Presidential Regulation 112/2022: Legal Analysis and Implementation Guide

## Key Provisions

- Carbon Economic Value: Economic value of carbon emissions reduction - Carbon Trading: Exchange of carbon units between parties - Carbon Tax: Levy on carbon emissions - Carbon Unit: Measurement of emission reductions (1 unit = 1 tCO2e)

Three complementary mechanisms: 1. Carbon trading (cap-and-trade and baseline-and-credit) 2. Carbon tax (levy on emissions) 3. Results-based payments (performance-based incentives)

**Ministry of Environment and Forestry** - Overall policy coordination - MRV system management - Registry operation - Offset project certification **Ministry of Finance** - Carbon tax administration - Fiscal incentives - Revenue management - International finance **Financial Services Authority (OJK)** - Market supervision - Trading platform oversight - Participant licensing - Market integrity **Indonesia Stock Exchange (IDX)** - Trading platform operation - Price discovery - Settlement and clearing - Market data dissemination

**Covered Sectors** - Energy (power generation, oil and gas) - Industry (cement, steel, petrochemicals) - Transportation (aviation, shipping) - Buildings (large commercial) - Waste (landfills, wastewater) **Threshold** - Mandatory: >25,000 tCO2e/year - Voluntary: <25,000 tCO2e/year **Compliance Mechanism** - Annual surrender of allowances equal to emissions - Banking allowed (unlimited) - Borrowing not allowed - Penalties for non-compliance

**Tax Base** - Emissions from fossil fuel combustion - Industrial process emissions - Fugitive emissions **Tax Rates** - Initial rate: IDR 30,000/tCO2e - Periodic adjustment based on inflation and policy goals - Differentiated rates by sector (planned) **Tax Credits** - Renewable energy investments - Energy efficiency improvements - Carbon capture and storage - Offset project development

**Eligible Activities** - Renewable energy projects - Energy efficiency improvements - Forestry and land use projects - Methane capture and utilization - Carbon capture and storage **Certification Requirements** - Additionality demonstration - Baseline establishment - Monitoring plan - Verification by accredited body - Permanence guarantee **Credit Issuance** - Application to Ministry of Environment - Technical review (60 days) - Verification report submission - Credit issuance to registry account

**Article 6 Implementation** - Bilateral agreements under Article 6.2 - Participation in Article 6.4 mechanism - Corresponding adjustments for international transfers - Avoiding double counting **International Linkage** - Mutual recognition of carbon units - Harmonization of MRV standards - Cross-border trading protocols - Joint implementation projects

## Implementation Regulations

- Regulation 21/2022: MRV Guidelines - Regulation 7/2023: Offset Project Standards - Regulation 14/2023: Registry Operations

- Regulation 75/2023: Carbon Tax Implementation - Regulation 89/2023: Tax Credit Procedures - Regulation 102/2023: Revenue Allocation

- Regulation 6/2023: Market Participant Licensing - Regulation 12/2023: Trading Rules - Regulation 18/2023: Market Surveillance

## Legal Challenges and Amendments

- Industry: Competitiveness impacts - Civil society: Ambition level - Regions: Revenue sharing - International: Linkage compatibility

- Tightening of caps - Expansion of covered sectors - Strengthening of penalties - Enhancement of transparency

## Comparison with International Best Practices

- Similarities: Cap-and-trade design, MRV requirements - Differences: Free allocation share, penalty levels

- Similarities: Offset protocols, price containment - Differences: Auction design, linkage approach

- Similarities: Phased sectoral expansion, baseline approach - Differences: Allowance allocation, enforcement