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What is Carbon Trading? How Is It Applied in Indonesia?

bentuk dari ilustrasi carbon trading

Carbon emissions have increased over the last few years due to the many combustion exhausts that produce carbon dioxide into the air. Besides being found in combustion, it can also be found in human breath in the form of carbon dioxide. However, the most common carbon emissions come from coal combustion and vehicle exhaust gases. A unique trading activity emerged to overcome this, known as carbon trading.

What is carbon trading, and what is the mechanism? Check out the full explanation below!

What is Carbon Trading?

Carbon trading is one type of trading to overcome the amount of carbon emission production in several companies. Companies are required to purchase carbon credits as their respective production limits. Typically, one carbon credit requires a company to reduce one tonne of carbon emissions.

If the amount of carbon production in the company is less than the number of credits, the company has the right to sell its carbon credits. However, if the company is proven to be producing more carbon, it will have to pay a fine or buy new carbon credits. This is considered to be one solution to increasing carbon production on earth.

The global implementation history of carbon trading

The emergence of this movement was not instant. The campaign started in 1972 when the United Nations held a Conference on the Human Environment, in Stockholm, Sweden. At the conference, representatives from various countries met to discuss the environmental situation internationally.

This was followed by the Earth Conference held by the United Nations in Rio de Janeiro in 1992. At this conference, many representatives formed the United Nations Framework Convention on Climate Change (UNFCCC), which helps balance the production of greenhouse gases at a safe level.

The UNFCCC was then applied to the Kyoto Protocol, ratified in 1997, and has been effective since 2005. From 2008 to 2012, 38 industrialized countries succeeded in reducing greenhouse gas emissions by 5% compared to 1990. The next period was carried out from 2013 to 2020, with various bound countries managing to reduce carbon emissions by 15%.

Following the Kyoto Protocol, 195 countries agreed to make the Paris Agreement in 2015. This agreement purposely reduces carbon gas emissions while stabilizing the global temperature to no more than 2 degrees Celsius. The Paris Agreement is voluntary, and several contributing countries are required to submit Nationally Determined Contributions (NDCs), a plan to reduce emissions every five years.

How does carbon trading works?

After knowing what carbon trading is and its history globally, now is the time for you to understand how it works. There are two types of trades that countries can voluntarily participate in: the Emissions Trading Scheme and the Carbon Credits Trading Scheme.

In the Emissions Trading Scheme, the participating companies or countries must determine the emission removal plan and purchase the appropriate quota. Then, at the end of the period, companies or countries must also report on the carbon they produce. If they exceed the quota they have purchased, they must buy an additional quota from another country whose quota is remaining.

This is different from the Carbon Credit Trading Scheme, which does not require countries or companies to estimate at the beginning of the period. In this scheme, companies that succeed in reducing carbon production are entitled to sell their carbon credits and become participants with a carbon-neutral or zero-emission certificate.

Carbon trading activities in Indonesia

The procedure of carbon trading in Indonesia itself is massive, around IDR 4.3 trillion. This value comes from various activities, such as planting deforested forests, the use of new and renewable energy (EBT), household appliances, and waste disposal.

This achievement is also supported by the Indonesian Financial Services Authority (Otoritas Jasa Keuangan: OJK), which tries to hold a carbon trading exchange on the domestic financial market. The carbon exchange is a system that regulates the production of reserves, trade, and ownership status of carbon units.

The achievement is also supported by the Financial Services Authority (OJK) while holding a carbon trading exchange on the domestic financial market. The carbon exchange is a system that regulates the production of reserves, trade, and ownership status of carbon units.

That is a complete explanation of carbon trading, its history, how it works, and its implementation in Indonesia. Seeing the earth’s condition, we should all be aware of the importance of this issue. To start supporting carbon trading, find out all about the AHA token by clicking here. Also, make sure you don’t miss any information about go green activities and AHA tokens by following Instagram and Telegram AHA tokens.

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