How wildfires are threatening Indonesia’s economy and carbon market

Forest and peatland fires in Indonesia are causing economic and health concerns, with analysts warning the thickening haze could weigh on activity, strain public health, and test confidence in the country’s fledgling carbon market. Indonesia has experienced intense wildfires this year, driven by a super El Nino, leading to a toxic haze that has drifted to neighboring countries like Singapore, Malaysia, and the Philippines.

This has prompted some employers to implement work-from-home policies and numerous schools to resort to remote learning. Health experts have reported a surge in acute respiratory infection cases, with over 15.6 million cases from January to August alone. The Indonesian health ministry estimated total economic and health costs from January to August could reach up to 123.1 trillion rupiah, or 0.23 percent of the nation's GDP.

The fires may also result in 269.89 billion rupiah in lost tax revenues and 93.56 trillion rupiah in healthcare costs, equivalent to 67.6 percent of the 2026 national health budget. The scale of the fires could increase scrutiny on Indonesia's carbon market, which launched its national carbon registry system in July. Although a blanket discount on Indonesian carbon credits is unlikely, the fires may lead to increased buyer scrutiny and due diligence for forest and peatland projects.

Environmentalists are skeptical about Indonesia's credibility in the international carbon market due to ongoing land degradation.