Integration of Carbon Trading Requirement in Forestry Sector
Authors
To bolster Indonesian carbon market, the Minister of Environment and Forestry (“MOEF") issued MOEF Reg SK.716/MENLHK/SETJEN/KUM.1/6/2023 on the Integration of Carbon Value Mechanisms in Approvals, Partnerships, and Business Permits in the Environmental and Forestry Sector (“MOEF 716/2023”). MOEF 716/2023 streamlines the integration of carbon value mechanisms into approvals, partnerships, and business permits within the environmental and forestry sector.
MOEF 716/2023 sheds valuable light on the current state of the Indonesian carbon market, providing clarity on the obligations and restrictions that govern carbon trading activities. It primarily reiterates existing regulations surrounding the Indonesian carbon market, emphasizing the responsibilities of the holder of Approval, Partnerships, and Business Licenses in the Environmental and Forestry Sector (“Holder”).
To fully grasp the implications of MOEF 716/2023, it is crucial to view its provisions in conjunction with other relevant regulations, such as Presidential Regulation No. 98 of 2021, MOEF Regulation No. 21 of 2022, and Ministry of Environment and Forestry Regulation No. 7 of 2023. These regulations collectively shape the framework governing the Indonesian carbon market.
Key Takeaways from MOEF 716/2023
- Obligation to Integrate Economic Carbon Value for the Holder of Approval, Cooperation, and Business License for the Environmental and Forestry Sector
MOEF 716/2023 serves as a comprehensive representation of the prevailing carbon market regulations. As illustrated above, MOEF 716/2023 pertains to individuals or entities holding Approval, Cooperation, and Business permits on the Environment and Forestry Sector. They are obliged to provide a detailed Climate Change Mitigation Action Plan (Dokumen Rencana Aksi Mitigasi - “DRAM”), which comprises a wide array of crucial components such as mitigation strategies, methodologies, calculations for greenhouse gas reduction, and related specifics. Upon undergoing a validation process, the DRAM must be submitted to the National Registry System of Climate Change Control (Sistem Registri Nasional Pengendalian Perubahan Iklim – “SRN PPI”). The baton then passes to the Directorate General of Climate Change Management, who conducts measurements, reporting, and verification procedures.
Following this thorough assessment, a Greenhouse Gas Emissions Reduction Certificate (Sertifikat Penurunan Emisi Gas Rumah Kaca – “SPE-GRK”) may be granted, serving as a valuable asset for carbon transaction purposes.
Lastly, in a move aimed at fostering stability and accountability within the Indonesian carbon market, MOEF 716/2023 imposes a limitation on the duration of long-term carbon sales contracts, restricting them to a maximum of five years. This restriction serves to promote transparency and predictability in carbon trading activities.
- Restrictions on License Transfers During Carbon Trading
MOEF Regulation No. 8 of 2021 on Forest Management and Preparation of Forest Management Plans, as well as Forest Utilization in Protected Forests and Production Forests (“MOEF 8/2021”) allows for the transfer of PBPH (Perizinan Berusaha Pemanfaatan Hutan - Forest Utilization Business Permit) under specific circumstances, subject to MOEF approval. This transfer can occur through various means, including (i) sale and purchase, (ii) merger, (iii) consolidation, or (iv) separation.
While MOEF 716/2023 grants flexibility in PBPH transfer, MOEF 716/2023 imposes certain restrictions on the transfer of business permits within the context of carbon trading. Specifically, the use of a notarial deed alone is insufficient to effectuate the transfer of a PBPH in carbon trading scenarios. MOEF approval remains a prerequisite to ensure compliance and oversight within the sector.
This distinction highlights the importance of adhering to the regulatory framework and seeking the necessary approvals when engaging in PBPH transfers related to carbon trading. By aligning with the broader goals of environmental and carbon market governance, these measures help maintain transparency and accountability in the Indonesian carbon market.
Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.
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