BKF: Prepared Carbon Tax, Increased Emission Reduction Target

The Fiscal Policy Agency recently announced it is increasing its target for reducing greenhouse gas (GHG) emissions. As stated on the BKF press page, climate change is becoming an increasingly serious global challenge, so joint action is needed to tackle it.

One of these global actions is through the Paris Agreement or the Paris Agreement. The Paris Agreement has the goal of restraining the increase in global average temperatures and is directed at increasing the ability to adapt to the negative impacts of climate change, towards climate resilience and low emission development without threatening food production. In addition, it is also directed to prepare a funding scheme towards low-emission and climate-resilient development.

Indonesia took the initiative to ratify the Paris Agreement into Law No. 16 of 2016 at the end of 2016 as a commitment to efforts to control the sustainability of climate change. The press release from the Fiscal Policy Office stated that the ratification of the Paris Agreement included the Nationally Determined Contribution (NDC) commitment in 2016 and made tackling climate change one of the national priority agendas in the 2020-2024 development planning and implementation. 

Furthermore, in an effort to further strengthen climate change impact control policies, the Indonesian government began introducing carbon tax implementation arrangements along with the enactment of Law no. 7 of 2021 concerning Harmonization of Tax Regulations (UU HPP). The imposition of a carbon tax is based on compensation for each community activity that contributes carbon emissions so that it can have a negative impact on the environment.

Revenue from the carbon tax will be aimed at encouraging the development of green and renewable energy. The imposition scheme has been arranged and will be implemented in April 2022 before the Minister of Finance finally announces to postpone the implementation of this carbon tax. The Minister of Finance stated that the government still needs more time to finalize the implementation of this carbon tax by taking into account the still vulnerable economic conditions and the ongoing food and energy crises.

According to the Managing Partner of PT BATS International Group, Brian Pramudita, the postponement of the carbon tax and the implementation of its supporting policies has made the public seem to question the tug-of-war of the governments readiness so that the policy continues to be postponed and has not yet found certainty.

The issue of postponing carbon taxes then heated up in public discussion after a statement from the Coordinating Minister for the Economy, Airlangga Hartanto that policies related to carbon trading and carbon taxes were targeted to function in 2025. This statement was made by Airlangga Hartanto when giving the opening of the Capital Market Summit & Expo event ( CMSE) on October 13, 2022.

Recently, the ranks of the Ministry of Finance held a press conference regarding the performance of the State Budget up to September 2022. During the press conference, the Head of the Fiscal Policy Agency (BKF) also spoke to the media regarding the postponement of carbon taxes in Indonesia. The Head of the Fiscal Policy Agency stated that the carbon tax would still be prepared in the context of achieving the Nationally Determined Contribution (NDC) target as the handling of Climate Change Risk by Indonesia.

On the other hand, BKF is also preparing a carbon market mechanism which will be effectively combined with the implementation of carbon taxes in Indonesia. However, in addition to paying attention to the impact on the national economy, the implementation of this policy also needs to pay attention to conditions of very high uncertainty at the global level. Thus, BKF said that it would consider the right timing to implement the carbon tax policy so that the impact could be as minimal as possible for the national economy and have the readiness to be as effective as possible in its realization.

Previously, the BKF stated that Indonesia is committed to reducing greenhouse gas (GHG) emissions that are harmful to the environment, with a reduction of 29% with its own capabilities and 41% with international support by 2030.

In the APBN Kita press release on October 21, the head of the BKF, Febrio Nathan Kacaribu, stated that BKF has increased the emission reduction target with its own capabilities from 29% to 31.9% and 41% with international support. The Head of the BKF revealed that this step was in line with the Indonesian governments commitment to deal with climate change consistently.

This preparation is a form of the Indonesian governments commitment to achieving the NDC target and climate change can be handled consistently. By considering various aspects and the right time to apply carbon taxes, it is hoped that the implementation of carbon tax policies can run effectively and can meet the countrys target of reducing emissions in the medium and long term.