The Impact of Participation in Carbon Trading and Carbon Management Strategies on Emissions Reduction Performance and Financial Performance at Energy Companies in Indonesia

Abstract

This study examines the effects of participation in carbon trading and carbon management strategies on emissions reduction performance and financial performance in energy companies in Indonesia. A quantitative research design was employed using primary data collected from 55 respondents through structured questionnaires measured on a five-point Likert scale. The respondents consisted of managers, supervisors, sustainability officers, finance managers, and executives with knowledge of environmental and carbon management practices. Data were analyzed using Structural Equation Modeling–Partial Least Squares with SmartPLS 3. The results indicate that participation in carbon trading has a positive and significant effect on emissions reduction performance and financial performance. Carbon management strategy also positively and significantly affects emissions reduction performance and financial performance. Furthermore, emissions reduction performance has a positive and significant effect on financial performance. The model explains 65.1% of the variance in emissions reduction performance and 70.3% of the variance in financial performance. These findings demonstrate that internal carbon management capabilities have a stronger influence on emissions reduction than participation in carbon trading alone. They also confirm that improved environmental performance can generate economic benefits through operational efficiency, reduced regulatory risk, enhanced reputation, and stronger stakeholder confidence. The study highlights the importance of integrating carbon trading participation with comprehensive carbon management strategies to support the transition of Indonesia’s energy sector toward low-carbon and financially sustainable operations.