In 1992, the United Nations Framework Convention on Climate Change (UNFCCC) stated the goal of achieving stabilization of greenhouse gas (GHG) concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Annex I countries, which are developed and economic-transition countries, are subjected on the obligation to decrease their GHG emissions. Although Indonesia is not in the list of Annex I countries and also not the main emitter of GHG emissions in the world, a decrease of GHG emissions is a significant discussion in Indonesia due to several reasons. Indonesia has significant reserves of coal, natural gas, and oil; these fossil fuels are also significant sources of anthropogenic GHG emissions. Meanwhile, Indonesia has experienced fast economic growth in the past few years. Besides increasing the wealth of Indonesians, the economic growth also increases both the energy consumption and GHG emissions in Indonesia. However, Indonesia can take an important role by helping the developed countries in the frame of the international carbon trading.

In January 2005, the EU commenced the emissions trading scheme (ETS), which then becomes the world’s largest carbon market and has become the major pillar of the EU’s climate policy. The EU-ETS should allow the EU to achieve its Kyoto target at a cost of € 2.9 to 3.7 billion annually. Without the EU-ETS, compliance costs could reach up to € 6.8 billion annually. There are three EU-ETS phases based on chronological time of frame:

EU-ETS phase 1 (2005 to 2007)

The emission-intensive industries, i.e. electricity, oil, metals, building materials, and paper industries, were subjected by the scheme. The EU-ETS phase 1 covered approximately 40 % of GHG emissions in the EU.

EU-ETS phase 2 (2008 to 2012)

In 2008, the EU-ETS is accounted for 73 % of the value of the global carbon market. Currently, the price of 1 t_CO2is traded between 10 to 20 Euros. As of 1 January 2012, GHG emissions from aviation industry will be covered by the EU-ETS, meaning that any airline operating flights to and from EU airports will require emission allowances to offset its emissions.

EU-ETS phase 3 (2013 to 2020)

Moving beyond phase 2, the European Commission (EC) has proposed to decrease GHG emissions to 20 % below the 1990 levels by 2020. The EC is expected to include all greenhouse gases, i.e. CO₂, CH₄, N₂O, CFCs, and HFCs in EU-ETS phase 3. Moreover, the EU-ETS phase 3 would also cover additional sectors, i.e. aviation, maritime transport, and forestry sectors. The revamped EU ETS is expected to contribute approximately 66 % of the overall emission reductions which the EU intends to achieve by 2020.

The second source of carbon credits lies outside the EU. The ETS allows carbon operators to purchase carbon credits in the form of certified emission reductions (CERs). This system targets emission reduction in developing countries, i.e. Indonesia, which are funded by the member states and private entities of the EU under the premise that the cost of reduction in GHG emissions in developing countries is lower than within the EU.

USA has also taken measures to decrease GHG emissions. For instance, California already signed a law concerning a decrease of GHG emissions of 25 % by 2020 and 80 % by 2050. Meanwhile, the Chicago climate exchange is the largest voluntary carbon trading system in the USA. Its trading value is approximately 36.5 million USD worth of offsets in 2006, which mostly represented investments in the renewable energy sector. Moreover, the carbon market in USA may worth 100 billion USD by 2016.