From Carbon Rights to Carbon Allocation: Indonesia's Paradigm Shift in PERPRES 110/2025

PERPRES 110/2025 Comparative Analysis Series - Article 1 of 5

This series analyzes the comprehensive transformation from PERPRES 98/2021 to PERPRES 110/2025:

1. From Carbon Rights to Carbon Allocation - The Paradigm Shift
2. Emissions Trading Infrastructure - From Batas Atas to Quota System
3. International Carbon Markets - Otorisasi and Corresponding Adjustment
4. Dual Certification Pathway - DRAM vs DPP Documentation
5. Registry Evolution - From Single SRN PPI to Dual Registry System

Article 1(2) of PERPRES 110/2025 introduces "Alokasi Karbon" (Carbon Allocation) as a new foundational concept absent from PERPRES 98/2021. The Indonesian text states: "Alokasi Karbon adalah jumlah emisi karbon dioksida ekuivalen (CO₂e) yang diizinkan selama periode waktu tertentu sesuai kapasitas nasional" (Carbon Allocation is the amount of carbon dioxide equivalent emissions (CO₂e) permitted during a certain period according to national capacity). This represents a fundamental shift from the previous regulation's conceptualization of carbon as state property ("Hak Atas Karbon") to carbon as a allocatable resource within defined limits. The implications cascade throughout Indonesia's carbon market architecture, affecting emissions caps, trading mechanisms, and compliance obligations (see Matrix 1.1 below).

1.0 Conceptual Framework Transformation

1.1 From State Ownership to Allocation System

PERPRES 98/2021 Article 1(22) established "Hak Atas Karbon adalah penguasaan karbon oleh negara" (Carbon Rights are the state's control over carbon). This centralized all carbon resources under state authority without specifying distribution mechanisms. The 2025 regulation eliminates this concept entirely, replacing it with "Alokasi Karbon" which creates a time-bound, capacity-based allocation system. This transformation reflects Indonesia's evolution from theoretical state ownership to operational market design, aligning with international emissions trading systems like the EU ETS and California Cap-and-Trade Program.

The regulatory shift introduces three critical operational components absent from the 2021 framework. First, "Batas Atas Emisi GRK" (GHG Emission Cap) now derives from Carbon Allocation rather than standalone administrative determination. Second, "Kuota Emisi GRK" (GHG Emission Quotas) distributes the allocation to individual installations. Third, the concept of "Karbon Cadangan" (Carbon Reserve) provides risk management buffers at the national level. Together, these elements create a complete cap-and-trade architecture missing from the previous regulation.

Matrix 1.1: Conceptual Framework Comparison

1.2 Carbon Allocation Definition and Components

Article 1(2) of PERPRES 110/2025 defines Carbon Allocation using three precise parameters. The phrase "jumlah emisi karbon dioksida ekuivalen (CO₂e)" establishes the metric as CO₂ equivalent emissions, standardizing measurement across different greenhouse gases. The requirement "yang diizinkan selama periode waktu tertentu" creates time-bounded allocations enabling periodic adjustment. The foundation "sesuai kapasitas nasional" links allocations to national capacity determinations under Nationally Determined Contributions (NDC).

Article 3(2) specifies that Carbon Allocation must be based on: (a) periodic GHG Sector Emission Inventory data over certain periods, (b) National Long-Term Development Plan (RPJPN), (c) National Medium-Term Development Plan (RPJMN), and (d) economic and climate change control aspects. This multi-factor basis ensures allocation reflects both development needs and climate commitments. Article 3(3) adds that Carbon Reserve must be considered in allocation formulation, creating a buffer mechanism absent from the 2021 regulation.

Matrix 1.2: Carbon Allocation Parameters Comparison

2.0 Emissions Cap Architecture

2.1 From Static Limits to Allocation-Based Caps

PERPRES 98/2021 Article 1(13) defined "Batas Atas Emisi GRK" simply as "tingkat Emisi GRK paling tinggi yang ditetapkan dalam suatu periode tertentu" (the highest GHG emission level established in a certain period). This definition provided no basis for setting the cap or linking it to broader climate commitments. The 2025 regulation fundamentally restructures this through Article 1(14): "Batas Atas Emisi GRK adalah jumlah Emisi GRK paling tinggi yang diperbolehkan dan ditetapkan berdasarkan Alokasi Karbon" (GHG Emission Cap is the highest GHG emissions amount permitted and established based on Carbon Allocation).

The critical addition of "berdasarkan Alokasi Karbon" creates a hierarchical architecture where emissions caps derive from systematic carbon allocation rather than standalone administrative determination. This ensures caps reflect national capacity assessments and development planning integrated through the allocation process. Under the new framework, emissions caps function as the ceiling within which emission quotas distribute to individual installations, creating a complete cap-and-trade infrastructure.

Matrix 2.1: Emissions Cap Architecture Comparison

2.2 Emissions Quota System - New Mechanism

PERPRES 110/2025 introduces an entirely new concept through Article 1(15): "Kuota Emisi GRK adalah jumlah Emisi GRK yang dapat dilepaskan ke atmosfer oleh Instalasi yang Diatur" (GHG Emission Quota is the amount of GHG emissions that can be released to the atmosphere by Regulated Installations). This definition creates the operational mechanism for distributing the national emissions cap to individual entities. The quota system did not exist in PERPRES 98/2021, which jumped directly from national emissions caps to emissions trading without specifying the allocation-to-entity pathway.

The quota mechanism introduces a three-tier architecture: (1) Alokasi Karbon at the national level determining total available emissions, (2) Batas Atas Emisi GRK translating allocation into sector or activity caps, and (3) Kuota Emisi GRK distributing caps to individual Instalasi yang Diatur. Article 1(16) defines these as "instalasi yang wajib mengikuti Perdagangan Emisi GRK" (installations obligated to participate in GHG Emissions Trading), creating a mandatory compliance market.

Matrix 2.2: Quota System Introduction

3.0 Carbon Reserve Buffer Mechanism

3.1 Risk Management Through Karbon Cadangan

PERPRES 110/2025 Article 1(17) introduces "Karbon Cadangan adalah sejumlah karbon yang dialokasikan pada tingkat nasional untuk pengendalian risiko dalam pencapaian target NDC" (Carbon Reserve is an amount of carbon allocated at the national level for risk control in achieving NDC targets). This concept had no equivalent in PERPRES 98/2021, representing a significant addition to Indonesia's carbon management architecture. The reserve functions as a buffer against uncertainty in NDC achievement, addressing risks from economic fluctuations, technological shortfalls, or implementation delays.

Article 3(3) mandates that Carbon Allocation must consider Carbon Reserve in its formulation. This creates a systematic approach where total available emissions allocate between: (1) distributed quotas for economic activity and (2) reserved quotas for risk management. The reserve mechanism draws from international practice in emissions trading systems where market stability reserves prevent excessive price volatility and provide flexibility for compliance period adjustments.

Matrix 3.1: Carbon Reserve Mechanism

4.0 Governance and Determination Authority

4.1 Multi-Ministerial Coordination Framework

Articles 4 and 5 of PERPRES 110/2025 establish detailed procedures for Carbon Allocation formulation and revision. Article 4(1) specifies that allocation formulation involves ministers/agency heads in: (a) forestry, (b) environment, (c) energy, (d) industry, (e) agriculture, (f) finance, and (g) national development planning. Article 4(2) requires joint formulation and establishment by relevant ministers after coordinating with the steering committee (komite pengarah).

PERPRES 98/2021 lacked this structured coordination framework for establishing emissions limits. While it referenced multi-ministerial involvement, it did not specify which ministries or create mandatory coordination procedures. The 2025 regulation's specification of seven core ministries and the requirement for steering committee coordination represents a significant governance strengthening, reducing ambiguity about implementation authority and ensuring cross-sectoral integration.

Matrix 4.1: Governance Framework Comparison

4.2 Revision and Flexibility Mechanisms

Article 5(1) of PERPRES 110/2025 allows Carbon Allocation revision when: (a) national development policies related to climate change and sectors change, (b) new Activity Data is added, (c) emission factors change, or (d) new emission sources are identified. This revision mechanism did not exist in PERPRES 98/2021, which provided no clear pathway for adjusting emissions limits once established.

The revision provisions create adaptive management capacity essential for long-term climate policy. As Indonesia's economy evolves, new industries emerge, and emission factors improve through better data, the allocation system can adjust without requiring wholesale regulatory replacement. This flexibility distinguishes the 2025 framework as a living regulatory system rather than a static decree.

Matrix 4.2: Revision Mechanism

5.0 Operational and Implementation Implications

5.1 From Conceptual to Operational Framework

The transformation from PERPRES 98/2021 to 110/2025 represents evolution from a conceptual carbon management framework to an operational market system. The 2021 regulation established principles—state carbon rights, emissions limits, carbon trading—without specifying operational mechanics. The 2025 regulation fills these gaps through: (1) systematic carbon allocation methodology, (2) emissions quota distribution to individual installations, (3) carbon reserve buffers, and (4) explicit governance coordination.

This operational precision addresses the implementation challenges that hindered PERPRES 98/2021. Without clear allocation methodology, the previous regulation provided insufficient guidance for determining individual entity obligations. The new framework's three-tier architecture (Alokasi Karbon → Batas Atas Emisi GRK → Kuota Emisi GRK) creates a clear pathway from national commitments to entity-level compliance.

Matrix 5.1: Operational Framework Comparison

Continue Reading: PERPRES 110/2025 Comparative Analysis Series

This series analyzes the comprehensive transformation from PERPRES 98/2021 to PERPRES 110/2025:

1. Article 1 (this article): From Carbon Rights to Carbon Allocation - The Paradigm Shift
2. Article 2: Emissions Trading Infrastructure - From Batas Atas to Kuota System
3. Article 3: International Carbon Markets - Otorisasi and Corresponding Adjustment
4. Article 4: Dual Certification Pathway - DRAM vs DPP Documentation
5. Article 5: Registry Evolution - From Single SRN PPI to Dual Registry System

PERPRES 110/2025 Comparative Analysis Series - Article 1 of 5

This series analyzes the comprehensive transformation from PERPRES 98/2021 to PERPRES 110/2025:

1. From Carbon Rights to Carbon Allocation - The Paradigm Shift
2. Emissions Trading Infrastructure - From Batas Atas to Quota System
3. International Carbon Markets - Otorisasi and Corresponding Adjustment
4. Dual Certification Pathway - DRAM vs DPP Documentation
5. Registry Evolution - From Single SRN PPI to Dual Registry System

LEGAL DISCLAIMER: This analysis compares PERPRES 98/2021 with PERPRES 110/2025 for educational and informational purposes. It does not constitute legal advice, environmental compliance guidance, or carbon market investment counsel. The transformation from state carbon ownership (Hak Atas Karbon) to systematic allocation affects property rights, compliance obligations, trading mechanisms, and international carbon credit arrangements. Specific implementation requires consideration of: (1) upcoming implementing regulations for Carbon Allocation methodology, (2) sector-specific Quota Emisi GRK determinations, (3) Instalasi yang Diatur designation criteria, (4) Karbon Cadangan release procedures, (5) coordination mechanisms among seven specified ministries, (6) integration with National Development Plans (RPJMN/RPJPN), and (7) compatibility with existing carbon market participants under the 2021 framework. Entities affected by carbon allocation or emissions trading should consult qualified environmental law counsel specializing in Indonesian climate policy for guidance on this regulatory transition's implications for their specific circumstances.

Law Database

Access PERPRES 110/2025 in the CRPG Law Database: PERPRES 110/2025