Press Release
Carbon Tax as Indonesia's First Step Towards a Low Carbon Future
Carbon Tax as Indonesia's First Step Towards a Low Carbon Future
Wednesday, 13 October 2021

Jakarta, October 13th 2021 - The issue of setting a carbon tax is currently getting great attention from many parties. This can be seen from the many questions regarding the carbon tax on the Webinar that ICDX held some time ago regarding the preparation of market infrastructure for carbon trading in Indonesia. At that time, the government proposed a carbon tax of IDR 75/kg of carbon emissions. Recently, the government and the House of Representatives (DPR) have agreed to set a carbon tax rate of IDR 30/kg carbon emissions. However, the public's great attention to the carbon tax is based on their curiosity about the use of the carbon tax.

“The government's goal of introducing a carbon tax is basically to ensure that the negative impact of greenhouse gas emissions can be seen from the price paid by communities and companies for goods and services that are not yet carbon-free, so that it will lead to more rational decision-making and will improve people's welfare. as a unit,” explains ICDX CEO, Lamon Rutten.

Lamon further explained, “If a factory is required to pay a price for the pollution it produces at the cost of environmental damage caused such as water pollution, it will encourage changes in the company's operations although it may not eliminate pollution completely. Thus, local residents will also receive fair compensation. Similar to setting a carbon tax, the goal is to change business behavior that is detrimental to the environment and distribute income more equitably. If designed properly, setting a carbon tax can make society more prosperous.”

As another example, Cuba used to receive heavily subsidized fuel from the Soviet Union, and its entire economy adapted to using cheap fuel. When subsidized fuel exports stopped when the Soviet Union fell, Cuba had to import at market prices. Much of its economy was in sudden losses. This is because Cuba does not have the right policies to accommodate market prices. The Cuban government made a desperate attempt to change this by importing more fuel-efficient trucks and reconfiguring the existing transport fleet, which later emerged as camel bus transportation as a solution to public transport just to save fuel.

The Cuban experience shows that when prices are adjusted to the true value, companies are compelled to restructure their operations, but if that is done too soon there can be a shock effect. In the current context of Indonesia, communication from the government is needed regarding the implementation of the carbon tax in the long term and how the government will increase the tax to that long-term level. Second, as many international companies have done, Indonesian companies can start using carbon estimates in their investment decisions so that there are no “stranded assets”, i.e. machinery and equipment that are completely unsuitable for a zero-carbon economy.

There are two main policy instruments for introducing carbon prices: carbon taxes, and carbon cap-and-trade markets. These two instruments complement each other. Cap-and-trade is expected to create incentives for companies to innovate, and significant profit opportunities for new projects and investments that can quickly generate environmental benefits. Cap-and-trade is usually aimed at a large sector consisting of a number of large companies. As for other economic actors, carbon taxes need to be used so that goods and services are priced in accordance with the negative impact on the environment.

From this example, the carbon tax is basically not intended to generate revenue for the state. Countries that start implementing carbon taxes can reduce other taxes, or return some of the revenue to the targeted public. For example, to subsidize public transport, or to help companies convert their equipment and machinery into new equipment and machinery using low-carbon technologies.

The carbon tax will also establish Indonesia as a country that takes climate change seriously, and will ultimately protect businesses from import taxes that will be imposed by developed countries, and will allow developed country buyers to offset from Indonesian suppliers under market arrangements. their own compliance, at far above current prices. High offset prices, will likely bring an inflow of funds to remote areas of Indonesia, creating more jobs, benefiting rural communities, and helping to reduce welfare disparities between urban and rural areas.

Member of
© Indonesia Commodity & Derivatives Exchange (ICDX)
Join Our Monthly Newsletter
Follow Us
Contact Us
Midpoint Place, 22nd Floor, K.H. Fachrudin Street No. 26, Tanah Abang, Jakarta Pusat
+62 21 3002 7788