Indonesia to Start Implementing Carbon Tax in April 2022
February 7
5min read
Indonesia will begin implementation of carbon tax in April 2022 as regulated in the Law on Harmonized Taxation that entered into effect on 1 January 2022. According to the Finance Minister Sri Mulyani, the carbon tax provision covers two carbon pricing schemes of ‘Cap and Trade’ and ‘Cap and Tax’. Under ‘Cap and Trade’—more widely known as an emissions trading system (ETS), companies can buy emission allotment from other companies with spare allotment. Under ‘Cap and Tax’, companies can pay taxes for any carbon emission above the emission cap set for them. The carbon tax is set at IDR30 per kilogram of carbon dioxide equivalent (CO2e), amounting to IDR30,000 or around USD2.08 per metric ton of CO2e.
This particular regulation is a part of Indonesia’s effort towards the target for net zero emission by 2060, the path to which includes Greenhouse Gas (GHG) emissions reduction by 29% by 2030 or 41% with international aid.
According to the Minister of Energy and Mineral Resources, a larger roadmap is being prepared for Indonesia’s pursuit of net zero emission. This roadmap covers introducing an NRE law in 2022, ceasing gas import in 2027. First stage of subcritical coal power plants retirement in 2031 and 100% NRE share in the energy mix by 2060.
With this regulation, Indonesia is joining the ranks of 27 countries that have imposed carbon tax, including Canada, Japan, and the United Kingdom.
Is Carbon Tax Effective?
The effectiveness differs in these countries. Introduced in 2015, Great Britain’s carbon tax has led to 93% reduction of coal-powered electricity according to a UCL study.
Meanwhile, Canada’s carbon pricing policy differs between provinces and territories, but guided by the Pan-Canadian Approach to Pricing Carbon Pollution published in 2016. British Columbia is one of the first Canadian provinces to implement carbon pricing back in 2008. According to analysis, the policy has managed to reduce emissions by 5-15% while growing the provincial real GDP by more than 17% in the span of 5 years.
The successful policy, Sweden is one of the first countries to adopt the policy in 1991. The country currently imposes the highest carbon tax rate in the world at around USD126 per metric ton of CO2, mostly levied on motor and heating fossil fuels. By 2018, Sweden recorded a 27% GHG decrease since 1990. At the same time, the country has recorded over 50% GDP growth between 1990 and 2019.
In 2012, Australia began implementing a carbon tax, pricing carbon at USD23 per ton. The policy was successful at reducing national emissions, but was scraped due to industry pushback. Australia has implemented the much more lenient Safeguard Mechanism since then and is now on track to miss its emissions reduction target.
Whether Indonesia’s policy will succeed remains to be seen. However, this is certainly a first step in decades-long struggle towards net zero emission and a healthier planet.
Indonesia will begin implementation of carbon tax in April 2022 as regulated in the Law on Harmonized Taxation that entered into effect on 1 January 2022. According to the Finance Minister Sri Mulyani, the carbon tax provision covers two carbon pricing schemes of ‘Cap and Trade’ and ‘Cap and Tax’. Under ‘Cap and Trade’—more widely known as an emissions trading system (ETS), companies can buy emission allotment from other companies with spare allotment. Under ‘Cap and Tax’, companies can pay taxes for any carbon emission above the emission cap set for them. The carbon tax is set at IDR30 per kilogram of carbon dioxide equivalent (CO2e), amounting to IDR30,000 or around USD2.08 per metric ton of CO2e.
This particular regulation is a part of Indonesia’s effort towards the target for net zero emission by 2060, the path to which includes Greenhouse Gas (GHG) emissions reduction by 29% by 2030 or 41% with international aid.
According to the Minister of Energy and Mineral Resources, a larger roadmap is being prepared for Indonesia’s pursuit of net zero emission. This roadmap covers introducing an NRE law in 2022, ceasing gas import in 2027. First stage of subcritical coal power plants retirement in 2031 and 100% NRE share in the energy mix by 2060.
With this regulation, Indonesia is joining the ranks of 27 countries that have imposed carbon tax, including Canada, Japan, and the United Kingdom.
Is Carbon Tax Effective?
The effectiveness differs in these countries. Introduced in 2015, Great Britain’s carbon tax has led to 93% reduction of coal-powered electricity according to a UCL study.
Meanwhile, Canada’s carbon pricing policy differs between provinces and territories, but guided by the Pan-Canadian Approach to Pricing Carbon Pollution published in 2016. British Columbia is one of the first Canadian provinces to implement carbon pricing back in 2008. According to analysis, the policy has managed to reduce emissions by 5-15% while growing the provincial real GDP by more than 17% in the span of 5 years.
The successful policy, Sweden is one of the first countries to adopt the policy in 1991. The country currently imposes the highest carbon tax rate in the world at around USD126 per metric ton of CO2, mostly levied on motor and heating fossil fuels. By 2018, Sweden recorded a 27% GHG decrease since 1990. At the same time, the country has recorded over 50% GDP growth between 1990 and 2019.
In 2012, Australia began implementing a carbon tax, pricing carbon at USD23 per ton. The policy was successful at reducing national emissions, but was scraped due to industry pushback. Australia has implemented the much more lenient Safeguard Mechanism since then and is now on track to miss its emissions reduction target.
Whether Indonesia’s policy will succeed remains to be seen. However, this is certainly a first step in decades-long struggle towards net zero emission and a healthier planet.