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Jakarta, Ideatax -- The Indonesian dream of reducing pollution through the carbon market will soon be realized. The OJK Regulation No. 14 of 2023 on Carbon Trading through Carbon Exchange; mandates OJK to regulate, supervise and develop carbon market through carbon exchange.
It did not take long for domestic market players to establish a carbon market. On September 26, 2023, the President of the Republic of Indonesia, Joko Widodo, launched the Indonesia Carbon Exchange (IDXCarbon) organized by the Indonesia Stock Exchange (IDX). Through Decree KEP-77/D.04/2023, the Financial Services Authority (OJK) granted permission to IDX to organize a transparent, regular, fair and efficient carbon market (IDX, 2023).
Deputy Minister of Finance, Suahasil Nazara, stated that the carbon market and carbon tax are part of the instrument to fulfill the Nationally Determined Contribution of reducing gas emissions by 31.89% by own efforts and up to 43.20% with international cooperation by 2023 (Ministry of Finance, 2023).
Historically, the carbon tax was first introduced by David Gordon Wilson in 1973. At the time, instead of limiting the amount of emissions from each emitter, Wilson believed that effective pollution reduction could be done through market mechanisms. The first country to implement a carbon tax was Finland (Tax Fitness, 2018). In 1990, Finland introduced an energy tax with a rate of EUR 1.12 per ton of CO2e or IDR 18,370 per ton of CO2. The carbon tax in Finland is billed or collected at the time of fuel import. As a result, in 2013 Finland reported that the revenue from carbon tax was worth 800 million dollars or equivalent to 12.39 trillion rupiah. This carbon tax revenue is used to reduce personal income tax and corporate tax for Finnish citizens. Environmentally, Finland's carbon tax reduced emissions by four million metric tons between 1990 and 1998.
Also Read: Carbon Series: An Introduction to Carbon Tax in Indonesia
The second country to implement a carbon tax is Sweden (Perez & Perez, 2020). Sweden began implementing a carbon tax in 1991 with a rate of EUR 24 per ton of CO2e or equivalent to IDR 393,648 per ton of CO2e. Similar to Finland, Sweden's carbon tax is collected at the time of fuel import. This is likely because both Sweden and Finland import a lot of fuel. Sweden reported that carbon tax revenues in 2015 had increased by 169% compared to what it received in 1991. This is quite an indication that the existence of carbon tax has been accepted by the Swedish society itself. In terms of the environment, the Swedish government reported that there has been a 26% reduction in emissions since the carbon tax was implemented in 1991.
Another country that has implemented carbon tax is Japan. Japan started implementing carbon tax in 2011 with a rate of JPY 289 or IDR 29,975 per ton of CO2e. The carbon tax in the land of the rising sun is imposed on fuel and coal emissions. The Japanese government reported that in 2011, the total revenue from the carbon tax was JPY 39.1 billion or equivalent to IDR 4.06 trillion. In 2019, this amount rose to JPY 262.3 billion. In terms of environmental impact, the carbon tax in Japan succeeded in reducing emissions by 5.69 million tons of CO2e (Ministry of the Environment Government of Japan, 2012).
Based on a report by the non-profit organization earth.org, there are currently 27 countries that have implemented carbon tax, including Argentina, Canada, Chile, China, Colombia, Denmark, the European Union (27 countries), Japan, Kazakhstan, Korea, Mexico, New Zealand, Norway, Singapore, South Africa, Sweden, the UK, and Ukraine. Other countries that are considering joining them include Brazil, Brunei, Indonesia, Pakistan, Russia, Serbia, Thailand, Turkey, and Vietnam (Lai, 2023). In addition, based on the OECD report, 46 countries have implemented emission pricing either through carbon tax or emissions trading schemes (ETS) (Black, Parry, & Zhunussova, 2022).
A small comparison of the rates, mechanisms, uses and exemptions of carbon tax can be seen in the table on the side:
A small comparison of the rates, mechanisms, uses and exemptions of carbon tax can be seen in the table on the side. Based on the graph, it is known that in general, the carbon tax rate set by the Government of Indonesia through the Harmonization of Taxation Regulations Law of IDR 30,000 per ton of CO2e is relatively lower than the carbon tax rate set by other countries in the world. In fact, Japan, which implemented a carbon tax in 2011, implemented a higher carbon tax than Indonesia at USD 3 per ton of CO2e or IDR 46,480 per ton of CO2e.
This is a comparison of carbon taxes among countries. In the next article, we will discuss carbon trading mechanisms.
References
BEI. (2023, September 26). Peluncuran Bursa Karbon Indonesia (IDXCarbon). Retrieved from Indonesia Stock Exchange: https://www.idx.co.id/id/berita/berita/b882a251-3e5c-ee11-b808-005056aec3a4?id=10282
Black, S., Parry, I., & Zhunussova, K. (2022, July 22). More Countries Are Pricing Carbon, but Emissions Are Still Too Cheap . Retrieved from OECD: https://www.imf.org/en/Blogs/Articles/2022/07/21/blog-more-countries-are-pricing-carbon-but-emissions-are-still-too-cheap
Kemenkeu. (2023, September 23). Wamenkeu : Pajak Karbon Menjadi Instrumen Pasar Karbon Jalan. Retrieved from Kemenkeu: https://www.kemenkeu.go.id/informasi-publik/publikasi/berita-utama/Pajak-Karbon-Menjadi-Instrumen-Pasar-Karbon-Jalan
Lai, O. (2023, Sept 29). What Countries Have A Carbon Tax? Retrieved from earth.org: https://earth.org/what-countries-have-a-carbon-tax/
Ministry of The Environment Government of Japan. (2012). Details on the Carbon Tax (Tax for Climate Change Mitigation). Tokyo: Ministry of The Environment Government of Japan.
Perez, C., & Perez, M. H. (2020). Carbon Pricing: International. New York: DICE.
Tax Fitness. (2018, 10 11). The First Carbon Tax was Introduced in Finland in 1990. Retrieved from TaxFit: https://taxfitness.com.au/Blog/first-carbon-tax-finland-1990
