Authorization and Corresponding Adjustment: PERPRES 110/2025's International Carbon Market Integration
Authorization and Corresponding Adjustment: PERPRES 110/2025's International Carbon Market Integration
PERPRES 110/2025 Comparative Analysis Series - Article 3 of 5
This series analyzes the comprehensive transformation from PERPRES 98/2021 to PERPRES 110/2025:
- From Carbon Rights to Carbon Allocation - The Paradigm Shift
- Emissions Trading Infrastructure - From Batas Atas to Quota System
- International Carbon Markets - Otorisasi and Corresponding Adjustment
- Dual Certification Pathway - DRAM vs DPP Documentation
- Registry Evolution - From Single SRN PPI to Dual Registry System
Articles 1(27) and 1(28) of PERPRES 110/2025 introduce two interconnected concepts entirely absent from PERPRES 98/2021: "Otorisasi" (Authorization) and "Corresponding Adjustment." These mechanisms operationalize Indonesia's participation in international carbon markets under Article 6 of the Paris Agreement. Article 1(27) defines Otorisasi as "persetujuan yang diberikan Menteri kepada penanggung jawab NEK untuk menggunakan Unit Karbon dalam pemenuhan NDC negara lain, pemenuhan kewajiban mitigasi internasional, dan kepentingan lainnya" (approval given by the Minister to NEK responsible parties to use Carbon Units for fulfilling other countries' NDCs, fulfilling international mitigation obligations, and other interests). Article 1(28) links this to "Corresponding Adjustment adalah penyesuaian akuntansi Unit Karbon di NDC untuk menghindari terjadinya pencatatan ganda setelah pemindahan Unit Karbon ke luar negeri" (Corresponding Adjustment is accounting adjustment of Carbon Units in NDCs to avoid double counting after Carbon Unit transfer abroad) (see Matrix 1.1 below).
1.0 Authorization Framework Introduction
1.1 From Silence to Explicit Control
PERPRES 98/2021 contained no provisions regulating cross-border carbon unit transfers. While it defined Carbon Trading (Pasal 1(17)) and Carbon Units (Pasal 1(15)), it remained silent on whether these units could be sold internationally, under what conditions, and with whose approval. This regulatory gap left Indonesia unprepared for Article 6 Paris Agreement implementation, which requires host country authorization for internationally transferred mitigation outcomes (ITMOs).
The 2025 regulation fills this gap through ministerial authorization requirements. Article 1(27) vests authorization power exclusively with "Menteri" (the Minister responsible for environmental protection and management). This creates three authorization scenarios: (1) pemenuhan NDC negara lain (fulfillment of other countries' NDCs) - where foreign governments purchase Indonesian carbon units to meet their Paris Agreement commitments, (2) pemenuhan kewajiban mitigasi internasional (fulfillment of international mitigation obligations) - broader than NDCs, potentially covering CORSIA aviation offsets or corporate voluntary commitments, and (3) kepentingan lainnya (other interests) - a catch-all category providing regulatory flexibility.
Matrix 1.1: Authorization Mechanism
| Element | PERPRES 98/2021 | PERPRES 110/2025 - Pasal 1(27) | International Market Access |
|---|---|---|---|
| Authorization Concept | Absent | Otorisasi defined | Enables Article 6 compliance |
| Approval Authority | None | Menteri (Environment Minister) | Centralized control |
| Authorization Scope | N/A | NDC fulfillment + international obligations + other | Comprehensive coverage |
| Application to Foreign NDC | Not addressed | Explicitly permitted with authorization | Allows cross-border crediting |
| Application to CORSIA | Not addressed | Covered under "international obligations" | Aviation offset market access |
| Corporate Voluntary Use | Not addressed | Potentially under "other interests" | Enables corporate demand |
| Procedure | N/A | Not yet specified (awaiting implementing regulation) | Requires detailed rules |
1.2 Authorization Justifications and Criteria
The authorization requirement serves multiple policy objectives. First, it prevents unauthorized export of Indonesia's emission reduction achievements that should count toward national NDC targets. Without ministerial oversight, project developers could sell reductions internationally that Indonesia needs domestically, undermining NDC achievement. Second, authorization enables Indonesia to capture value from international carbon demand—the Minister can condition approval on benefit-sharing, technology transfer, or other terms. Third, it ensures transparency and accountability in international transactions, preventing carbon credit fraud or misrepresentation.
Authorization criteria remain unspecified in PERPRES 110/2025, requiring implementing regulations. Likely criteria include: (1) whether Indonesia has surplus reductions beyond NDC requirements, (2) whether the project type aligns with national development priorities, (3) whether corresponding adjustment accounting properly reflects the transfer, (4) whether benefit-sharing arrangements benefit Indonesia, and (5) whether environmental and social safeguards apply. These criteria will determine which carbon reduction projects can access high-value international markets versus being restricted to domestic use.
Matrix 1.2: Authorization Policy Objectives
| Policy Objective | PERPRES 98/2021 Approach | PERPRES 110/2025 Mechanism | Implementation Challenge |
|---|---|---|---|
| NDC Protection | Implicit (no transfers mentioned) | Explicit ministerial approval required | Balancing domestic need vs export revenue |
| Value Capture | Not addressed | Authorization conditions (to be specified) | Setting appropriate benefit-sharing levels |
| Double Counting Prevention | Not addressed | Linked to Corresponding Adjustment | Technical accounting complexity |
| Fraud Prevention | General MRV requirements | Authorization vetting process | Verification capacity building |
| Strategic Flexibility | None | "Other interests" category | Avoiding excessive discretion |
| Market Development | Domestic focus | Enables international participation | Balancing markets without cannibalizing |
| Revenue Generation | Not considered | Potential authorization fees/taxes | Avoiding excessive transaction costs |
2.0 Corresponding Adjustment Mechanism
2.1 Accounting Integrity for Cross-Border Transfers
Article 1(28)'s Corresponding Adjustment definition operationalizes Article 6.2 of the Paris Agreement. When Indonesia authorizes Carbon Unit transfer to another country for that country's NDC fulfillment, Indonesia must apply a corresponding adjustment to its own NDC accounting. Specifically, if Indonesia transfers 1 million tons CO₂e in carbon units to Country X, Indonesia must add 1 million tons to its national emissions accounting (or subtract from reductions) to prevent both countries from claiming the same emissions reduction.
This accounting mechanism had no equivalent in PERPRES 98/2021 because the previous regulation did not contemplate cross-border transfers. The absence of corresponding adjustment provisions would have created severe NDC accounting problems if Indonesia had attempted international transfers under the 2021 framework. Both Indonesia and the purchasing country would count the same reduction, violating Paris Agreement integrity requirements and potentially subjecting Indonesia to international compliance concerns.
Matrix 2.1: Corresponding Adjustment Mechanism
| Aspect | PERPRES 98/2021 | PERPRES 110/2025 - Pasal 1(28) | Accounting Impact |
|---|---|---|---|
| Concept Definition | Absent | Penyesuaian akuntansi Unit Karbon di NDC | Enables transparent accounting |
| Trigger | N/A | Pemindahan Unit Karbon ke luar negeri | Activates on cross-border transfer |
| Purpose | N/A | Menghindari pencatatan ganda (avoid double counting) | Protects Paris Agreement integrity |
| Accounting Direction | N/A | Adjustment in Indonesia's NDC accounting | Likely adds to emissions/reduces reductions |
| Application Timing | N/A | Setelah pemindahan (after transfer) | Post-transaction adjustment |
| Verification | N/A | Presumably through SRN PPI/SRUK tracking | Requires registry integration |
| Reporting | N/A | To UNFCCC per Paris Agreement transparency | International transparency requirements |
2.2 Technical Implementation Requirements
Corresponding Adjustment implementation requires sophisticated technical infrastructure. First, the registry system (SRUK) must track which Carbon Units have been transferred internationally versus used domestically. Second, the system must record the recipient country and the quantity transferred. Third, Indonesia's national GHG inventory must incorporate these adjustments in NDC accounting. Fourth, Indonesia must report adjustments to the UNFCCC through Biennial Transparency Reports under the Paris Agreement's Enhanced Transparency Framework.
PERPRES 110/2025 defines the mechanism but leaves implementation details to forthcoming regulations. Key questions include: (1) the mathematical formula for adjustments (addition to emissions vs subtraction from reductions), (2) the vintage year for adjustments when multi-year credits transfer, (3) reversal procedures if international transfers fail or reverse, (4) treatment of credits generated before the regulation but transferred after, and (5) coordination between SRUK, SRN PPI, and UNFCCC reporting systems.
Matrix 2.2: Implementation Technical Requirements
| Technical Element | PERPRES 98/2021 Capacity | PERPRES 110/2025 Requirement | Technical Challenge |
|---|---|---|---|
| Registry Tracking | Basic SRN PPI | SRUK with international transfer tracking | System upgrade needed |
| Transfer Recording | Not designed for cross-border | Must capture recipient country + quantity | New data fields required |
| NDC Accounting | Domestic accounting only | Integration of corresponding adjustments | Mathematical formula development |
| UNFCCC Reporting | National inventory | Biennial Transparency Reports with adjustments | International reporting compliance |
| Vintage Management | Simple single-year | Multi-year credit accounting | Temporal allocation rules |
| Reversal Procedures | Not applicable | Handling failed/reversed transfers | Risk management protocols |
| Pre-Regulation Credits | N/A | Transitional treatment needed | Legacy credit handling |
3.0 Interaction with Unit Karbon Definition
3.1 Authorization Applies to Unit Karbon, Not Kuota
The authorization and corresponding adjustment mechanisms apply specifically to "Unit Karbon" transfers, not "Kuota Emisi GRK." This distinction is critical. Kuota Emisi GRK (GHG Emission Quotas) are compliance instruments allocated to Instalasi yang Diatur (Regulated Installations) for domestic emissions trading. They represent permissions to emit within Indonesia's national carbon budget. Transferring quotas internationally would make no conceptual sense—why would another country need Indonesia's domestic emission permissions?
Unit Karbon, by contrast, represent actual emissions reductions or removals that generate transferable environmental benefits. Article 1(18) of PERPRES 110/2025 defines Unit Karbon as "hasil pengurangan dan/atau penyerapan emisi" (results of reduction and/or absorption of emissions) certified through domestic schemes, international schemes, or from quotas. This definition's inclusion of "sertifikasi internasional" (international certification) explicitly contemplates cross-border recognition, distinguishing Units as the internationally tradable instrument.
Matrix 3.1: Authorization Application Scope
| Instrument | PERPRES 98/2021 Status | PERPRES 110/2025 Treatment | International Tradability |
|---|---|---|---|
| Unit Karbon | Defined but domestic focus | Subject to Otorisasi for international use | Yes, with authorization |
| Kuota Emisi GRK | Not defined | Domestic compliance instrument only | No international transfer |
| Domestic Certification Units | Implied under Unit Karbon | Can become internationally tradable with authorization | Conditional tradability |
| International Certification Units | Not addressed | Explicitly recognized in Unit Karbon definition | Recognition of foreign standards |
| Corresponding Adjustment | N/A | Applies to Unit Karbon transfers | Adjusts NDC accounting |
| Authorization Procedure | N/A | Required for Unit Karbon international use | Ministerial approval needed |
| Cross-Border Quota Transfer | N/A | Not permitted/relevant | Quotas are domestic instruments |
4.0 Strategic Implications for Indonesia
4.1 Positioning for Article 6 Carbon Markets
The introduction of Otorisasi and Corresponding Adjustment positions Indonesia as Article 6-ready under the Paris Agreement. Article 6.2 of the Paris Agreement allows countries to voluntarily cooperate in implementing their NDCs through internationally transferred mitigation outcomes (ITMOs), subject to robust accounting ensuring environmental integrity. The Article 6 rulebook adopted at COP26 (Glasgow 2021) and refined at COP27/28 establishes detailed requirements for authorization, corresponding adjustments, and transparency.
PERPRES 98/2021's silence on these mechanisms left Indonesia theoretically unable to participate in Article 6 markets despite possessing substantial mitigation potential in forestry, renewable energy, and other sectors. The 2025 regulation removes this barrier. Indonesia can now: (1) authorize REDD+ forest carbon projects to sell credits internationally, (2) enable renewable energy projects to access CORSIA aviation offset markets, (3) facilitate blue carbon mangrove restoration projects for foreign corporate voluntary markets, and (4) potentially link Indonesia's domestic ETS with foreign systems through bilateral agreements.
Matrix 4.1: Article 6 Market Access Comparison
| Article 6 Element | PERPRES 98/2021 Readiness | PERPRES 110/2025 Readiness | Market Opportunity |
|---|---|---|---|
| Host Country Authorization | No legal framework | Otorisasi mechanism (Pasal 1(27)) | Enables ITMO generation |
| Corresponding Adjustment | No accounting provision | Defined mechanism (Pasal 1(28)) | Prevents double counting |
| Registry for ITMOs | SRN PPI domestic focus | SRUK with international tracking | Transparency compliance |
| REDD+ Credits | Unclear authorization path | Explicit ministerial approval pathway | Forest carbon market access |
| Renewable Energy CDM | Legacy treatment only | Can transition to Article 6.4 | Continuity for existing projects |
| Article 6.2 Bilateral | Not feasible | Legally possible with authorization | Government-to-government deals |
| Article 6.4 Mechanism | Could participate as seller | Full participation with adjustment | Centralized crediting mechanism |
Continue Reading: PERPRES 110/2025 Comparative Analysis Series
This series analyzes the comprehensive transformation from PERPRES 98/2021 to PERPRES 110/2025:
- Article 1: From Carbon Rights to Carbon Allocation - The Paradigm Shift
- Article 2: Emissions Trading Infrastructure - From Batas Atas to Quota System
- Article 3 (this article): International Carbon Markets - Otorisasi and Corresponding Adjustment
- Article 4: Dual Certification Pathway - DRAM vs DPP Documentation
- Article 5: Registry Evolution - From Single SRN PPI to Dual Registry System
PERPRES 110/2025 Comparative Analysis Series - Article 3 of 5
This series analyzes the comprehensive transformation from PERPRES 98/2021 to PERPRES 110/2025:
- From Carbon Rights to Carbon Allocation - The Paradigm Shift
- Emissions Trading Infrastructure - From Batas Atas to Quota System
- International Carbon Markets - Otorisasi and Corresponding Adjustment
- Dual Certification Pathway - DRAM vs DPP Documentation
- Registry Evolution - From Single SRN PPI to Dual Registry System
LEGAL DISCLAIMER: This analysis compares international carbon market provisions in PERPRES 98/2021 and PERPRES 110/2025 for educational purposes. It does not constitute legal advice, international carbon trading guidance, or authorization application counsel. The introduction of Otorisasi and Corresponding Adjustment affects carbon project developers, international carbon credit buyers, Article 6 cooperative approaches, and NDC accounting. Specific implementation requires consideration of: (1) forthcoming ministerial regulations on authorization procedures and criteria, (2) corresponding adjustment mathematical methodologies, (3) SRUK registry technical specifications for international transfers, (4) integration with UNFCCC Biennial Transparency Reports, (5) treatment of pre-existing CDM/JCM projects under new framework, (6) authorization fee structures if any, and (7) benefit-sharing arrangements between government and project developers. Entities developing carbon offset projects for international markets should consult qualified environmental law and carbon market counsel specializing in Article 6 Paris Agreement mechanisms for guidance on authorization eligibility and accounting implications.