Last week in Jakarta, Singapore and Indonesia took a significant step by signing a Memorandum of Understanding (MOU) focused on collaborating on carbon credits. However, this agreement has been mistakenly labeled as a complete Article 6 trading agreement, which it is not yet, and understanding this difference is important.
The MOU was signed on July 6 by Singapore's Deputy Prime Minister and Minister for Trade and Industry, Gan Kim Yong, and Indonesia's Minister of Environment, Mohammad Jumhur Hidayat, during the annual Singapore-Indonesia Leaders’ Retreat. According to Singapore's Ministry of Trade and Industry, the MOU commits both countries to identifying high-quality carbon credit projects, sharing expertise, and working towards an implementation agreement for Article 6 of the Paris Agreement.
The term 'implementation agreement' is crucial. It is the legal framework that allows carbon credits to be created, verified, and exchanged between the two countries while preventing double counting of credits. What was signed in Jakarta is more of a diplomatic foundation than the actual legal framework.
This isn't a critique of the MOU's content. Similar framework MOUs have been signed before each of Singapore's previous Article 6 partnerships, including those with countries like Ghana, Papua New Guinea, Bhutan, Peru, Thailand, and the Philippines. The pattern shows that an MOU sets the groundwork for intent and technical cooperation, and a following implementation agreement creates the legal structure. Indonesia is now a part of this process. What stands out is how quickly the discussion shifted to framing the MOU as if it had already resulted in concrete agreements.
The reason Singapore is interested in these agreements is straightforward. Singapore currently has a carbon tax of S$25 per tonne of carbon emissions for large industrial polluters, which is set to increase to S$45 in 2026 and 2027, and reach S$50 to S$80 by 2030. Companies can offset up to 5% of their taxable emissions with eligible international carbon credits. As the tax increases, so does the motivation for businesses to acquire reliable offshore credits. Indonesia, with its tropical forests and peatlands, is a clear potential supplier for Singapore.
On the Indonesian side, progress has been swift since the MOU was signed. Just three days later, on July 9, Indonesia launched its Carbon Unit Registration System, known as SRUK, in a ceremony with key government officials. This registry operates under Ministerial Regulation and aligns with the Carbon Economic Value framework established under Presidential Regulation No. 110 of 2025.
During this launch, the government announced that trading permits had already been approved for four businesses, covering an initial 31 million tonnes of carbon dioxide equivalent, valued at about five trillion rupiah or around 278 million US dollars. Officials estimate that the broader Carbon Economic Value instrument could attract up to 5.8 billion US dollars in green investment and reduce emissions by approximately 570 million tonnes of carbon dioxide equivalent over time, although these figures are government estimates and should be interpreted cautiously.
This is the system that Singapore's MOU will eventually need to connect with to move toward a real implementation agreement. A robust registry that can track the lifecycle of carbon credits, issue them, and prevent double counting is essential for any real cross-border trading relationship. Indonesia has demonstrated this understanding by moving from a trial phase to a public launch of its registry more quickly than some expected, especially given past challenges in carbon governance.
The regional data used to support this deal should be carefully considered. The claim that Southeast Asia contributes about 22% of global nature-based carbon credit issuance is based on market analysis from five nations, including Indonesia, but this figure refers to the region as a whole and is over a year old, against a backdrop of changing market conditions. Using this number to argue for immediate Indonesian supply should be approached cautiously.
The Jakarta retreat did more than just produce the carbon MOU; it also saw Indonesia's sovereign wealth fund, Danantara, signing agreements with Singapore's Keppel Electric and Sembcorp Utilities to explore cross-border low-carbon electricity imports, aiming for at least 3.4 gigawatts of capacity by 2035. Together, these electricity and carbon agreements suggest a growing bilateral relationship, with energy trade on one front and carbon accounting on another, enhancing investor confidence in both areas.
For those in shipping, there are indirect but significant implications. Singapore remains the largest bunkering port globally, and as it develops its carbon services and offset infrastructure, this will affect how shipowners and charterers manage compliance costs under various national and international regulations. A reliable and well-documented Indonesian credit supply will be crucial, even if ships never dock in Indonesia.
Ultimately, it’s important to remember that what was signed on July 6 was just an MOU, a statement of intention supported by genuine movement in Indonesia, but still not the binding trading framework that some media coverage implies already exists.
The gap between the two is significant. It's the difference between a theoretical market and one that can facilitate actual transactions.