Indonesia’s intensity-based emissions trading system was launched in early 2023 and currently covers the power generation sector. The ETS covers facilities with a production capacity of more than 100 MW, though smaller coal and fossil fuel plants may also be included at a later point. It initially covers 99 coal-fired power plants that account for 81.4% of the country’s national power generation capacity. The government establishes intensity targets, which determine the number of allowances each facility receives for every MWh of electricity generated.

The Indonesian ETS is set to be implemented in three phases: the first phase (2023-2024) covering only coal-fired power plants; and the second (2025-2027) and third (2028-2030) phases, where the government plans to expand the coverage of the ETS to oil and gas-fired power plants and other coal-fired power plants. The ETS will eventually work as a hybrid “cap-tax-and-trade” system alongside a carbon tax that was announced in 2021. Facilities that fail to meet their obligations under the system will be subject to the tax, the rate of which will eventually be linked to the price of the domestic carbon market. Initially to be introduced in April 2022, the carbon tax has now been postponed likely until 2025.

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