Dion Bisara, Jakarta – The government has submitted a proposal to impose a carbon tax starting next year, as part of the country's tax code reform, to reduce carbon emissions and meet its commitment to climate change mitigation, a minister said on Monday.
In the 2021 bill about the Revision of General Provisions and Tax Procedures (UU KUP), the government proposed a Rp 75 tax on a kilogram of carbon dioxide equivalent (CO2e) emissions, which was equal to around $5.2 per ton of CO2e.
Indonesia has pledged to reduce greenhouse gas emissions by 26 percent from business-as-usual level this year and by 29 percent by 2030 under the 2015 Paris climate agreement.
"As an archipelagic country... Indonesia has major interest to prevent drastic climate change," Finance Minister Sri Mulyani Indrawati said in a meeting with the House of Representatives Commission XI, which oversees banking and finance, on Monday.
On the other hand, the government kept lacking funds to combat climate change. The Ministry of Finance estimated Indonesia needed Rp 266 trillion ($18.3 billion) a year to mitigate climate change. Between 2016 and 2019, the government could only foot Rp 86.7 trillion per year, or 32 percent, of the bill.
Sri Mulyani said a carbon tax would be ideal for plugging that financing gap while creating a disincentive that persuades people or corporations to reduce their emissions.
"One of the tools for reducing greenhouse gas emissions is to include provisions for the imposition of carbon taxes," Sri Mulyani said.
Sri Mulyani said an individual or corporation that purchases goods with any carbon footprints or engages in carbon-emitting activities must pay the carbon tax.
The government's proposal would place Indonesia among the low end of countries that had imposed carbon tax. Japan levied $3 on every metric ton of CO2e emitted from fossil fuels by all industries in the country, except manufacturing, energy, transportation, agriculture, and forestry. In comparison, Singapore imposed $3.7 per metric ton of CO2e while Columbia's carbon tax was $4.5 per metric ton.
At the higher end, Spain charged $17.5 per metric ton of CO2e while France imposed a $49 per metric ton carbon tax.
Sri Mulyani said experts at the Coalition of Finance Ministers for Climate Actions, a ministerial-level group for promoting policies against climate change at the domestic and global levels, recommended the carbon should be priced at around $120 per metric ton by 2030.