Indonesia’s Green Economy Law Faces Gaps Despite Carbon Market Progress
Indonesia’s push to align economic growth with environmental sustainability has gained legal momentum, but major implementation gaps remain. A 2026 peer-reviewed study by Loso Judijanto of IPOSS Jakarta, published in the Multitech Journal of Science and Technology (MJST), examines how Indonesia’s legal framework is evolving to support a green economy. The research finds that while carbon pricing, carbon trading, and sustainable finance rules are now in place, fragmented regulations and weak enforcement continue to slow progress toward low-carbon growth.
Judijanto’s analysis arrives at a critical time. Indonesia is the world’s ninth-largest carbon emitter and has committed to reducing emissions by 31.89 percent unconditionally, and up to 43.20 percent with international support, under its updated Nationally Determined Contribution (NDC). The country has also pledged to reach net-zero emissions by 2060 or earlier. Yet projections show emissions could still rise significantly by 2030 without stronger legal coordination.
Why the Green Economy Debate Matters Now
The global climate crisis has intensified. The Paris Agreement requires countries to limit global warming to 1.5°C above pre-industrial levels. At the same time, developing economies like Indonesia must maintain economic growth to reduce poverty and support industrialization.
The key question is whether economic growth can be “decoupled” from rising emissions. Decoupling means that GDP can increase while carbon emissions stabilize or decline. According to Judijanto, Indonesia’s legal system is central to achieving this separation.
Indonesia’s Constitution already provides a foundation. Article 33(4) of the 1945 Constitution requires the national economy to operate under principles of sustainability and environmental awareness. This constitutional mandate forms the legal backbone of Indonesia’s green economy agenda.
How the Study Was Conducted
The article is based on a qualitative literature review. Judijanto examined peer-reviewed academic research, Indonesian laws, government regulations, and international climate policy reports published mainly between 2020 and 2025.
Sources included:
- National legislation such as Law No. 32/2009 on Environmental Protection and Management
- Law No. 6/2023 (Job Creation Law)
- Presidential Regulation No. 98/2021 on Carbon Economic Value
- Law No. 7/2021 on Tax Harmonization (carbon tax provision)
- Financial Services Authority (OJK) regulations on sustainable finance and carbon trading
The analysis used thematic review methods to identify legal trends, policy shifts, and enforcement challenges.
Key Findings: Legal Progress with Structural Weaknesses
1. Carbon Has Become an Economic Commodity
Presidential Regulation No. 98/2021 formally recognizes carbon as having economic value. This regulation provides the legal basis for:
- Carbon trading
- Carbon taxes
- Carbon offset mechanisms
- Emission reduction certificates
Carbon is no longer treated as a mere environmental byproduct. It is now legally defined as a tradable asset.
2. Launch of IDXCarbon Marks a Turning Point
Indonesia launched its national carbon exchange, IDXCarbon, in September 2023. The exchange operates under OJK Regulation No. 14/2023 and classifies carbon units as securities. This places carbon trading under capital market supervision.
The legal classification strengthens:
- Transparency requirements
- Disclosure obligations
- Investor protection mechanisms
However, market liquidity remains limited, and infrastructure for emissions measurement is still uneven.
3. Carbon Tax Implementation Is Delayed
Law No. 7/2021 introduced a carbon tax under a “cap-and-tax” model. The tax applies to emissions exceeding a government-set cap.
But implementation has been postponed multiple times since its planned start in April 2022.
The main obstacle is the absence of a fully operational Measurement, Reporting, and Verification (MRV) system. Without standardized emissions data, taxation risks legal disputes and industry resistance.
4. Risk-Based Licensing Creates Legal Ambiguity
The Job Creation Law restructured environmental licensing into a risk-based system. Environmental permits are now integrated into broader business licensing.
Supporters argue this simplifies investment procedures. Critics warn it may weaken environmental oversight.
Judijanto notes that ambiguity in revocation mechanisms could undermine both enforcement and investor certainty.
5. Blue and Circular Economy Policies Lack Coordination
Indonesia’s maritime potential supports a “blue economy” model, including:
- Measured fishing quotas
- Blue carbon initiatives (mangroves and coastal ecosystems)
However, unclear property rights over coastal carbon credits create legal uncertainty.
Similarly, circular economy regulations remain fragmented. Extended Producer Responsibility (EPR) exists but is not fully integrated with corporate law or fiscal incentives.
Implementation Barriers Identified
Judijanto highlights four structural challenges:
- Regulatory fragmentation across ministries and agencies
- Weak environmental law enforcement at regional levels
- Limited MRV infrastructure for carbon accounting
- Inconsistent ESG standards, increasing greenwashing risks
He also warns of rising climate litigation. Courts in Southeast Asia are increasingly open to climate science as legal evidence. Companies that fail to manage emissions face potential liability under strict liability principles in environmental law.
Real-World Implications
The study argues that strengthening environmental law is not anti-growth. Instead, it can:
- Attract global ESG-driven investment
- Reduce exposure to international trade barriers such as the EU Carbon Border Adjustment Mechanism (CBAM)
- Improve corporate governance
- Protect Indonesia’s natural capital
Judijanto emphasizes that legal certainty is a prerequisite for quality economic growth.
As he writes, Indonesia’s transition to a green economy is no longer optional but “a constitutional mandate and international obligation” rooted in Article 33(4) and reinforced by Paris Agreement ratification.
Policy Recommendations
The study proposes four major reforms:
- Adopt an umbrella Climate Change Law
A comprehensive statute would bind emission targets at the legislative level and establish a national carbon budget. - Strengthen administrative sanctions
Expand strict liability principles and prioritize restorative penalties over lengthy criminal proceedings. - Revise the Limited Liability Company Law
Directors should have fiduciary duties that explicitly include climate risk management. - Harmonize central and regional regulations
Reduce conflicts between national strategic projects and regional spatial planning.
Author Profile
Judijanto specializes in the legal transformation of economic systems toward sustainability, with a focus on carbon markets and regulatory reform in Indonesia.
Source
Judijanto, Loso. “Towards Quality Economic Growth: An Overview of the Green Economy Legal Framework in Indonesia.” Multitech Journal of Science and Technology (MJST), Vol. 3, No. 2, 2026, pp. 205–234. DOI: Available in journal publication
DOI : https://doi.org/10.59890/mjst.v3i2.171
URL Resmi : https://slamultitechpublisher.my.id/index.php/mjst/index
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