Indonesia and Japan have officially launched a Mutual Recognition Arrangement (MRA) for carbon trading, effective from October 28, 2024. The announcement was made at the UN Climate Change Conference (COP29) in Azerbaijan on November 12. The agreement represents a significant step in both countries’ efforts to tackle climate change and engage in carbon markets.
Details of the MRA Agreement
The MRA allows Indonesia and Japan to mutually recognize each other’s carbon credits, facilitating carbon trading between the two countries. The agreement is based on the principle of equity between Indonesia’s carbon credit system and Japan’s system. Both countries will recognize carbon credits certified under their respective methodologies, including emissions reduction calculations and monitoring systems.
In Indonesia, the certification process for carbon credits is known as Indonesian Greenhouse Gas Emission Reduction Certification. With the MRA, Japan will officially recognize Indonesia’s carbon credit system. This move is expected to enhance Indonesia’s position in global carbon markets.
Goals and Impact on Indonesia’s Carbon Market
Indonesia’s Presidential Regulation Number 98 of 2021 has set up carbon pricing to meet the country’s climate targets. The MRA with Japan will help Indonesia’s carbon trading framework align with international standards and expand its carbon credit market.
As part of the deal, Indonesia will issue carbon credits for Japan to purchase. The MRA will also allow Japan to fund mitigation projects in Indonesia, provided they meet local environmental regulations. Both countries will agree on the distribution of generated carbon credits, with Indonesia and Japan providing direct oversight.
Also read: COP29 Approves Article 6.4, Paving the Way for Global Carbon Trading
Enhancing International Cooperation
The MRA also builds on Indonesia’s longstanding collaboration with Japan through the Joint Crediting Mechanism (JCM), which began in 2013. Under JCM, Indonesia did not fully record carbon credits in the country’s National Registry System. However, the MRA now requires all JCM projects in Indonesia to register in the National Registry System and comply with Indonesian certification standards.
Future Prospects
Indonesia’s special envoy to COP29, Hashim S. Djojohadikusumo, mentioned that Indonesia is targeting to issue over 200 million tons of CO2 credits annually in the next three years. The country aims to set a price of $10 per credit.
The agreement with Japan may pave the way for further bilateral carbon trading agreements in Asia and beyond. Indonesia also hopes that this deal will serve as a template for other countries to establish similar carbon trading frameworks.
The agreement between Indonesia and Japan is the first Mutual Recognition Arrangement under the Paris Agreement’s Article 6.2, a key element of global carbon trading. Several other countries, including Italy and South Korea, are reportedly working on similar agreements.
Strengthening Global Carbon Markets
The MRA agreement comes after the successful rollout of the global carbon market under Article 6.4, which sets standards and methodologies for carbon credit trading. This further strengthens the international trading system and increases the transparency and integrity of carbon markets.