Authors: I Dewa Made Raditya Margenta, and Filda C. Yusgiantoro*
A carbon tax should be overviewed as an oasis of post-pandemic recovery. The proper carbon tax scheme will solve two of Indonesia’s extensive homework; reducing greenhouse gas (GHG) emissions and boosting revenue to support economic recovery. In the end, Indonesia’s political will is crucial in completing this mission.
Recently, the carbon tax has become an exciting topic of discussion in Indonesia. This carbon tax is introduced in a revised General Taxation Law bill and becomes this year’s Indonesia National legislation Program. According to the bill, the government plans to collect a carbon tax of IDR 75,000 (US$ 5.25) per tonne of GHG (tCO2e). The carbon tax could target emissions on the use of fossil fuels such as coal, diesel, and gasoline by factories and vehicles.
The introduction of the Carbon Tax is quite astounding. Previously, the Coordinating Minister for Maritime Affairs and Investment of Indonesia, Luhut Binsar Pandjaitan, said that President Joko Widodo planned to issue a Carbon Trading regulation in December 2020. However, there has been no signal that the regulation will be issued until now.
Implementing a carbon tax is seen as a strategic step for the government to reduce GHG emissions and boost state revenue to increase development funds. As a result, the carbon tax scheme must be well constructed, specific, and well-targeted so that the carbon tax implementation can recover the environment and Indonesia’s economy.
However, the carbon tax implementation will not succeed without strong political will and commitment from the government.
Carbon tax as a climate action plan
As the sixth-largest GHG emitter in the world, Indonesia becomes vulnerable to climate change impact. According to the Ministry of Environment and Forestry of Indonesia, the transportation and manufacturing sectors contributed to around 64% of 2017 national GHG emissions. This number will rise considering the increase in energy demand and manufacturing activities to stimulate the economy. Therefore, a new climate policy, such as a carbon tax, needs to be promoted as a climate action plan.
As an economic-environmental instrument, a carbon tax is more straightforward to address this issue. Also, the revenues gained from this tax can be recycled to support green development. Thus, the target of this tax must be well identified, and the carbon tax scheme must be designed correctly to avoid a deadweight.
Singapore can be the lead example to emulate its carbon tax scheme. Based on Singapore’s climate action plan, the tax is applied to the facilities that emit abundant GHG annually. They also promote clean and simple carbon tax to preserve fairness, uniformity, and transparency. Its carbon tax scheme, which takes place from 2019 to 2023, will be reviewed by an impact assessment in 2022.
From Singapore, Indonesia can learn that the scheme may have the flexibility to respond to the dynamics that will occur, including the opportunity to move towards a carbon trading scheme in the future. Besides, having a solid political like Singapore will give Indonesia’s carbon tax implementation an upper hand.
Building Indonesia’s political will for a climate action plan
Indonesia’s successful climate action plan relies on various variables such as GHG emissions reduction, identifying the most appropriate instruments, and introducing new climate policies. However, all of these variables are highly dependent on political will.
Indonesia’s political will on climate mitigation would be a perfect start and a powerful tool to take immediate action in climate mitigation initiatives. Instead, Indonesia’s political will may face a political challenge during the policymaking process. A lengthy policymaking process of the New and Renewable Energy Bill is one of the examples. Hence, Indonesia’s political will to address climate change at the beginning of the policymaking process is crucial.
Gaining public trust and being severe are essential steps that should be carried out before introducing a carbon tax.
At first, the government must improve its accountability and transparency, reflecting on what Singapore has shown. Indonesia should also consider complementary economic policies that minimize a carbon tax’s negative impacts on business and household sectors.
Then, Indonesia could consider removing fossil fuel subsidies and replacing them with direct subsidies to low-income households.
Finally, Indonesia should guarantee that the obtained revenue from the carbon tax will be recycled for green development and improving community welfare.
Conclusion
In brief, implementing a carbon tax in Indonesia will determine the nation’s and its citizens’ future.
Ensuring the carbon tax implementation will be on point, Indonesia’s political will is the brain, which can be seen from a carbon tax scheme and the supporting policies. The success of this policy will be seen from intensive GHG reduction, positive economic growth, and improve Indonesian people’s welfare simultaneously.
*Filda C. Yusgiantoro, Ph.D., chairperson of Purnomo Yusgiantoro Center and an economic lecturer in Prasetya Mulya University
