Carbon trading has become one of the key instruments in the global fight against climate change. This system allows countries and companies to trade carbon emission rights, providing economic incentives for those who successfully reduce greenhouse gas emissions. However, in developing countries like Indonesia, where much of the world’s carbon potential is stored—especially in tropical forests and peatlands—significant challenges still hinder the optimization of this system. Insufficient infrastructure, a lack of human resource (HR) knowledge about technology, and a misunderstanding of the benefits of carbon trading among stakeholders remain major obstacles. Additionally, fears over the system’s transparency often lead to resistance to adopting technologies to support carbon trading.
Challenges to Carbon Trading Infrastructure in Indonesia
Despite Indonesia’s significant potential for natural carbon storage through its tropical forests and peatlands, much remains to ensure that carbon trading can be conducted efficiently and accountably. One crucial step has been the establishment of the Indonesia Carbon Exchange (IDX Carbon Exchange) on September 26, 2023, by the Financial Services Authority (OJK). This exchange is expected to become the primary platform connecting stakeholders and encouraging participation in the global effort to reduce carbon emissions.
The newly elected administration of President Prabowo Subianto and Vice President Gibran Rakabuming also plans to establish a blockchain-based carbon agency to enhance transparency and data accuracy in carbon trading, while also reducing the risk of manipulation. Although this plan appears ideal for improving the credibility of the carbon trading system and aligning with global standards, it faces several challenges.
These challenges include:
- Limited Digital Infrastructure: Many regions in Indonesia, especially those that are key to carbon trading such as forests and peatlands, still face limitations in digital infrastructure. Limited internet access, a lack of emission monitoring technology, and the absence of integrated digital platforms make carbon trading difficult to conduct efficiently and transparently. The World Bank’s 2021 report, “Indonesia’s Digital Infrastructure: Connectivity and the COVID-19 Pandemic,” highlights significant digital gaps between urban and rural areas, where broadband internet access remains highly limited, including in rural areas with great potential for carbon trading. Additionally, the 2022 CIFOR study, “Digital Technologies for Forest and Landscape Restoration Monitoring in Indonesia,” underscores challenges in monitoring forests and peatland restoration due to the lack of digital infrastructure and adequate monitoring technology.
- Lack of Human Resource Knowledge: In many regions, business actors, local governments, and companies still lack sufficient knowledge about the mechanisms of carbon trading and its benefits. This leads to low participation in the carbon market and limited capacity to manage emissions data or utilize technologies such as blockchain and IoT. The 2022 Katadata Insight Center survey, “Indonesia Carbon Trading Handbook,” identified a lack of understanding about carbon trading mechanisms as one of the main barriers to its implementation in Indonesia. The survey also showed that many companies lack the capacity to manage emissions data and leverage related technologies.
- Fear of Transparency: Many stakeholders, both in the private sector and government, are concerned about the transparency offered by digital technology in carbon trading. These concerns arise from fears that transparency will reveal non-compliance or even violations in their emissions, which could negatively impact their reputation and regulatory compliance. As a result, many are reluctant to adopt this technology. The 2022 CDP report, “Corporate Environmental Transparency in Indonesia,” highlights that while corporate transparency on environmental issues has improved, significant gaps remain, particularly in high-risk sectors such as energy and manufacturing. The report suggests that some companies may be hesitant to disclose their emissions data publicly due to fears of negative reputational and regulatory impacts.
Technology as a Solution for Carbon Trading Infrastructure
Digital technology can be key to overcoming these challenges, particularly in creating a more efficient, accountable, and inclusive carbon trading infrastructure. Some solutions that could be applied in Indonesia include:
- Blockchain for Transparency and Trust: Blockchain technology can be used to record every carbon transaction with full transparency, allowing the public, government, and other stakeholders to clearly view the data. Blockchain ensures that every traded carbon credit is accurately and legitimately verified. In Indonesia, adopting this technology could help overcome resistance to transparency while building trust among market participants.
- IoT for Real-Time Emission Monitoring: The use of IoT sensors to monitor greenhouse gas emissions in real-time in forest areas or large industries can provide more accurate and measurable data. These sensors can be directly connected to government digital platforms to verify emissions more quickly and effectively, ensuring that the Monitoring, Reporting, and Verification (MRV) process is properly conducted.
- Human Resource Capacity Development: In addition to technology, HR capacity development is crucial. The government and private sector need to invest in training programs focused on emissions data management, digital technology usage, and the overall implementation of carbon trading. This is essential to enhance understanding and active participation from various parties.
Pressure from Donors, Investors, and the Public to Promote Transparency
One important strategy to encourage the adoption of technology in carbon trading in Indonesia is through pressure from donors, investors, and the public. International donors and private investors, whether from domestic or foreign sources, can play a key role in promoting transparency and technology adoption. They can require the use of digital technology and the implementation of transparency standards as prerequisites for funding or investment. Thus, stakeholders who wish to access international funding or participate in green projects will be motivated to be more open and adopt a more accountable system.
Moreover, the media and non-governmental organizations (NGOs) also play a vital role in campaigning for transparency in carbon trading. Public campaigns supported by media reports and pressure from NGOs can raise awareness about carbon trading while creating momentum for the government and private sector to adopt technology. With strong public pressure, stakeholders in Indonesia will be more inclined to follow global transparency trends, ultimately enhancing the credibility of the carbon market in the eyes of the international community.
Digital Carbon Trading Platform: Increasing Participation and Trust
To address resistance to transparency, the government can build a digital-based carbon trading platform. This platform can facilitate wider participation, from large corporations to small and medium enterprises (SMEs), while also reducing transaction costs and minimizing administrative barriers. Additionally, the platform enables faster and more secure trading processes, providing easier access for market participants across Indonesia.
Indonesia’s Case: Overcoming Challenges and Realizing Potential
As one of the world’s largest tropical forest nations, Indonesia has significant potential in the global carbon market. However, this potential has not yet been fully realized due to various obstacles such as insufficient digital infrastructure, unprepared human resources, and resistance to transparency. Nevertheless, with pressure from donors and investors, along with intense campaigns from the media and NGOs, the adoption of technology in carbon trading can be accelerated. This will help Indonesia optimize its carbon potential more effectively.
Conclusion: Technology and Transparency as Keys to a Low-Carbon Future
In Indonesia, carbon trading faces various challenges, from unprepared infrastructure to resistance to transparency. However, digital technologies such as blockchain, IoT, and carbon trading platforms can be effective solutions to overcoming these barriers. Additionally, pressure from donors, investors, as well as public campaigns from the media and NGOs, will be crucial in driving the adoption of technology and transparency in the carbon trading system.
By leveraging technology and increasing transparency, Indonesia can not only strengthen its role in the global carbon market but also build a more sustainable low-carbon future. The government, private sector, and society must work together to realize this vision, utilizing international support and public awareness to ensure the future success of the carbon trading system.
