The government seeks to reduce carbon emissions through various policies, such as carbon pricing and carbon taxes. In addition to reducing the impact of global warming, this step is believed to improve the investment climate. So the hope is that the economy can accelerate. Most recently, the President of the Republic of Indonesia, Joko Widodo, said that the government had ratified a Presidential Regulation (Perpres) on Carbon Economic Value (SEZ) or carbon pricing. He claims that this method makes Indonesia the first mover for market-based climate change mitigation at the global level to lead to a sustainable economic recovery. Through carbon pricing, the government has the ambition to reduce greenhouse gas missions by 29% on its own and 41% with international support by 2030. The strategic sectors that are the main priority are the forestry sector, as well as the energy and transportation sectors which have covered 97% of Indonesia's Nationally Determined Contribution (NDC) emission reduction target. Even in the 2021 NDC update document, through the long term strategy – low carbon and climate resilience (LTS – LTCCR), Indonesia has also targeted to achieve Net Zero Emission (NZE) in 2060 or earlier.
Head of the Fiscal Policy Agency (BKF) of the Ministry of Finance (Kemenkeu) Febrio Kacaribu explained that the Presidential Regulation stipulates that carbon pricing consists of two important mechanisms, namely carbon trading and non-trade instruments.
If the trading instrument consists of a cap and trade as well as an offsetting mechanism, the non-trading instrument includes a levy on carbon and a result-based payment (RBP). "This NEK instrument is proof of excellent collaboration and multi-stakeholder cooperation and can be a momentum for the first mover advantage of market-based climate change mitigation at the global level to lead to sustainable economic recovery," said Febrio, Tuesday (2/11). Meanwhile, Febrio said to support the achievement of the NDC target, the government has implemented various fiscal policies including the provision of tax incentives, allocation of climate change funding at the ministry/institution level, Transfers to Regions and Village Funds (TKDD) and financing innovations through the Fund Management Agency. Environment (BPDLH), Sustainable Development Goals (SDG) Indonesia One and the Green Climate Fund (GCF). In parallel with carbin procing, the government will immediately implement a carbon tax through the enactment of the Law on the Harmonization of Tax Regulations (HPP) which will begin on April 1, 2022.
This new tax levy is imposed on entities engaged in coal-fired power plants at a rate of Rp. 30 per kilogram of carbon dioxide equivalent (CO2e) or equivalent units. The carbon tax will later be applied to the coal-fired power plant (PLTU) sector using a tax mechanism based on the emission limit (cap and tax). The carbon tax rate is applied to the amount of emissions that exceed the set cap, in line with the development of the carbon market that has already started running in the coal-fired power plant sector. Febrio said that the implementation has made Indonesia equal with developed countries that have implemented this carbon tax policy, including the UK, Japan and Singapore and also as one of the few countries, even the largest in developing countries, which will implement it first. “Indonesia will become a reference and destination for low-carbon investments in various development sectors, both in the energy, transportation and manufacturing industries. Green-based industries will be the prima donna of future investment,” said Febrio. Febrio projections, the electric vehicle industry, renewable energy sources such as solar, geothermal and wind power will be an economic booster and able to provide added value to Indonesia and absorb highly skilled workers.
“The voluntary market for the carbon market has already taken place and currently pilot projects are being carried out in our SOEs such as PLN and a carbon market is being built between SOEs with a surplus and a carbon credit deficit. It is hoped that this initial step can become the seed for the development of the carbon market as a whole,” added the Special Staff of the Minister of Finance for Macroeconomic and Fiscal Policy Masyita Crystallin. On the other hand, Deputy Chairperson for Fiscal and Public Policy at the Indonesian Chamber of Commerce and Industry (Kadin) Suryadi Sasmita said that regarding the regulation of the carbon tax, the government urged the government to immediately draw up a road map. According to him, the road map must really pay attention to the development of the carbon market, the target for achieving NDC, and the readiness of the sector and economic conditions. "In order to maintain the competitiveness of Indonesia's industry, job creation and on the one hand also reduce the effect of greenhouse gases and maintain the earth's climate, which will be passed on to future generations," he said.
