Japan and Indonesia Join Forces in Carbon Trading

Japan and Indonesia formalized a landmark bilateral agreement on carbon trading, paving the way for deeper cooperation in achieving climate targets under the Paris Agreement. The deal, structured through a Mutual Recognition Arrangement (MRA), enables carbon credits issued in Indonesia to be recognized and used in Japan, and vice versa. This move has major implications for environmental goals, green investment flows, and the future of international carbon markets.

Indonesia’s Push Toward Climate Leadership

Indonesia’s forestry sector is central to its climate policy. The government’s FOLU Net Sink 2030 strategy aims to make the country’s forests and land use sector a net carbon sink by the end of the decade. That means absorbing more greenhouse gases than it emits through reforestation, peatland restoration, mangrove rehabilitation, and tighter forest protection.

To support this goals, Indonesia launched its national carbon exchange, IDXCarbon, on September 26, 2023, enabling verified carbon credits to be traded domestically. On January 20, 2025, the platform officially expanded to allow international carbon trading, opening access to foreign investors. Indonesia—home to 125 million hectares of tropical forests and the world’s largest mangrove area—has positioned itself as a leading supplier of nature-based carbon credits.

"Indonesia not only protects forests but also monetizes the protection into a global asset," - Indroyono Soesilo, Chair of the Indonesian Forestry Entrepreneurs Association (APHI). (Antara News, Jan 2025)

The MRA: A Technical and Regulatory Milestone

The Mutual Recognition Arrangement (MRA) signed between Indonesia and Japan—announced at COP29 in Baku—is one of the world’s earliest and most comprehensive Article 6.2 agreements under the Paris Agreement. This bilateral framework allows for verified carbon credits to be transferred between the two countries while ensuring no double counting. When a Japanese entity purchases credits from Indonesia, both parties adjust their national emissions inventories accordingly. The MRA sets a global precedent for transparent, accountable cross-border carbon trading.

Under the MRA, projects must meet Indonesian certification standards and be validated under its national registry system. All credits traded are tagged with a corresponding adjustment, ensuring integrity and transparency.

The system prioritizes traceability, robust monitoring, and accountability. This sets a new standard for bilateral carbon trading partnerships and has attracted international attention

Economic Implications and Market Growth

Japan's demand for credible carbon offsets is expected to grow as it works toward carbon neutrality by 2050. Meanwhile, Indonesia is aiming to unlock new revenue streams by exporting high-quality credits from forestry and energy transition projects.

In its first year, IDX Carbon saw over 1 million tons of CO2e traded. As of early 2025, the platform has expanded to include credits from renewable energy projects such as mini-hydro and combined-cycle power plants.

The market price of Indonesian carbon credits has ranged from IDR 30,000–70,000 per ton (USD 2–4.50), significantly below prices in the EU or Singapore markets—making them attractive to foreign buyers.

"We invite the world, especially Japan, to invest in climate solutions based on Indonesia's tropical forests," Agus Justianto, advisor to FOLU Net Sink 2030. (Business Forum Osaka, Jan 2025).

Environmental Benefits and Real-World Projects

Beyond market transactions, the partnership supports on-the-ground climate action. Indonesia's mangroves can absorb up to five times more CO2 than terrestrial forests, offering an immense carbon sink.

MoUs signed during the Osaka Expo in early 2025 included projects for mangrove rehabilitation, peatland rewetting, and biodiversity conservation. These projects provide dual benefits: climate mitigation and rural economic development.

Indonesia estimates its nature-based carbon sink potential at 6.7 gigatons of CO2e—far beyond its current emissions reduction target of 915 million tons by 2030. This opens the door for large-scale carbon investments, especially from Japan.

What This Means for Carbon Tide and Regional Actors for Carbon Trading in Japan and Indonesia

As bilateral frameworks like the MRA gain traction, the bar for integrity, scale, and co-benefits is rising. This is a critical moment for developers, intermediaries, and investors across Southeast Asia.

For Carbon Tide and other market players, the Japan–Indonesia agreement is a sign to prepare:

• Align projects with national registries and Article 6 standards

• Focus on high-integrity methodologies and MRV systems

• Look for co-investment opportunities with Japanese partners

• Track developments in regional pricing, volume, and eligibility

  
  

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