But this ambitious target won't come cheap - the Government's National Climate Change Council estimates the cost of achieving this reduction will be more than $US30 billion. Just who should pay for this and how is one of the many sticking points leading up to the United Nations climate change conference in Copenhagen later this year.
Presenter: Katie Hamann
Erik Meijaard, forest scientist; Agus Purnomo, the executive secretary of the National Council on Climate Change;
Rachmat Witolear, Environment Minister
Indonesia's proposed carbon cuts represent some of the most ambitious targets of any country so far in the world: a 40 per cent reduction of 2005 levels over the next 20 years.
The country currently trails America and China as the world's worst carbon polluter. The vast mass of this comes from deforestation and degradation of peatlands, which are often described as carbon sinks, because they store so much of it.
In 2005, 45 per cent of Indonesia's greenhouse gas emissions came from peatland and 38 per cent from deforestation. And it's in these areas, according to a new Indonesian study that the biggest reductions can be achieved.
Erik Meijaard a forest scientist currently working on a USAID funded orangutan project, says its an impressive plan but difficult to execute.
MEIJAARD: "Well it's a great idea, I like it... if they can make it work. I guess the Indonesia government is very well aware of how incredibly complex it would be to pull-it-off. It's a simple idea, but so many things have to fall in place; the whole carbon accounting, your land use planning, the poor governance that's going to be in place in the areas where the savings have to made and avoid the deforestation... so it's a real challenge.
HAMANN: One of the biggest challenges is finding the money to pay for this carbon. The Indonesian government estimates that reducing their emissions by 40 per cent will cost around $US32 billion.
The United Nation's proposed mechanism for trading carbon is called Reducing Emission from Deforestation and Degradation, or REDD.
Under REDD, land holders such as traditional owners, local governments and businesses could earn money by preserving peatland or restoring forests to offset carbon emissions.
A global framework for REDD is expected to be agreed upon at the United Nations Framework Convention on Climate Change meeting in Copenhagen in December.
But trading isn't likely to begin before 2012. And establishing viable projects in Indonesia could take much longer according to Agus Purnomo, the executive secretary of the National Council on Climate Change.
PURNOMO: "So over time - five years, seven years, perhaps ten years - then we will have all the elements of REDD in place, then we can come up with high quality REDD projects for the carbon market to pay".
HAMANN: Environment Minister Rachmat Witolear says Indonesia is already taking steps to reduce its carbon emissions. But he says the developed world must bear more of fighting climate change.
WITOLEAR: I see that the countries involved are not really putting their best efforts into doing this and this is why the developing nations are up in arms against the developed nations. Ban Ki-moon will initiate, with their help, a meeting on the 23rd of September in New York, to make the developed nations realise that is it time time to stop haggling and start negotiating.
HAMANN: For now the government is adopting a business as usual approach, which means that around 1 million hectares of forest will be cleared each year until system for paying for its protection, such as REDD, is in place or significant steps are taken to limit clearing.
The government has been criticised for recently lifting a moratorium on developing peatland for palm oil plantations and continuing to issue land-clearing permits.
Many will looking for a signs of renewed political will, when President Susilo Bambang Yudhoyono announces the leaders of his second cabinet sometime this month.
Forest scientist Erik Meijaard says, with the right leadership, Indonesia could achieve its emissions reduction target.
MEIJAARD: A couple of years back everyone saw something that simply wouldn't be resolved; the financial interests in illegal logging were just too big, the governance was too poor and it just wouldn't change... and the government took it very seriously and involved army and police very effectively... and I wouldn't say illegal logging has disappeared, but certainly, from what I can see in the field its come down a lot. So I think it all comes down to political will, if the government is serious about this and gets the support from the different departments and the different levels of provincial district government, certainly they can make it work, I've seen Indonesia do these things before so I've got confidence that they can pull it off.