Forestry-based carbon trading schemes are an emerging market-based approach that allow nations and corporations to offset their carbon emissions by investing in forest conservation and sustainable management initiatives. Indonesia, home to extensive tropical forest cover spanning approximately 101 million hectares, will likely play an instrumental role in this market. While Indonesia could gain considerably from forest-based offsets, it must confront the historical exclusion of its Indigenous peoples from land recognition.

Indonesia’s forest carbon trading policy, as outlined in a 2021 presidential regulation, provides a structured framework for managing carbon emissions. This policy has been implemented through the issuance of a 2023 regulation issued by the Ministry of Environment and Forestry, which limits carbon trading in the forestry sector to entities that have documented land ownership rights in forest areas and parties engaged in social or community forestry. The primary objective of Indonesia’s forest carbon trading initiatives is to improve climate change mitigation in the forestry sector by promoting reforestation and curtailing deforestation.

President Prabowo Subianto’s administration has high ambitions to promote emissions trading, setting a target of raising US$65 billion from carbon credits by 2028. A significant step towards this goal was the launch of international carbon trading on the Indonesian Carbon Exchange’s IDXCarbon platform in January 2025. While not specifying a date, Indonesia’s Forestry Minister Raja Juli Antoni announced in March 2025 that carbon offset trading from the forestry sector will be launched soon. Transactions in this sector could raise nearly US$200 million (IDR3.2 trillion) in 2025.

But Indonesia’s advancements in the forestry sector raise concerns about the lack of policies to protect Indigenous land rights and prevent ‘green grabbing’ — the displacement of Indigenous peoples from their territories for conservation purposes. Indonesian law considers most forest areas to be state-owned by default. This restricts access to forests to entities that have official permits, marginalising Indigenous communities, who have been regarded by the government as ‘trespassers’ on land claimed entirely by the state.

Up to 4.1 million hectares of Indigenous areas overlap with natural forest and peatland moratorium areas. The disparity in land ownership compounds this issue. Large amounts of land have already been allocated for corporate concessions, increasing green-grabbing risks and excluding Indigenous groups from participating and gaining benefits from forest carbon initiatives.

While social forestry — also referred to as community-based forest management — offers to address the disparity in land ownership, it also classifies Indigenous forests as state forests. This conception conflicts with a 2012 Constitutional Court ruling that instead held that Indigenous forests should be classified as non-state forests.

This ruling represented a landmark achievement for Indigenous rights because it empowered Indigenous peoples to exercise formal control over their lands. But substantive protection suffered from the lack of a comprehensive national law to ensure the recognition and protection of Indigenous rights in Indonesia. To address this gap, the Constitutional Court held that local and regional governments possess the authority to establish regulations recognising and protecting the rights of Indigenous peoples.

The enactment of regional legislation remains constrained by political will. Many local authorities have been reluctant to pass such regulations, citing the absence of a national law on customary forest recognition as a justification to avoid regulatory fragmentation. Local governments also often prioritise land allocation for large-scale investments over granting Indigenous land rights, creating a barrier to the recognition of customary forests.

Despite the Constitutional Court’s emphasis on decentralised forest management, the central government maintains a dominant role. Even after Indigenous communities receive recognition from their regional governments, land verification claims still require validation from the Ministry of Environment and Forestry. The national government’s hesitancy to recognise forest rights for Indigenous communities is attributed to its perception that large enterprises are better equipped to manage resources than Indigenous communities.

The Indigenous Peoples Bill — which was proposed in 2009 and has been included in the parliament’s slate of priority legislation for 2025 — would protect against land dispossession and empower Indigenous communities in forests management. The Bill would offer long-overdue legal recognition of Indigenous land tenure and access to natural resources, reinforcing Indigenous rights to manage their ancestral territories. The Bill would address regulatory fragmentation issues by requiring local governments to enact regulations regarding Indigenous peoples’ rights and national governments to approve recognition claims for Indigenous territories.

For Indigenous communities to make informed decisions about participating in carbon projects, clear land tenure rights are essential. These rights would ensure fair negotiations, secure equitable benefits and prevent exploitative agreements that might otherwise favour other parties. Some Indigenous communities may decide to engage in such initiatives due to the potential benefits that they could earn. But other Indigenous communities may reject participation on ethical grounds, viewing carbon trading as a mechanism that enables companies and countries to continue polluting.

Without adequate safeguards, there is a risk that carbon offset programs could replicate historical patterns of resource extraction where Indigenous peoples receive minimal benefits or are excluded altogether.

The Bill would not only protect Indigenous land rights but also provide legal certainty for carbon projects in Indonesia. The lack of clear land tenure creates legal and financial risks for investors in carbon trading initiatives. Without formal recognition of Indigenous territories, overlapping claims and disputes can arise, leading to project delays, conflicts and potential financial losses. This uncertainty discourages investment and limits the effectiveness of carbon market mechanisms. The Bill would serve as an assurance that the land used for carbon projects is secured under legally recognised ownership, improving investor confidence in Indonesia’s carbon market.

Muhammad Arief Virgy is Researcher at The Habibie Center and Co-Founder of the Center for Indonesian Governance and Development Policy (Cigdep).

https://eastasiaforum.org/2025/04/10/indonesias-carbon-credits-must-not-come-at-the-cost-of-customary-forests/