COP29: Indonesia and Japan sign mutual recognition agreement for carbon trading

Indonesia and Japan have agreed to a Mutual Recognition Arrangement (MRA) for bilateral carbon trading that took effect from Oct. 28 and was announced at the UN Climate Change Conference in Azerbaijan, the environment ministry said in a statement late Nov. 12.

The MRA is the world's first model of bilateral collaboration between countries under the Paris Agreement framework, specifically Article 6.2, Indonesia's Ministry of Environment and Forestry said.

The agreement between Jakarta and Tokyo followed discussions beginning in August 2024 between officials responsible for the carbon credit system in each country and was signed sequentially, first by Indonesia's Minister of Environment and Forestry on Oct. 18, and then by Japan's Minister of Environment on Oct. 28.

Both the environment ministries and the Japanese embassy plan to work with Japanese investment companies in Indonesia and stakeholders in both countries for the MRA implementation, as well as developing emission reduction projects in the Southeast Asian country, Hashim S. Djojohadikusumo, Indonesia's special envoy to COP29, said in the statement.

The MRA is based on the principle of equity between Indonesia's carbon credit system and that of the partner country. The carbon credit systems recognized by both countries include methodologies for mitigation actions, emission reduction calculations, and monitoring, reporting, and verification (MRV) systems, as well as carbon credit certification, it said.

In Indonesia, this certification process is known as Indonesian Greenhouse Gas Emission Reduction Certification -- Sertifikasi Pengurangan Emisi GRK Indonesia -- and the MRA will result in Indonesia's carbon credit system being recognized by Japan, the ministry said.

Indonesia's Presidential Regulation Number 98 of 2021 established the implementation of carbon pricing, also called the "carbon economic value", as part of efforts to meet national climate targets (NDCs), including through carbon trading under the MRA framework.

The Paris Agreement mandates that carbon trading cooperation adhere to the principles of transparency, accuracy, completeness, comparability, and consistency, ensuring high integrity in carbon credit transactions, it said.

The implementation of the MRA with Japan will significantly impact Indonesia's position in international carbon trading, the ministry said.

Carbon credit certificates from Indonesia will be considered equivalent to Japan's and mitigation projects undertaken in Indonesia and funded by Japan must comply with national environmental regulations and follow Indonesian certification standards, according to the statement.

The distribution of generated carbon credits will be determined based on a mutual agreement, with direct oversight by the Indonesian government and Japan.

Since 2013, Indonesia has collaborated with Japan through the Joint Crediting Mechanism (JCM) for mitigation projects in Indonesia. Prior to the existence of the MRA, carbon credits from JCM projects in Indonesia were not fully recorded in Indonesia's National Registry System. With the MRA implementation, all JCM projects in Indonesia must now be registered in the National Registry System and use the Indonesian Greenhouse Gas Emission Reduction Certification system.

Indonesia's Ministry of Environment and JCM Indonesia Secretariat plan to conduct an inventory of existing JCM projects in Indonesia in November and December 2024. This inventory will cover carbon credits that have been generated, projects in the planning stage, and Japan's investment plans in mitigation projects in Indonesia.