JAKARTA (Reuters): Indonesia's President-elect Prabowo Subianto plans to launch a green economy fund by selling carbon emission credits from projects such as rainforest preservation, aiming to raise US$65 billion by 2028, an adviser told Reuters.
A new regulator for carbon emission rules will be established to oversee efforts to reach Indonesia's emissions targets under the Paris agreement, said Ferry Latuhihin, one of Prabowo's advisers on climate policies.
The regulator will then form a "special mission vehicle" that will manage a green fund and operate carbon-offsetting projects, he said in an interview. The projects would include forest preservation, reforestation, and peatland and mangrove replanting, to generate carbon credits that can be sold internationally, Latuhihin said.
The target is to grow the vehicle to reach 1,000 trillion rupiah ($65 billion) by 2028, he said.
"We need to utilise our comparative advantage, which is the nature," Latuhihin said.
The scale of the proposed fund, which has not previously been reported, has the potential to help one of the world’s top 10 emitters and home to the world's third-largest tropical rainforest meet its goal of net carbon neutrality by 2060.
Still, it faces big challenges including competition in global carbon markets and ensuring projects are seen as credible.
Christina Ng, managing director of the Energy Shift Institute, a think tank focused on Asia's energy transition, said Indonesia's vast natural ecosystem offered scope for major carbon offset projects, but the targets were highly ambitious from financial and operational perspectives.
Prabowo, who will be inaugurated on Oct. 20, has pledged to boost economic growth to 8% during his five-year term, from 5% now, including through investment in green projects.
Latuhihin said the offset projects would create massive job opportunities and could help reach the growth target.
The incoming government will provide seed capital, which is still being determined, but it expected the fund would grow by selling carbon credits locally and overseas and pay dividends to the government once it became profitable, he said.
Pooling funds in a such an entity would allow Indonesia to run large-scale green projects without using the government's budget, Latuhihin said.
He said international standards on verification will be followed, and technology will be deployed to confirm how much carbon dioxide (CO2) each project removes from the atmosphere.
FUND TARGET CHALLENGING
Ng said nature-based carbon credits typically trade between $5 to $50 per metric ton of CO2 equivalent, but the price averaged below $10 per ton last year.
Even at $50 per ton, raising $10 billion annually - still short of what is needed to reach the planned fund's target over the next four years - would require selling 200 million tons of carbon credits. That is just shy of a total 239 million ton carbon credit issuance the entire global voluntary market recorded at its peak in 2021, Ng said, underscoring the challenge of meeting the fund's target.
At $10 per ton, the same volumes would only raise $2 billion annually, making the $65 billion target even further out of reach.
"Given the competitive landscape of global carbon markets, with countries like Brazil and others in Southeast Asia also offering nature-based credits, the entity will need to demonstrate that their credits meet the highest standards," she said, noting that Indonesia's track record has been marred by governance issues.
Indonesia's rate of deforestation has declined in recent years, though it frequently reports forest fires, often started by farmers to clear land for plantations.
The incoming government will hold road shows to promote the projects overseas, hoping to work with major international banks on carbon credit sales in markets with higher carbon prices, Latuhihin said.
($1 = 15,412.0000 rupiah) (Reporting by Stefanno Sulaiman and Gayatri Suroyo; Editing by John Mair and Tomasz Janowski) - Reuters
