Carbon Tax as an Instrument for Controlling Climate Change

Climate change has been around for a long time, and it is something that countries has tried to prevent globally, Indonesia is no exception in regard to combating climate change, and currently one of the instruments that Indonesia has come up with to combat climate change is Carbon Tax. Carbon tax was born through the Law on the Harmonization of Tax Regulations, which adds to a series of fiscal policies that are used as instruments to control climate change. The implementation of carbon tax is to proof to the people and the outside world that the Government of Indonesia is committed to use various fiscal instruments to finance climate change control which have been set as a priority in the Government’s development agenda.

Indonesia is one of the first countries of emerging economics to introduce and implement carbon tax. “In fact, the implementation of this carbon tax makes Indonesia equal with developed countries that have implemented this carbon tax policy, including the UK, Japan and Singapore,” said Head of the Fiscal Policy Agency of the Ministry of Finance Febrio Kacaribu in a release, Wednesday (13/10).

The main objective of imposing a carbon tax is to change the behaviour of economic actors so that they would switch to low-carbon green economic activities. This is in line with the Government’s efforts to achieve their target of reducing greenhouse gas emissions by 29% on their own efforts and 41% with international support by the year 2030.

Other than supporting the Government’s goal of reducing greenhouse gas emissions, the implementation of carbon tax also provides a strong signal that drives the development of carbon markets, technological innovation, and investments that are more efficient, low-carbon and environmentally friendly. The revenues generated from carbon tax will also be used to increase development funds, investments in environmentally friendly technologies, or providing support for low-income communities through social programs.

As an initial stage, the carbon tax will be applied to the Steam-Powered Power Plants (PLTU) sector on the 1st of April 2022, using a tax mechanism based on the emission limit (cap and tax). A tariff of IDR 30 per kilogram of carbon dioxide equivalent is applied to the amount of emissions that exceed the set cap. In the imposition mechanism, taxpayers can take advantage of carbon certificates purchased on the carbon market as a reduction to their carbon tax obligations.

The implementation of a carbon tax and the development of a carbon market are important milestones towards a sustainable Indonesian economy, as well as proof of Indonesia’s seriousness in the global climate control agenda. This momentum is also an opportunity for Indonesia to benefit as one of the first driving force.

“Indonesia is a determinant of global policy direction, not a follower in making the transition to sustainable development. Indonesia will become a reference and destination for low-carbon investment in various development sectors, such as the energy, transportation, and manufacturing industries,” said by Febrio.


SOURCE          : Indonesia Ministry of Finance (

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