Leveraging Ethereum-based Blockchain Framework for Equitable Carbon Marketplace: A Decentralized Tokenization Model in Indonesia

Abstract

Carbon credit trading is an evolving system that aims to mitigate climate change by providing financial incentives to reduce greenhouse gas emissions, where each carbon credit corresponds to the right to emit one ton of carbon dioxide or its equivalent. Indonesia’s carbon market, which leverages blue carbon credits from coastal ecosystems, is estimated to have an economic potential of approximately USD 25 billion between 2022 and 2026. Decentralized carbon credit trading leverages blockchain technology to create a transparent and secure marketplace that fosters peer-to-peer connections and democratizes access, utilizing features such as smart contracts and tokenization to enhance efficiency and reduce transaction costs. The study presents a model for a decentralized marketplace that incorporates a streamlined workflow, a blockchain framework, and automated processes via smart contracts, further enabling tokenization of carbon credits into ERC-20 tokens. However, implementing this system in Indonesia entails navigating regulatory compliance with environmental and financial laws while overcoming challenges such as interoperability with existing systems, fostering user adoption, and addressing market fragmentation to assure the integrity and success of the market.