98 of 2021. Regulation No. 21 of 2022 by the MoEF primarily governs the procedures for establishing carbon trading and the management of funds associated with carbon trading.

Indonesia has conducted certain actions in relation to carbon emissions reduction:

• The Carbon Trading Mechanism: In Indonesia, carbon trading can be conducted using two mechanisms: Emissions Trading (Cap and Trade) and GHG Emission Offset (Carbon Offset).

• International Carbon Trading: International carbon trading is only possible if the NDC objective in the Sub Sector or Sub-sub Sector has been met and authorized by the Minister.

• Tax/Levy: The Government has proposed the implementation of a carbon tax, but as of now, it has not been put into effect. Initially, the implementation of the Carbon Tax in Indonesia is planned to come into effect on July 1, 2022 (Anwar, 2022).

GHG Emission Ceiling Regulation

The GHG Emission Ceiling currently regulated in Indonesia applies exclusively to Coal-Fired Power Plants (CFPPs) that are connected to PT Perusahaan Listrik Negara’s (PLN) Electric Power Grid for Phase One. This regulation is outlined in Decree of Ministry of Energy and Mineral Resources (MEMR) No. 14 of 2023.

The MEMR has the authority to grant Technical Approval for the GHG Emission Ceiling for each specific category of power plant. This authorization establishes the upper limits of GHG emissions that power plants are allowed to produce within designated timeframes.

The implementation of the GHG Emission Ceiling will occur in three distinct phases:

• Phase One: 2023 to 2024.

• Phase Two: 2025 to 2027.

• Phase Three: From 2028 to 2030.

In the initial stage, the GHG Emission Ceiling will exclusively be applicable to CFPPs.

International Support for Energy Transition in Indonesia

On November 16, 2022, the Government of Indonesia and the International Partners Group (IPG) inaugurated the Just Energy Transition Partnership Indonesia (JETP Indonesia) during the G20 Summit in Bali, Indonesia. The IPG comprises the governments of Japan and the United States, which jointly lead the partnership, together with Canada, Denmark, the European Union, Germany, France, Norway, Italy, and the United Kingdom. The JETP Indonesia initiative, with an initial commitment of US$20 billion, comprising US$10 billion in IPG investment aimed at catalyzing an additional US$10 billion in private financing from the Glasgow Financial Alliance for Net Zero. This constitutes the most substantial energy transition finance package yet documented. The principal objective is to develop a Comprehensive Investment and Policy Plan (CIPP), which will be supervised by the JETP Secretariat. The CIPP is intended to be a dynamic document that will be often evaluated and updated to reflect contemporary market developments and governmental goals (CIPP, 2023).

Indonesian Government Support for Renewable Energy Transition by Power Producers

The Ministry of Finance (MoF) has implemented legislation that provides financial benefits to power providers, thereby promoting their shift towards more environmentally friendly energy sources. The Regulation of MoF No. 103 of 2023 provides fiscal support for the acceleration of energy transition in the electricity sector and was implemented on 13 October 2023.

Based on regulatory analysis, there are several key areas for consideration:

1. A civil lawsuit against authorities alleged they had failed to take action to control air pollution and uphold their right to clean air. One of the decisions mentioned the obligation to enhance national ambient air quality standards to adequately safeguard human health, the environment, and ecosystems, particularly for vulnerable populations, in accordance with scientific and technological advancements. However, until now, the air pollution in the capital city still needs serious attention.

2. International carbon trading should be more precisely regulated to enhance carbon trading in Indonesia.

3. Carbon tax was originally scheduled for 2022; however, until now, there is no definitive information on the exact date of implementation. For legal certainty, the Government must provide explicit guidance on its strategy to enforce the carbon tax.

4. Until now, the emission ceiling rule has only been applied to CFPPs. It is necessary to strengthen the regulations regarding emission ceilings to expedite carbon emissions reduction.

5. Funding and financing from international and domestic supports can stimulate carbon trading. IDXCarbon should consider providing funding and financing platforms intended for green projects of business actors.

Analysis of IDXCarbon’s Existing Products

As part of its efforts to help Indonesia achieve its NDC, IDX has established “IDXCarbon” as a business unit to meet the demand for carbon trading in the country. IDX is dedicated to establishing a carbon trading infrastructure that operates under the oversight of the Indonesia Financial Services Authority (OJK). This infrastructure places a high importance on openness, liquidity, efficiency, and ease of access.

IDXCarbon provides tailored solutions to address a company’s requirements in emission trading and GHG emission offsets. IDXCarbon utilizes blockchain technology to provide users with secure and convenient access to high-quality carbon trading.

Companies with a responsibility and/or dedication to proactively decrease their GHG emissions can become users of IDXCarbon and purchase Carbon Units that are currently available in these markets:

1. Allowance Market (also known as Cap and Trade) or Emissions Trading System (ETS).

The product available in this market is the Technical Approval for Emission Ceiling-Business Actors (Persetujuan Teknis Batas Atas Emisi Pelaku Usaha/PTBAE-PU), also known as GHG Emission Ceiling. The GHG Emission Ceiling is a cap-and-trade system often used in mandated carbon markets, also known as Cap and Trade or ETS. The Government selects particular enterprises and assigns them a cap or GHG Emission Ceiling in the form of quota allocation (allowance) for a specific term. Companies that exceed the specified emission limit have the option to purchase emission credits from businesses that emit less than their limit.

2. Carbon Offset Market

The product available in this market is the GHG Emission Reduction Certificate (Sertifikat Pengurangan Emisi Gas Rumah Kaca/SPE-GRK), which is more generally referred to as a Carbon Offset. A Carbon Offset is a certificate that represents a decrease in emissions. It is owned by an entity that has gone through the process of measuring, reporting, and verifying its emissions. Once this is finished, the entity is registered in the SRN PPI and given a unique registry number. The offset market is a system in which businesses sell carbon units that are produced from the reduction or elimination of greenhouse gas emissions through specific economic activities or other initiatives aimed at mitigating climate change. Companies have the option to purchase Carbon Offset in order to achieve emission reduction goals or fulfill obligations related to carbon neutrality, or achieve net-zero emissions.

SPE-GRK can be exchanged on the Carbon Exchange via an Auction, Marketplace, or Negotiation process, allowing buyers and sellers to trade specific units of SPE-GRK. SPE-GRK can also be traded as a standardized portfolio of projects in the Regular Market. Each SPE-GRK within IDXCarbon will be categorized into certain defined products. The buyer will receive the specific information of the purchase project once the transaction has been completed.

Based on Circular Letter of IDX No: SE-00014/BEI/09-2023, dated 20 September, 2023, IDX determines the list of Carbon Unit product groupings with the following provisions (Circular Letter of IDX, 2023):

1. Indonesia Nature-Based Solution (IDNBS):

a) in the form of SPE-GRK (carbon offset)

b) entering the Agriculture, Forestry and Land-used (AFOLU) sector or entering the Agriculture and Forestry sector as regulated in Regulation of MoEF No. 21 of 2022

2. Indonesia Nature Based Solution International Standard (IDNBSI):

a) in the form of SPE-GRK (carbon offset)

b) entering the Agriculture, Forestry, and Land-used (AFOLU) sector or entering the Agriculture and Forestry sector as regulated in Regulation of MoEF No. 21 of 2022; and

c) have certification from SRN-PPI and/or have certification from an institution that has obtained accreditation from the organizer of the international registration system

3. Indonesia Technology Based Solution (IDTBS):

a) in the form of SPE-GRK (carbon offset)

b) entering sectors other than Agriculture, Forestry, and Land Use (AFOLU) or entering the Energy, Waste, and Industrial Processes and Product Use sectors as regulated by Regulation of MoEF No. 21 of 2022

4. Indonesia Technology Based Solution International Standard (IDTBSI):

a) in the form of SPE-GRK (carbon offset)

b) entering sectors other than Agriculture, Forestry, and Land Use (AFOLU) or entering the Energy, Waste, and Industrial Processes and Product Use sectors as regulated by Regulation of MoEF No. 21 of 2022

c) have certification from SRN-PPI and/or have certification from an institution that has obtained accreditation from the organizer of the international registration system

As of 28 August 2024, the IDXCarbon platform does not list any PTBAE-PU (Cap and Trade) products. For comparison purposes, data from SRN PPI regarding PTBAE-PU and SPE-GRK products as of 28 August 2024 showed there was also no PTBAE-PU product listed on SRN PPI. On the same date, SPE-GRK (Carbon Offsets) listed on IDXCarbon has 3 listed Projects, Carbon market units: 1,357,594 (tCO2) and 74 Participants (all domestic investors).

Conclusion of IDXCarbon’s product analysis:

• IDXCarbon provides PTBAE-PU or Allowance (Cap and Trade) and SPE-GRK (Carbon Offset) products. As of 28 August 2024, there are no Allowance products listed on IDXCarbon because the emission ceiling regulation has not been tightened.

• The Allowance market can be used by businesses that have exceeded their mandatory emission limit. They can purchase emission allowances from businesses that have emitted less than their limit.

• The offset market allows businesses to sell carbon units that are earned from reducing or removing greenhouse gas emissions through specific business activities or other initiatives to mitigate climate change.

• Only entities are eligible to purchase carbon credits from IDXCarbon, individual customers are not permitted.

• International purchasers have not yet entered the market of IDXCarbon due to regulatory limitations.

Analysis of SWOT

The following analysis is based on an interview with IDXCarbon team regarding IDXCarbon’s strengths, weaknesses, opportunities, and threats (SWOT analysis) (Table I).

Table I. Swot Analysis of IDXCarbon

Swot analysis of IDXCarbon
Strengths	1. IDXCarbon is the first licensed carbon market in Indonesia, which remains the only one to date. 2. The Indonesia Stock Exchange (IDX) is the sole stock exchange in the country, with numerous securities companies that can facilitate the growth of carbon trading. 3. IDX has a renowned and esteemed reputation. 4. IDXCarbon’s system is directly linked to the SRN PPI system, which is the national registry system for climate change control. 5. Collaboration with OJK and Ministries related to carbon matters. 6. Having partnership with KSEI to establish an escrow fund account. 7. Collaboration with subsidiary: partnering with TICMI (The Indonesia Capital Market Institution) to provide educational content for the general public and distributed through the IDX Channel (the official TV of IDX). 8. Foster partnerships with selected non-governmental organizations (NGOs) and consultants.
Weaknesses	1. Currently IDXCarbon’s operations are limited to the domestic market. 2. Not accessible for individual investors. 3. Low number of carbon trading in market.
Opportunities	1. Large carbon emission reduction opportunities in Indonesia. 2. Large potential of voluntary market for carbon trading. 3. Public support to build sustainable carbon market.
Threats	1. Prolonged implementation in regulatory framework to stimulate demand. 2. Economic downturn may impact the carbon trading.

Identify Stakeholders’ Perspectives

To understand the carbon market ecosystem, it is important to identify stakeholders involved in IDXCarbon to see their contribution and relevance in the carbon market (Table II).

Table II. Stakeholders Matrix

Stakeholders matrix
Power	High	Keep satiesfied ∘ Media	Keep closely ∘ International Institutions ∘ Government ∘ OJK ∘ MoEF ∘ KSEI ∘ BPDLH ∘ SRN PPI ∘ Sectoral Ministries ∘ IDX Management ∘ IDXCarbon’s Key Persons ∘ Business actors (sellers): ∘ Financial institutions ∘ Customers ∘ Business actors (buyers) ∘ Financial institutions ∘ Customers ∘ Financial Institutions ∘ Issuers and Public Listed Companies ∘ NGOs (international and domestic NGOs) ∘ Consultants including Validators ∘ Academic Institutions ∘ General Public
	Low	Minimal effort∘ N/A	Keep informed IDX Shareholders
Low			Interest
Level of interest

Who are the internal team members that implement the business issues’ solutions?

The internal team members, i.e., IDX Management and IDXCarbon Key Persons, shall coordinate with related stakeholders to implement solutions for the business issues.

The author has conducted interviews with a selection of IDXCarbon’s clients:

1. PT Pertamina Geothermal Energy Tbk (Pertamina Geothermal), the issuer in IDXCarbon, is represented by the Senior Analyst II in Business Development New Ventures and the ESG Management Officer.

2. PT Bank Mandiri (Persero) Tbk (Bank Mandiri), the buyer in IDXCarbon, is represented by the Vice President of ESG Product and Portfolio Management.

3. PT Bank CIMB Niaga Tbk (Bank CIMB), acting as the buyer in IDXCarbon, is represented by the Head of GCG and Sustainability, the Sustainability Head, and the Sustainability Strategy & Reporting Specialist.

Furthermore, the author has conducted survey to the general public to get their opinions on climate change, carbon emissions, and climate change management.

Conclusion of Identify Main Stakeholders’ Perspectives

The conclusions on the identification of the main stakeholders’ perspectives are as follows:

1. Pertamina Geothermal is involved in a renewable energy project focused on geothermal energy. The carbon unit of Pertamina Geothermal is listed as SPE-GRK (carbon offset) product IDXCarbon.

2. Bank Mandiri and Bank CIMB, who are voluntary buyers, have entered the IDXCarbon market. It is important to note that currently, there is no mandatory requirement for the banking industry to participate.

3. The issuer and buyers recognize the potential to expand their businesses through the presence of this carbon market.

4. The issuer and buyers desire unambiguous legislation outlining the specific requirements for reducing emissions in the primary sectors. According to their perspective, the crucial factor for the carbon market’s success is the implementation of laws throughout the core sectors to effectively reduce emissions.

5. A public survey conducted with 277 respondents has revealed the following findings:

43.3% of respondents have a limited understanding of carbon emissions; 52% of respondents express a significant level of worry regarding climate change. The level of air pollution in Indonesia is really alarming, with a rate of 56.3%. The state of water pollution in Indonesia is rather poor, with a rate of 59.2%. The majority of people (78.7%) had high expectations for the management of climate change. Addressing climate change is crucial for the welfare of future generations (78.7%). The who shall be responsible for managing carbon emissions are the Government, Business Actors, and Societies, accounting for 92.8%. A carbon tax or restrictions on carbon emissions for businesses will be introduced within the next two years, according to 61.7% of respondents. 70% of individuals are willing to buy environmentally-friendly products, even if they come at a higher cost, within a timeframe of less than two years. 44% are completely unfamiliar with IDXCarbon and its products, and 36.1% have only a little knowledge of IDXCarbon’s products. It is imperative to provide education to the Indonesian society, especially students and university students, about climate change and the effective management of carbon emissions (83.4%). Business actors should proactively decrease carbon emissions even in the absence of government regulations or punishments, as indicated by 81.2% of respondents.

6. Based on the results of the public survey, it can be concluded, that due to the climate change impact, the public wants the government to enhance legislation and provide guidance for reducing carbon emissions, taking into account the implications of climate change. The public recognizes that the responsibility for managing climate change lies not just with the government, but also with business entities and society as a whole. It is crucial to receive education on climate change and the effective management of climate change. The public also desires that business actors voluntarily decrease carbon emissions in the absence of government regulations or implementation to mitigate carbon emissions.

7. The general public lacks comprehension about IDXCarbon and its offerings.

Business Practice and Comparison Analysis (International)

Business Practice Analysis (International)

Global climate change is a significant and pressing issue that every country in the world is currently facing. Numerous nations have embraced a collective objective of reducing GHG emissions and constructing a low-carbon economy (Zhou & Li, 2019).

Methods, Development of Carbon Market and Opportunities in Carbon Market

Methods of Carbon Market

An emission trading system (ETS) and carbon taxes might go a long way in decreasing carbon emissions to proceed toward a net zero emission target, but numerous aspects such as regulatory and non-fossil fuel-related policies would be highly significant (The Economic Times (Online), 2023).

When formulating carbon tax and carbon trading policies, policymakers must thoroughly assess their effects on businesses and the whole economy, fostering a climate in which corporations are incentivized to adopt environmentally friendly alternatives and develop innovative ways to achieve superior environmental results. Businesses are urged to simultaneously pursue and embrace environmentally friendly alternatives and advanced technology in order to effectively address the challenges posed by these rules. Companies that allocate resources towards sustainable production methods might enhance their competitive advantage and reap enduring benefits. This holistic strategy not only fosters environmental preservation but also safeguards the economic viability of firms, hence facilitating the advancement of green development and aligning economic objectives with environmental stewardship (Tsai & Wei-Hong, 2024).

Corporations exert significant influence in driving change, and they are increasingly under pressure to acknowledge the reality that achieving global net zero emissions is impossible without the establishment of a voluntary carbon market. By investing in projects that decrease or eliminate carbon emissions, companies can compensate for any remaining emissions while transitioning to a net zero state. As we endeavor to create innovative tools to decrease carbon emissions, compensating for the inevitable environmental consequences of contemporary economic activities is a practical and readily accessible answer. Multiple studies have demonstrated that firms that allocate resources to credits see a twofold acceleration in the reduction of their carbon footprint compared to those that do not. Companies create a financial motivation to develop a long-term plan to reduce their total impact by willingly setting a value for their emissions (City, 2024).

Carbon Market’s Products

The primary products in the carbon market are Allowance or ETSs (Cap and Trade) and Carbon Offsets.

Emissions Trading Systems (ETSs) or Cap-and-Trade

Due to the urgent necessity to progress in climate change mitigation, an increasing number of governments are pledging to attain net-zero greenhouse gas (GHG) emissions. Several entities, such as the European Union, the United Kingdom, New Zealand, and California, have set a goal to attain carbon neutrality by 2050 or earlier. A cap-and-trade system, also known as an emissions trading system (ETS) with a predetermined limit, is effectively utilized to achieve a certain emissions reduction objective within a set timeframe while minimizing costs (Verde, 2020).

Carbon Offsets

Carbon offsets function as a method to provide flexibility in achieving climate objectives inside Emissions Trading Systems (ETSs), providing both sectoral and geographical flexibility for governments to mitigate greenhouse gas emissions beyond the scope of their ETS. Offsets are utilized for many goals, such as ensuring compliance or as a voluntary measure, both within a country’s borders and across international boundaries. ETSs and carbon levies frequently incorporate the utilization of offsets. In the same manner, nations that have set goals for reducing GHG emissions under the UNFCCC are allowed to utilize foreign offsets to help meet their NDC. Airlines are also required, as part of the Carbon Offsetting and Reduction Scheme for Overseas Aviation (CORSIA), to compensate for a proportion of their greenhouse gas emissions resulting from overseas flights. Many individuals and businesses make the deliberate decision to offset their emissions voluntarily (La Hoz Theueret al., 2023).

Development for ETS Carbon Market

The World Bank has been tracking carbon markets for approximately twenty years. When the first report was released, carbon taxes and the Emission Trading System (ETS) only accounted for 7% of global emissions. According to the eleventh annual report (2024), the current coverage of worldwide emissions is 24%. In 2023, the income generated from carbon pricing reached a record of $104 billion. More than 50% of the revenue collected was allocated towards financing programs related to climate and nature (World Bank Group Press Release, 2024).

The European Union (EU) and China, two influential global actors, have made a commitment to engage in carbon trade. The European Union introduced a carbon plan in 2005, which has thus far shown uneven outcomes. The carbon price was set at an insufficiently high level, and an excessive number of permits were issued, resulting in the ineffectiveness of the plan in reducing companies’ emissions. China’s market has the potential to account for almost 25% of world emissions within a trading system, surpassing the European Union’s current greatest plan in terms of carbon pollution coverage. China is the world’s leading producer of carbon emissions, nearly equalling the combined emissions of Europe and the United States. The Institute of Public and Environmental Affairs produced a paper stating that in order for the market to function optimally, China needs to provide additional information, such as the overall volume of emissions. None of the seven provincial and municipal trading pilots initiated since 2013 have achieved any advancements in the public disclosure of carbon emissions data for significant pollution-emitting companies or the allocation of allowances. The paper stated that the growth of the market will be impeded by factors such as significant price fluctuations, limited market price determination, and the challenge of forecasting carbon prices. The China National Emissions Trading Scheme (ETS) requires enhancements. In order to proceed promptly, it is necessary for authorities to establish a comprehensive reviewing system to closely oversee the national ETS progress. This system should efficiently gather data and evidence to assist in the future phases’ design and decision-making process (Mangin, 2017).

Voluntary Carbon Market

Research indicates that investments in carbon credit projects totalled $36 billion between 2012 and 2022, with half of this sum coming in the last three years. Investments in the VCM have experienced a decrease, with only $3 billion over the next two years being raised so far (International Financial Law Review, 2023).

The involvement of governments in voluntary carbon trading schemes is a dynamic and developing matter. Government acknowledgment and integration of the voluntary market into national decarbonization programs can effectively address concerns over the long-term viability of the market. Enterprises are encountering difficulties related to greenwashing and greenhushing. To address these concerns, regulatory measures that provide more transparency and predictability could play a crucial role in encouraging enterprises to actively participate in the market. Regulatory action has successfully broadened markets in multiple domains. There is a common opinion that in order for the market to see an increase in supply and demand, it is necessary to have effective governance and regulation in place. Regardless, if companies are to undertake substantial discretionary investments based on price signals produced by a market, they require assurance that the market will endure in the long run (International Financial Law Review, 2023).

Financing Platform in the Carbon Market

In order to enable large-scale funding for projects aimed at mitigating climate change, the London Stock Exchange has introduced a Voluntary Carbon Market. The Voluntary Carbon Market, operated by the London Stock Exchange, will facilitate the raising of capital by funds and operating companies. This capital will be directed towards initiatives that aim to decrease the levels of greenhouse gases in the atmosphere. These projects will encompass both nature-based and technology-led approaches and are anticipated to produce carbon credits. The Voluntary Carbon Market of the London Stock Exchange is specifically created to assist companies in compensating for their remaining or inevitable emissions throughout their transition to net-zero emissions. It also offers investors the opportunity to participate in a specific asset class by obtaining long-term distribution of carbon credits (London Stock Exchange, 2024).

Opportunities Related to the Carbon Market

Opportunities related to the Carbon Market include FOLU, Renewable Energy, Low Carbon Technology, Green Efforts, Circular Economy and (vi) Nature-based Solutions including Blue Carbon.

FOLU

Indonesia has implemented a program called the National Program, “Indonesia’s Forestry and Other Land Use Net Sink 2030/Indonesia’s FOLU Net Sink 2030,” with the aim of enhancing carbon sequestration in the forestry industry and other land uses by the year 2030. Indonesia’s FOLU net sink 2030 has a target of increasing carbon stocks of 8,255,323 ha during the 2022-2030 period or an average planting target of 917,258 ha/year. In order to properly undertake forest-land restoration and achieve Indonesia’s aim of FOLU net sink 2030, it is necessary to make efforts to increase and maximize the use of limited funding. To bridge the gap between the current progress in rehabilitating forest land and the desired attainment of Indonesia’s FOLU net sink by 2030, the following measures can be implemented: The key elements of this initiative are (Dharmawan, 2023):

1. selection of priority places,

2. securing substantial financial support from international and private sectors, and

3. community engaging actively through suitable social forestry systems.

Renewable Energy

Energy has thus far been a crucial factor in formulating security measures. Advanced industrialized countries have expressed significant concerns regarding regional instability, such as conflicts or disruptions in distribution channels, when global oil price swings occur. Unlike fossil fuels, which are concentrated in a limited number of countries, renewable energy sources are widely distributed throughout almost all nations. Consequently, this will lead to a restructuring of the global distribution and trade of fossil fuels, such as coal, oil, and gas. In contrast to fossil fuels, which have finite reserves that can only be mined once, most renewable energy sources can be continuously replenished. Furthermore, the accessibility and inherent durability of renewable energy render it more resistant to interruptions. Additionally, renewable energy sources possess a decentralized, scalable, and highly flexible character. The decentralization aspect facilitates the democratization of energy production and utilization, leading to a significant transformation in the prevailing energy paradigms. Additionally, the marginal cost of renewable energy is virtually non-existent. As an illustration, the price of solar and wind energy reduces by approximately 20% with each doubling of capacity. The cost advantage further enhances the potential for renewable energy to revolutionize (Setiyono & Nabela, 2023).

To guarantee stability and profitability in the electrical industry, supportive regulations must be put in place. Energy geopolitics involves the complex interactions between nations driven by the dynamics of energy supply and demand. In order to ensure the stability and profitability of the electrical business, supportive regulations must be put in place. Energy geopolitics involves the complex interactions between nations driven by the dynamics of energy supply and demand (Paravantis & Kontoulis, 2020).

A study has shown that carbon trading significantly decreases the consumption of coal while simultaneously boosting the overall utilization of renewable energy sources. As carbon reduction targets increase, the transition to renewable energy becomes more apparent. Furthermore, a substitution link between oil, natural gas, and coal was found. In carbon trading scenarios, the relative consumption of oil and natural gas rises, indicating China’s transition from a high-carbon to a low-carbon, and potentially even clean, energy system (Huanget al., 2023).

Low Carbon Technology

Undoubtedly, governments will face substantial challenges in their pursuit of developing economies with reduced carbon emissions. However, addressing these issues would also create significant economic prospects for low-carbon goods and technology. Recent studies suggest that the global market for low-carbon technologies might surpass £2000 billion per year by 2030. Based on the same analysis, the United Kingdom (UK) is likely to be in a favorable position to take advantage of the growing need for low-carbon innovation. The statement highlights that numerous businesses in the UK, especially small and medium-sized enterprises (SMEs), are often recognized as true pioneers in the industry, leading the way in developing state-of-the-art technology (Strategic Direction, 2009).

Green Efforts: Green Initiatives, Green Performance, and Firm’s Financial Performance

Environmental concerns have put pressure on practitioners to adopt various environmental initiatives.

A study examined the impact of green initiatives and green performance on the financial performance of the top 500 publicly traded corporations globally. According to the survey, European countries and Canada are at the forefront of green efforts and green performance, with the USA and Japan following closely after. China and Hong Kong have a lower level of progress in comparison to other nations. The findings indicate that implementing green initiatives has a beneficial effect on the overall environmental performance. Nevertheless, green measures have a limited and adverse effect on financial success. Green performance is defined as the positive consequences of green initiatives on the natural environment inside and outside the firm. Furthermore, research indicates that the implementation of environmentally sustainable practices has a beneficial effect on the company’s financial performance. Thus, it may be deduced that the influence of green initiatives on financial performance is not immediate or straightforward. Green efforts are expected to directly improve green performance, which in turn has a favorable effect on financial performance. The study indicated that implementing environmentally-friendly policies, particularly those focused on reducing carbon emissions and waste, will likely have a favorable effect on financial performance (Chen, 2018).

Circular Economy

The circular economy is founded on three principles: i) eliminate waste and pollution; ii) maintain the use of products and resources; and iii) restore natural systems. In urban areas and regions, the circular economy signifies a systemic transformation, wherein: services are delivered with optimal utilization of natural resources as primary materials and enhanced reuse; economic activities are strategically organized to close, slow, and narrow loops across value chains; and infrastructure is designed and constructed to prevent linear lock-in and mitigate material waste. The circular economy is anticipated to have beneficial effects on the environment by diminishing air emissions, enhancing the proportion of renewable energy and recyclable materials, and decreasing the use of raw materials, water, land, and energy. Forecasts indicate that transitioning from a linear model of “take, make, and dispose” to a circular system might yield an estimated economic development potential of USD 4.5 trillion by 2030. The circular economy may yield up to USD 700 billion in global consumer goods material savings. Furthermore, operations such as repair, maintenance, upgrading, remanufacturing, reuse, recycling of materials, and product-life extension, which are more labor-intensive than the mining and manufacturing processes of a linear economy, are expected to generate employment possibilities inside the circular economy. The 3Ps analytical framework (people, policies, and places) aims to facilitate the transition to a circular economy in urban and regional contexts, utilizing policy proposals and a scorecard to evaluate the presence and degree of implementation of supportive governance circumstances (OECD, 2020).

To facilitate the transition to a sustainable economic model, it is necessary to have collaboration between the government’s mandated strategy and the voluntary efforts of the business community or market. In numerous developing nations, the implementation of a circular economy model necessitates collaboration among multiple stakeholders, with civil society playing a vital role. It is imperative that all individuals share a unified vision for addressing the environmental catastrophe. Both public and corporate leaders must demonstrate significant initiative, dedication, and seriousness in their actions. In order to ensure the conservation of our shared planet, it is imperative that all parties collaborate with a unified objective (Keraf, 2022).

Nature-Based Solutions Including Blue Carbon

Nature-based solutions encompass actions aimed at the protection, conservation, restoration, sustainable utilization, and management of natural or altered terrestrial, freshwater, coastal, and marine ecosystems. These solutions effectively and adaptively tackle social, economic, and environmental challenges while concurrently enhancing human well-being, ecosystem services, resilience, and biodiversity benefits. All biologically driven carbon fluxes and storage in marine environments that are subject to control can be classified as blue carbon. Coastal blue carbon pertains to rooted vegetation in coastal areas, including tidal marshes, mangroves, and seagrasses. These ecosystems have elevated carbon sequestration rates per unit area and collect carbon within their soils and sediments. They offer several non-climatic advantages and can facilitate ecosystem-based adaptation. The market for blue carbon credits and the acknowledgment of the importance of blue carbon ecosystems have increased markedly in recent years. Blue carbon constitutes a minor segment of the carbon market, accounting for 0.15 percent of all credits granted by Verra in 2022; nonetheless, blue carbon finance possesses the potential to enhance total investment in coastal and oceanic nature-based solutions and resilience (Schindler Murrayet al., 2023. p.5).

Comparison Analysis of Carbon Market between Countries

The author has made a comparison between the carbon markets in Indonesia, China, the EU, Iceland, Liechtenstein, Norway, and Korea. All of the other carbon markets (except Indonesia) put mandatory (caps and trade/allowances) as a priority, while Indonesia does not have a trading allowance due to the prolonged implementation of the carbon emission ceiling.

Conclusion from the Business Practice and Comparison Analysis:

1. Two effective methods for promoting the reduction of greenhouse gas (GHG) emissions are i) Implementing a tax on emissions and ii) Establishing an emissions trading scheme.

2. Carbon trading significantly decreases coal consumption while simultaneously boosting the utilization of renewable energy sources. As carbon reduction targets increase in size, the transition to renewable energy becomes increasingly apparent.

3. Carbon offsets are utilized for many purposes, such as meeting regulatory requirements or as a voluntary measure, both locally and abroad. ETSs and carbon levies frequently permit the utilization of offsets.

4. Countries that have set goals for reducing greenhouse gas emissions under the UNFCCC might utilize foreign offsets to help meet their NDC.

5. Regulatory actions have successfully broadened markets in multiple domains. There is a common opinion that in order for the market to see an increase in supply and demand, it is necessary to have effective governance and regulation in place.

6. The Voluntary Carbon Market operated by the London Stock Exchange will facilitate the raising of capital by funds and operating companies.

7. Opportunities in the carbon market include the following:

a) FOLU: Indonesia’s FOLU net sink 2030 has a target of increasing carbon stocks of 8,255,323 ha during the 2022–2030 period or an average planting target of 917,258 ha/year. In order to properly undertake forest-land restoration and achieve Indonesia’s aim of FOLU net sink 2030, The key elements of this initiative to implement the aim are i) selection of priority places, ii) securing substantial financial support from international and private sectors, and iii) community engaging actively through suitable social forestry systems.

b) Renewable Energy: The adoption of renewable energy sources would contribute to the establishment of security and stability. Renewable energy’s availability and inherent resilience make it less susceptible to disturbances. As carbon reduction targets increase, the transition to renewable energy becomes more apparent. Companies that have fewer carbon emissions and advanced technology would have significant potential for success in the carbon market, leading to substantial commercial prospects.

c) Low Carbon Technology: One approach to promoting the development of economies with decreased carbon emissions is to focus on establishing substantial economic opportunities for low-carbon goods and technology. Recent research indicates that the worldwide market for low-carbon technologies could exceed £2,000 billion annually by 2030.

d) Green Efforts: Green efforts are expected to directly improve green performance, which in turn has a favorable effect on financial performance. The study indicated that implementing environmentally-friendly policies, particularly those focused on reducing carbon emissions and waste, will likely have a favorable effect on financial performance.

e) Circular Economy: The circular economy could be worth as much as USD 700 billion in global consumer good material savings. To facilitate the transition to a sustainable economic model, it is necessary to have collaboration between the government’s mandated strategy and the voluntary efforts of the business community or market.

d) Nature-based solutions including Blue Carbon: The market for blue carbon credits and the acknowledgment of the importance of blue carbon ecosystems have increased markedly in recent years. Blue carbon constitutes a minor segment of the carbon market, nonetheless, blue carbon finance possesses the potential to enhance total investment in coastal and oceanic nature-based solutions and resilience.

Carbon markets comparison between carbon market in Indonesia, China, EU, Iceland, Liechtenstein, Norway, and Korea:

• some carbon markets offer ETS and carbon offsets products, and some are only offer ETS or carbon offsets products.

• some carbon markets open for domestic and international investors, and some are for domestic investors only.

• Such carbon markets are only open for corporate investors; however, some carbon markets are planning to open for individual investors.

• some carbon markets offer carbon derivates products.

• some countries have imposed carbon tax while others have not.

PESTLE Analysis

PESTLE Analysis regarding the carbon market are described below:

To effectively promote the carbon emissions trading policy and achieve a win–win situation for both economic development and the ecological environment, the government should accelerate the enhancement of the design of the carbon market and integrate it with specific national conditions.

1. Politic: The integration of carbon markets establishes a structure for meeting the principle of “common but differentiated responsibilities” and can effectively alleviate the burden on countries to decrease emissions while playing a significant role in the future design of global climate policies (Hua & Feng, 2019).

2. Economic: The global economy is currently encountering difficulties, and the global situation is intricate and unpredictable. As inflation in the US increases, the US Federal Reserve is raising interest rates to control inflation. With the deterioration of Economic Policy Uncertainty (EPU), policymakers must be especially watchful of the possible spread of volatility in economic policy uncertainty to green bonds and carbon markets. Enhancing risk regulation is crucial in order to avert the manifestation of dangers. An effective market information relies on a strong mechanism for disclosing information. Precise and effective gathering, dissemination, and communication of information are essential for investors to make logical decisions (Liuet al., 2024).

3. Sociocultural: Carbon Consumption of Firm: Voluntary carbon disclosure information (VCDI) positively affects the value of a company (Sunet al., 2022). Carbon Consumption of Individuals: Some researchers consider personal carbon trading (PCT) as an innovative and powerful tool to meet the carbon emissions reduction targets for developed and developing countries in the near future. If an individual need a carbon allowance quota that exceeds their personal allocation, they have the option to purchase it from the market at the current price. On the other hand, if someone saves a portion of their allotted allowance, they can sell it at the current market price (Deo, 2021).

4. Technology: Technology. Income level serves as the basis for economic freedom, influencing the extent of environmental deterioration, whereas technological advancement causes environmental degradation to increase. Consequently, it is essential to foster economic freedom to influence technological progress. This may be accomplished by fostering the development of ecological technology. Moreover, governments must facilitate the passage of of both local and international investment into their economies to stimulate investment (Ali & Khan, 2023).

5. Legal: Learning from studies in the Chinese carbon market underscore the necessity of continually improving the legislative framework for carbon emission control at both local and international levels. The carbon market should endeavor to investigate the possible establishment of more fair worldwide norms and models for carbon emission reduction, and take a proactive role in global climate governance to tackle ongoing climate change (Shi & He, 2023).

6. Environmental (Ecological): The objective of the REDD+ (Reducing Emissions from Deforestation and Forest Degradation) Project includes reducing emissions resulting from deforestation and forest degradation, promoting sustainable forest growth, and safeguarding carbon stores. The research also examines the potential for trading carbon stocks, which would otherwise be lost in the event of tree removal or deforestation. Essentially, wealthier nations provide financial assistance to less affluent nations in exchange for their dedication to preserving forests and reducing carbon emissions. This collaboration aims to save carbon storage areas and mitigate the effects of climate change (Firdaus & Fausta Nanda, 2024).

Business Solution

After analyzing (i) regulations related to carbon emissions, (ii) IDXCarbon’s existing products, (iii) SWOT analysis of IDXCarbon, (iv) identifying stakeholders’ perspectives, (v) identifying business practices and comparison with carbon market in other countries, and (iv) PESTLE analysis of carbon market, the study creates SWOT Matrix, provides Improvement Suggestions and Proposed Actions that can be implemented by IDX to improve its performance. This serves as a response to the research questions and is regarded as a Business Solution.

The improvement and proposed actions below are suggestions from the author based on analysis in this study.

The improvement and proposed actions below are suggestions from author based on analysis in this study (Tables III, IV).

Table III. Swot Matrix

SWOT matrix	Strengths (S)	Weaknesses (W)
Opportunities (O)	SO Strategy – Educating business actors regarding opportunities and incentives in carbon emission reduction projects – Educating public regarding the urgency of climate change management to build a strong ecosystem – Promoting IDXCarbon’s products and services widely – Exploring to add new products such as derivatives Exploring to provide new services such as funding and financing platform for carbon emission reduction and green projects – Collaborating with carbon exchanges from other countries and promote IDXCarbon – Marketing its products actively to global network when the market opens for international investors – Open access for individual investors to enter into market	WO Strategy – Urging the Government to enable the international buyers enter into IDXCarbon in case domestic demand is insufficient – Open access for individual investors to enter into market
Threats (T)	ST Strategy – Expedite voluntary participation to enter into market to speed up carbon emission reduction – Conducting active communication with IDX’s networks – Collaborating with NGOs, Consultants and other carbon markets to gain strong position – Creating sustainability communities to build a strong ecosystem	WT Strategy – Urging the Government to accelerate the enforcement of legislation pertaining to the reduction of carbon emissions – Urging the Government to impose the carbon tax

Table IV. Improvement and Proposed Actions by IDX for IDXCarbon

No.	Issues	IDXCarbon’s existing strategy	Improvement suggestions and Proposed actions
1.	Prolonged regulations implementation regarding emissions Cap for business actors (currently implementation only for CFPPs).Related to this matter until now there is no Allowance (PTBAE) units traded.	In its existing strategy IDXCarbon actively communicates with the Government (OJK and relevant Ministries) in regard to carbon matters.	It is suggested for IDXCarbon to encourage Sectoral Ministries to speed up imposing carbon emissions caps (ceiling).There are several justifications for expediting the strengthening of the regulation, which include: 1. The NDC t achievement objective must be met; 2. The pollution such as air pollution have become a profound worry. 3. The Government shall obey the Central Jakarta District Court ruling whereas one of the decisions mentioning the obligation to enhance national ambient air quality standards to adequately safeguard human health, the environment, and ecosystems, particularly for vulnerable populations, in accordance with scientific and technological advancement.
2.	Delayed implementation pertaining to Carbon Tax	In its existing strategy IDXCarbon actively communicates with the Government (OJK and relevant Ministries) in regard to carbon matters.	It is recommended that IDXCarbon strongly encourage the Government to release its proposal for implementing a carbon tax, disclosing comprehensive plan for imposing carbon emissions caps (ceiling) within reasonable timeframe.IDXCarbon should encourage business actors to strategically prepare their emissions reduction plan at an early stage.
3.	Limitation for International Buyers to enter into Indonesian carbon market.	In its existing strategy IDXCarbon actively communicates with the Government (OJK and relevant Ministries) in regard to carbon matters.	IDX Management should advocate the Government to allow international buyers to participate in Indonesian carbon market when the domestic demand falls below supply.
4.	Information regarding IDXCarbon’s Products and Services have not yet widely distributed.Almost a year after the launching of IDXCarbon, public still does not understand about IDXCarbon’s activities and products.	IDXCarbon’s Existing Strategy has included socialization and education for business actors (especially listed company in IDX) and general public.Activities including seminar, webinar, events, open discussion, and distribution through IDX’s subsidiaries, TICMI (The Indonesia Capital Market Institution) and IDXChannel (the official TV of IDX), and educate universities students.	Improvement suggestions: To expedite dissemination of information regarding IDXCarbon.Proposed actions: 1. Conducting strategic marketing to actively promote IDXCarbon’s products and activities across various marketing channels, including social media. The goal is to raise public awareness and foster loyalty towards climate change management. 2. Creating communities that are focused in addressing climate change mitigation and promoting environmental stewardship. 3. The education and dissemination of information shall be made regularly 4. Dissemination information should emphasize the significance and urgency of carbon emission reduction due to climate change that has brought bad influences to living beings.
5.	Expedite voluntary participation to enter into carbon emission.	IDXCarbon’s Existing Strategy has included socialization and education and Integrate ESG investment in the Capital Market with carbon trading and explore possible incentives to promote the growth of the carbon market.IDXCarbon has also fostered partnerships with selected non-governmental organizations (NGOs) and consultants.	It is recommended that IDXCarbon: 1. Collaborate with selected consultants and NGO to provide business actors with updated information and innovative technology and solutions to assist them in effectively managing and reducing their carbon emissions 2. IDXCarbon, in collaboration with related industries (such as PT Sarana Multi Infrastruktur, banking and financial institutions) motivate business actors to initiate the process of transitioning to renewable energy and funding and financing solutions. Distribute information to business actors regarding opportunities in carbon emission mitigation projects including (i) FOLU, (ii) Renewable Energy, (iii) Low Carbon Technology, (iv) Green Efforts, (v) Circular Economy, and (vi) Nature-based Solutions including Blue Carbon; and any incentives and benefits related to carbon emission reduction.
6.	Type of customers in IDXCarbon	IDXCarbon’s existing participants are only for entities.Currently individual investors cannot access IDXCarbon platform.	It is recommended that IDXCarbon allows individual investors to participate in carbon market (voluntary basis at this stage as there is no mandatory obligation for individuals).It is proposed to provide incentives for individual investors for this objective, such as acknowledgment or appreciation for their participation.
7.	Gaining updated information, new technologies, explore opportunities.	IDXCarbon’s Existing Strategy has included maintaining regular dialogue with several foreign institutions including foreign carbon market in some developed countries.	It is recommended that IDXCarbon actively involve in global discussion and conferences for climate actions.Engaging in dialogue and facilitating the needs of multinational corporations and inviting them to participate in carbon trading.
8.	Explore new products	IDXCarbon’s Existing Strategy has included to provide Sharia products.	It is recommended that IDXCarbon collaborate with securities, banking industry and financial companies to develop new products and services, such as: – Derivatives –Funding and Financing platform

Conclusion and Recommendation

Conclusion

It was a wise and strategic move for IDX to create IDXCarbon, o support Indonesia in achieving its NDC. Two promising methods for reducing GHG emissions are imposing a tax on emissions and developing an emissions trading system. The latter has gained more international recognition.

During the launch of IDXCarbon, the President of the Republic of Indonesia said that the carbon market might become a significant step for Indonesia in achieving its NDC target. The President also mentioned that the potential of the carbon market can reach a value of IDR 3000 trillion or more. However, almost a year after its launch, IDXCarbon has not yet made a significant performance.

As a sole stock exchange in Indonesia, IDX has been successfully running and developing the capital market industry, and subsequently, IDX has a strong position to develop a sustainable carbon market. In order to develop a sustainable carbon market, it is necessary to strengthen laws and regulations, and the Government shall provide clear guidance to business actors to enable them to adopt a focused sustainability strategy. Government shall not delay the implementation of carbon emissions reduction, especially for transition energy to renewable energy because the availability and intrinsic resilience of renewable energy make it more resilient to disruptions.

Voluntary (carbon offsets) market that is available in IDXCarbon is a great opportunity for IDXCarbon to capture potential projects. For this goal, IDXCarbon should educate and emphasize that business actors might be able to obtain opportunities and economic benefits through the implementation of carbon emissions management.

The improvement needed and proposed actions are treated as the business solution. By executing the implementation plan, the author believes IDXCarbon will become a sustainable carbon market, ultimately will support Indonesia to achieve its NDC Target.

Recommendation

Given that regulations related to carbon emission ceilings are still not stringent enough, IDXCarbon must promote the development of corporate and public awareness and preparedness to address the risks associated with climate change.

Currently, only voluntary carbon offset products are listed and sold in IDXCarbon due to the Government’s lack of reinforcement on carbon emissions limits for business actors (except for CFPPs). Therefore, IDXCarbon should expand its opportunities by establishing a strong network with listed companies in IDX, multinational companies, and the financial industry. It should also actively engage in discussions and offer solutions to meet the needs of its stakeholders or potential stakeholders, as required.

IDXCarbon should also explore the possibility of expanding its operations to cater to the international demand for Indonesian carbon offsets. Additionally, it could allow individual investors to participate in the market, thereby boosting the demand for carbon credits and fostering a bullish market environment. IDXCarbon shall engage in communication with the Government to support these objectives.

IDXCarbon should enhance its strategic marketing planning and increase its presence on social media and other marketing channels to effectively promote its products and activities. This will help to raise public awareness and foster loyalty towards climate change management. Additionally, IDXCarbon should establish communities that are dedicated to addressing climate change and promoting environmental responsibility.

It is crucial for IDXCarbon to prioritize the education for young generations, particularly university students, in order to equip future generations with the necessary skills and mindset to address climate change. This includes instilling environmentally friendly attitudes and cultures.

This study has certain drawbacks. Given the swift economic progress of these nations, the suggestions and recommendations of the study may only have limited relevance in those contexts. Therefore, it is suggested that IDXCarbon should conduct a comprehensive and comparable study to further investigate the suggestions and recommendations provided in this study. This will ensure that IDXCarbon not only significantly contributes to global emission reduction goals but also establishes a strong presence in the global carbon market.