Mutual Recognition Arrangement on the Joint Crediting Mechanism and GHG Emission Reduction Certification between Japan and Indonesia
Authors
Background
After extensive negotiations, on 28 October 2024, Indonesia and Japan has finally signed a Mutual Recognition Arrangement (“MRA”) for bilateral carbon trading. This agreement aims to bolster both countries' climate change mitigation efforts while attracting investors to their respective carbon markets. The MRA establishes that Japan’s Joint Crediting Mechanism (“JCM”) is deemed an adequate and equivalent system to Indonesia’s Greenhouse Gas Emission Reduction Certification (“SPEI”). Consequently, Indonesian carbon credits will now be recognized as equivalent to Japanese carbon credits under this arrangement.
Objective and Purpose
The MRA is designed to formally establish the mutual agreement between both parties to recognize the JCM and SPEI as a framework for cooperation, as outlined in the Minister of Environment and Forestry of the Republic of Indonesia (“Indonesian MOEF”) Regulation No. 21 of 2022 regarding the Procedure for Implementation of Carbon Pricing. The MRA aims to streamline the development of carbon projects and facilitate carbon credit trading between the two nations.
With these benefits, the MRA is expected to attract increased interest from international investors in Indonesia’s carbon market. Additionally, international investors might explore opportunities to invest through Japan or collaborate with Japanese sponsors to leverage the advantages of this mutual recognition framework.
Consistent with Article 6 of the Paris Agreement
The collaboration between Indonesia and Japan to harmonize the two countries’ carbon credit systems through the MRA can serve as an example for the international community in establishing bilateral carbon trading based on the Paris Agreement. This MRA shall also provide the foundation for bilateral carbon trading between Indonesia and Japan.
In the MRA, both parties agree, based on the mutual recognition of Greenhouse Gas (“GHG”) mitigation crediting systems between the JCM and SPEI, that these systems will function as mutual recognition cooperation consistent with Article 6 of the Paris Agreement. This arrangement supports the implementation of each country’s Nationally Determined Contribution (“NDCs”), with the primary goal of achieving their respective targets while addressing wider international mitigation objectives. Furthermore, under this cooperation, Japan’s Ministry of Environment (“Japan’s MOE”) acknowledges SPEI as Indonesia’s GHG mitigation crediting system and recognizes its results for projects carried out in Indonesia within this framework.
Implementation of the MRA
The implementation of the MRA shall result in:
- Fair Sharing of Carbon Credits: a fair allocation of carbon credits from JCM Projects using SPEI, considering the contribution of each government and project participant for each project.
- Authorization and Adjustment Implementation: the establishment of authorization and corresponding adjustments for the registration of carbon credits resulting from JCM Projects using SPEI, as part of the NDCs.
- Development of Paris Agreement-Compliant Reports: both Indonesia and Japan shall develop reports consistent with the relevant guidance of the Paris Agreement.
- JCM Project Information Recording: the JCM Project Information shall be recorded in the National Registry System for Climate Change of Indonesia (Sistem Registri Nasional Pengendalian Perubahan Iklim – “SRN PPI”). The project information will include a year of emission reduction or removal for credits, projects in process and planned projects under the JCM.
Work Program and Bilateral Cooperation
Both parties engage in close policy consultations to discuss various projects under the JCM utilizing SPEI, involving relevant sectoral ministries and/or institutions as needed. These consultations prioritize information sharing on registered projects and initially focus on the Forestry and Other Land-Use (“FOLU”) sector and the waste sector. Cooperation is sustained through the JCM Joint Committee and dialogues under the Memorandum of Cooperation between Japan’s MOE and the Indonesian MOEF to implement this MRA, with relevant ministries and/or institutions invited where necessary.
Duration and Termination
The MRA is set to remain in effect until 31 December 2030 commencing from the date of the last signature on 28 October 2024. Its duration may be extended through mutual written agreement between the authorized representatives of Indonesia and Japan.
However, should either Indonesia or Japan wishes to terminate the MRA at any time, it may do so by providing written notification to the other party through the diplomatic channel at least six months prior to the intended termination. Notwithstanding termination or expiration, it is important to note that such actions shall not affect the validity or completion of any ongoing activities, programs, or projects under the MRA.