Indonesia's Village Cooperatives Lack Capacity for Carbon Market Role

The Ambition Meets Reality

Indonesia's government wants to funnel carbon trading revenue directly to villages by designating Red and White Cooperatives as carbon unit managers. The plan aims to ensure that corporations are not the sole beneficiaries of the country's environmental assets, particularly its forests and mangroves that sequester carbon emissions. Environment Minister Moh. Jumhur Hidayat outlined the scheme on July 28, describing Indonesia's vast potential as a supplier of environmental services.

But analysts say the model rests on a shaky foundation. Many of the cooperatives earmarked for this role are not yet equipped to handle their core functions, let alone navigate the technical and regulatory demands of carbon markets.

The Institutional Gap

Luthfyana Larasati, senior manager at the Climate Policy Initiative, said cooperatives must first master basic institutional tasks before taking on new responsibilities. Building that foundational capacity is a prerequisite for any additional mandate, including carbon unit management.

Under the proposed framework, cooperatives would register carbon units generated from forests or mangroves with the Carbon Unit Registration System, known as SRUK. Registration is mandatory for any carbon trading activity in Indonesia. All official transactions must flow through business entities via the Indonesia Stock Exchange Carbon exchange, which operates under Financial Services Authority oversight.

The regulatory architecture is clear. What remains uncertain is whether village cooperatives have the administrative sophistication, financial literacy, and legal expertise to comply with it.

What Carbon Unit Management Entails

Managing carbon units is not a passive task. It requires cooperatives to document land use, verify carbon sequestration levels, navigate registration protocols, and execute transactions through a regulated exchange. The process demands coordination with technical consultants, auditors, and financial intermediaries.

President Prabowo Subianto inaugurated the Red and White Village Cooperatives initiative in July 2025, rolling out 80,081 cooperatives nationwide in a ceremony held in Bentangan village, Klaten, Central Java. The scale of the program is ambitious. But scale without capacity risks creating administrative bottlenecks and compliance failures.

The Broader Context

Indonesia holds one of the world's largest tropical forest reserves and extensive mangrove ecosystems. These natural assets make the country a significant player in global carbon markets. The government's intention to distribute carbon revenues more equitably reflects a recognition that rural communities, who often steward these ecosystems, have historically seen little financial return.

Yet equity in intent does not guarantee equity in execution. If cooperatives cannot fulfill the technical requirements, carbon revenues may remain inaccessible to the communities the policy is designed to serve. Worse, poorly managed carbon units could undermine market credibility and deter buyers.

Capacity Building as the First Step

The policy challenge is sequencing. Analysts argue that the government should prioritize institutional strengthening before layering on new mandates. That means training cooperative managers in financial governance, establishing transparent accounting systems, and creating support structures that can help cooperatives interface with regulatory agencies and market platforms.

Without that groundwork, the carbon trading initiative risks becoming another program announced with fanfare but stalled in implementation. Two cooperatives in the Riau Islands have already halted operations due to financial struggles, illustrating the fragility of some entities within the network.

What Comes Next

The government has signaled its commitment to the cooperative model as a vehicle for inclusive economic participation. Whether that commitment translates into sustained capacity building will determine the fate of the carbon trading plan.

For now, the gap between ambition and readiness remains wide. Closing it will require not just policy design but patient investment in the institutions expected to carry it out.