Jakarta. Indonesia will begin to carbon tax coal-fired power stations in April 2022 to start the measure implementation that eventually would reach all sectors in the economy to reduce national greenhouse gas emissions.
The carbon tax was part of the country's tax reforms, the latest in a series of legislation overhauls that seek to make the country more attractive for investment.
On Thursday, the House of Representatives passed into law the 2021 Law about Tax Regulation Harmonization. Under the law, every kilogram of carbon equivalent emissions that exceed a certain cap will be subjected to Rp-30 (0.21 cent dollar) tax, Minister of Law and Human Rights Yasonna Laoly said. That is roughly equal to about $2.1 per metric ton of carbon equivalent.
"In the early stages, starting in 2022, a carbon tax will be imposed on the coal-fired power plant sector using a tax mechanism based on emission limits, or cap and tax," Yasonna said on Thursday.
He said Indonesia's carbon tax was a strong signal that would encourage the development of carbon markets/carbon emissions trading, technological innovation, and more efficient and eco-friendly investments in the country.
Additionally, the government hopes the tax would restrict greenhouse gas emissions, which contributes to an increase in global temperature, and would ultimately reduce the risk of climate disasters in Indonesia.
"The imposition of carbon taxes to restore the environment is part of Indonesia's commitment to reduce carbon emissions," he said.
According to Indonesia's Nationally Determined Contribution (NDC) plan, the country aimed to reduce carbon emission without outside help by 29 percent compared to the business-as-usual level by 2030. With international support, Indonesia aimed to reduce its emissions by 41 percent of the business-as-usual level.
Carbon Tax Roadmap
The government set has been working on a carbon tax roadmap since the beginning of this year. The inclusion of carbon tax in the country's tax code was its first milestone. Next, the government plans to finalize a presidential decree on the economic value of carbon and develop a carbon tax and carbon exchange technical mechanism.
Lastly, the Ministry of Energy and Mineral Resources will launch a pilot project for carbon trading in the power sector by the end of this year.
Under the trading scheme, the emission-producing organization above the cap must purchase an emission permit certificate (SIE) from another party whose emissions are below the limit.
The government targets the carbon tax to be fully implemented by 2025 through the carbon exchange, where companies can trade their emissions permit. That will be done by the gradual expansion of the carbon taxation sector depending on its readiness and the creation of carbon tax management regulations.