The collaboration of global business leaders is needed so that the unification of roles will produce policy recommendations that support climate change mitigation while restoring the economy, especially for G20 countries. The holding of B20 Indonesia Summit 2022 or the B20 High-Level Conference (KTT B20) with the theme “Advancing Innovative, Inclusive, and Collaborative Growth” which was held in Bali 13-14 November 2022 by the Indonesian Chamber of Commerce and Industry (Kadin) Indonesia is an important momentum for the global business community holds a formal dialogue on the G20 agenda. The forum was attended by various leaders and experts in multinational business, and President Jokowi was the head of the host country.
The policy recommendations have been drafted in the B20 Conference with an emphasis on 3 priority aspects, namely the first is the priority of innovation in order to encourage post-pandemic growth, the second priority is the empowerment of MSMEs and vulnerable groups, and the third is the priority of collaboration between developed and developing countries in the pursuit of common goals. One of the policy products resulting from the forum is the Carbon Knowledge Hub agenda as a result of the collaboration between Kadin Indonesia and Bloomberg New Energy Finance or BNEF. The Carbon Knowledge Hub is a socialization program to increase understanding of the industrial sectors in order to accelerate decarbonization programs, one of which is the carbon trading program which is expected to be more transparent and accessible to all international business actors and communities.
Arsjad Rasjid, Chairman of the Indonesian Chamber of Commerce and Industry (Kadin), explained that with the Carbon Knowledge Hub platform, it is hoped that all company leaders can broaden their horizons and knowledge regarding the implementation of the carbon market, and increase wider participation by being involved in it mandatory or voluntary.
There are more government organizations and businesses participating since the carbon market provides economic prospects for the business sector. A number of countries such as the European Union, Switzerland, New Zealand, Kazakhstan, South Korea, Australia, Canada, China, and Mexico have practised this carbon trading. Its economic potential in Indonesia is predicted to reach Rp. 8,000 trillion from various sectors that contribute to large domestic emissions, such as forestry and land, agriculture, energy, transportation, waste, and industry.
How the carbon market works
The design of the Carbon Knowledge Hub builds on information and perspectives from various experts in the carbon market. The carbon market essentially trades certificates in the form of rights or permits to release one metric ton of greenhouse-gas emissions with offsets such as credits representing one metric tonne that is reduced or avoided. This will lead to lower cost emission reductions with greater impact. The compensation will later be used for compliance programs in companies, governments, individuals, and sustainability targets. Credit prices may vary depending on additional factors (additionality). The Indonesian government itself has regulated this in Presidential Regulation no. 98 of 2021 concerning the Economic Value of Carbon. Some information about the Carbon Knowledge Hub is listed on the official website.
Although the carbon market system was initially recognized as a voluntary program, this policy was necessary to compensate for greenhouse gas emissions. The government and relevant regulators are responsible for managing this program and have the right to determine which companies are obliged to comply and get a mandate to participate in this carbon market by submitting offsets and fulfilling obligations. Failure to comply with these rules will result in financial sanctions. Offsets from industrial activities are included in the core carbon market mechanism regulated in Article 6 of the Paris Climate Agreement. There are three main groups of organizations involved in mandatory or compliant carbon programs, namely policymakers, compliance entities, and non-compliance entities.
The price of permits for carbon market commodities is determined by the level of supply and demand for global commodities (global supply and demand). Another factor can be influenced by how players view economic trends and behaviour in the future. Behind these restrictions, there are economic opportunities for companies that are mandated by the government’s policy to limit emissions, known as cap-and-trade. This policy aims to provide incentives to companies that can reduce emissions below the carbon price.
Availability of supplies depends on how much the government allocates and the distribution method chosen, such as through free allocations from the government or through other means such as auctions. Regarding the level of demand, the government will reduce the emission limit in general so that companies can reduce the greenhouse effect more. Climate commitment by the government and regulators will determine how big and fast the emission reduction scheme with this carbon market program is.
The voluntary carbon market will operate outside the compliance scheme under the supervision of non-governmental organizations and guarantors such as the Verified Carbon Standard and the Climate Action Reserve. Demand for the voluntary carbon market comes from companies, organizations, governments, and individuals who have their own climate targets that are set voluntarily, such as limiting the emission of greenhouse gases by a certain volume. This can be done when the company is trying to disable and compensate for their emissions.
However, under certain conditions, compliance market participants in the carbon market are allowed to apply for compensation that can replace permits. Governments have established such offset schemes within their jurisdiction under special circumstances, such as in cases where the participants linked to the compliance or tax carbon market reside in the same country or region.
Carbon Knowledge Hub as a solution
Transparency or clarity of legislation, including sanctions and penalties, and equity are still issues that must be the primary concern and in accordance with the Paris Agreement in the implementation of this carbon trading. The disparity between developed and developing countries will make it more complicated to mitigate climate change. To avoid future debates over inequalities in carbon market prices, information on the amount of carbon produced in various industrialized and developing countries must be validated.
The Carbon Knowledge Hub’s establishment may provide a way to effectively navigate the carbon market and engage in social interaction. Indonesia gains a lot from hosting the G20 presidency since it offers a great chance to draw in more investment projects, one of which involves carbon market credits. The B20 Forum is the result of Indonesia’s long efforts to reduce carbon emissions in the midst of global economic turmoil. The relatively stable 5.72 per cent rate of Indonesia’s economic growth makes the country appealing to investors who want to realize their investment goal of Rp. 1,200 trillion as soon as possible.
