Wednesday, December 6, 2023

Carbon Tax to Put Indonesia on Track Toward 2030 Climate Goal

Jayanty Nada Shofa
September 21, 2023 | 5:12 pm
This undated photo shows motorcyclists passing by a coal-fired power plant in Banten. (B1 Photo/Ruht Semiono)
This undated photo shows motorcyclists passing by a coal-fired power plant in Banten. (B1 Photo/Ruht Semiono)

Jakarta. Putting a price on carbon, among others by imposing taxes, can put Indonesia on track toward its 2030 emission reduction goal, according to climate policy researcher Gilang Hardadi.

The world is counting on carbon pricing to combat climate change. Carbon pricing mechanisms include carbon taxes whose implementation constantly gets pushed back in Indonesia.

As part of the so-called "enhanced nationally determined contribution” targets, Indonesia pledges to achieve 31.89 percent emission reduction by 2030 with its own efforts. The coal-reliant country will increase these targets to 43.2 percent if it receives new technologies and funding from other nations.

“Indonesia has made its nationally determined contribution targets that they aim to achieve by 2030. It would be good if we could implement the carbon tax as a policy to achieve this target,” Gilang said in Jakarta on Thursday.


“By addressing the externalities in the fossil fuel sector and commodities, we can keep the global temperature rise to 1.5- 2 degrees Celsius,” Gilang said.

Countries across the globe have begun implementing a carbon tax, and Indonesia should follow suit.

"Indonesia is also a country with carbon-intensive commodities and coal. So carbon pricing could indeed impact Indonesia's growth. But do remember that other countries are implementing carbon pricing, which will then challenge our trade competitiveness," Gilang told the Jakarta Globe.

Read More:IDX Set to Launch Carbon Trading Platform

Indonesia enacted a law that introduced a carbon tax in 2021. The law states that business entities or individuals who purchase goods that emit carbon in their production are subject to the tax. The carbon tax also applies to businesses that carry out activities that emit carbon. According to the 2021 law, the lowest tariff rate for the carbon tax stands at Rp 30 per kilogram of carbon dioxide equivalent.

Indonesia initially planned to start implementing a carbon tax for the coal-fired power generation sector in April 2022 and later decided to postpone it to July 2022. The plans, however, saw another delay. Chief Economic Affairs Minister Airlangga Hartarto last month said the carbon tax would be in place in 2025. 

Febrio Kacaribu, a senior official at the Finance Ministry, told reporters on Wednesday that carbon taxes might not be necessary at this very moment, according to news outlet Kumparan. Indonesia intends to focus on the carbon bourse first and will look at how things go. The government is also currently working on a carbon tax roadmap to make sure the policy does not disrupt economic growth, among others. 

Indonesia is slated to launch its carbon trading platform on September 26. The Financial Services Authority (OJK) has appointed the Indonesia Stock Exchange (BEI) as the operator of this bourse. The bourse will adopt a cap-and-trade scheme where the government sets a limit on the allowable emissions. Businesses can trade emission allowances. In other words, big emitters can buy carbon credits from low-emitting companies if they exceed the limit.

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