Carbon Series: An Introduction to Carbon Tax in Indonesia
Jakarta, Ideatax -- Recently, The UN Secretary-General, Antonio Guterres, stated that the era of global warming is over, but the era of a boiling earth has just begun. His statement is not without reason. Based on data compiled by the UN and the European climate agency, there was an increase in the average temperature on earth in July 2023.
In fact, the temperature in June broke the hottest temperature record in recent years (Kompas, 2023). In Indonesia itself, BMKG (2023) warned that Indonesia is preparing to face the impact of the El Nino phenomenon which causes the dry season to last longer than normal.
Global warming is an event of rising atmospheric, ocean and land temperatures (Haris, 2020). There are several causes of global warming, one of which is the increase in carbon dioxide (CO2) in the atmosphere, which is later referred to as the greenhouse effect.
Various efforts have been made by the UN and the Indonesian government to reduce CO2 levels such as making motor vehicle emission tests mandatory, moratoriums on natural forest and peatland utilization permits, regulation of working hours, car free day and so on. However, these various efforts have not yet achieved maximum results. Therefore, through Law number 7 of 2021 concerning Harmonization of Tax Regulations, the government sets regulations regarding carbon tax.
The main body of the HPP Law states that Carbon Tax is a tax imposed on carbon emissions that have a negative impact on the environment. The subjects of carbon tax are individuals and entities that purchase goods containing carbon or conduct activities that produce carbon emissions.
In terms of the rate, the HPP Law regulates that the carbon tax rate is set higher or equal to the carbon price in the carbon market per kilogram of carbon dioxide equivalent (CO2e). In the event that the price of CO2 in the carbon market is lower than IDR 30 per CO2e, the carbon tax rate is set at the lowest IDR 30 per kilogram of carbon dioxide equivalent. Reuters (2023) reported that the carbon price in February 2023 peaked at 100 euros per ton (Reuters, 2023). This price is much higher than the carbon tax threshold set by the Indonesian government.
Moreover, when compared to other countries such as Chile, Japan or France, the carbon tax rate in Indonesia is relatively lower. Japan, for example, imposes a carbon tax of USD 3 per ton of CO2. Meanwhile, Chile imposes a carbon tax of USD 5 per ton of CO2. On the other hand, Denmark imposes a carbon tax at a rate of USD 27.45 per ton of CO2.
It should be noted that the proceeds from the carbon tax, in addition to being used to supplement the state treasury in the state budget, can also be used for climate control activities in Indonesia. This is as stated in Article 13 paragraph (12) of the HPP Law.
Although carbon tax is imposed on purchases and activities that produce carbon emissions, the House of Representatives and the Government provide further regulation that the imposition of carbon tax must pay attention to the map of carbon and carbon market. The carbon roadmap is a blueprint that contains carbon emission reduction strategies, carbon tax priority sector targets, alignment with new and renewable energy development, and alignment between various other policies.
So far, the government has not provided further regulation on the mechanism of carbon tax collection, withholding, reporting and payment. This is because technical regulations on carbon tax are closely related to regulations of other ministries such as the Ministry of Environment and the Ministry of Energy and Mineral Resources.
To accelerate greenhouse effect mitigation, the government is encouraged to immediately issue derivative regulations that regulate the mechanism of reporting, payment, and collection of carbon taxes that are equitable and minimize the externalities caused.
Law No. 7 of 2021 on Harmonization of Tax Regulations
BMKG. (2023, July 31). 63% Wilayah Sudah Masuk Musim Kemarau, Indonesia Bersiap Hadapi El Nino. Retrieved from Badan Meteorologi, Klimatologi dan Geofisika : https://www.bmkg.go.id/berita/?p=63-wilayah-sudah-masuk-musim-kemarau-indonesia-bersiap-hadapi-el-nino&lang=ID
Haris, M. (2020, July 31). Pemanasan Global: Pengertian, Penyebab, Dampak dan Cara Mengantisipasi. Retrieved from Gramedia Blog: https://www.gramedia.com/literasi/pemanasan-global/
Kompas. (2023, Agustus 03). PBB: "Bumi Mendidih" Setelah Juli Rekor Bulan Terpanas. Retrieved from Kompas: https://www.kompas.com/global/read/2023/08/03/122100670/pbb--bumi-mendidih-setelah-juli-cetak-rekor-bulan-terpanas?page=all
Reuters. (2023, Februari 21). EU carbon price hits record high nearing 100 euros/tonne. Retrieved from Reuters: https://www.reuters.com/markets/carbon/eu-carbon-price-hits-record-high-nearing-100-eurostonne-2023-02-20/
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