Deputy Minister of Finance: Carbon Tax Implementation to Accompany Carbon Market Roadmap

The carbon tax will be used as an instrument to encourage the running of a carbon exchange that trades emission certificates.

"We will make the carbon tax an instrument so that the carbon market can run, so that the carbon market instrument can run," said Deputy Minister of Finance Suahasil Nazara, quoted on Thursday (14/9/2023).

Apart from being an instrument to drive the carbon market, the carbon tax is also an option for participation to reduce emissions. 

"The setting we want to build is that the business world should have options," continued the Deputy Minister of Finance.

The option in question is that businesses can choose to reduce their emissions by buying emission reductions in the carbon market or paying taxes to the government.

"If the carbon tax is not set, then people dont want to buy emission reduction certificates in the carbon tax," said Suahasil Nazara.

When will the carbon tax be implemented? "We will implement the carbon tax in line with the roadmap of our carbon market," he explained.

The space for carbon tax implementation has indeed been opened following the issuance of Law (UU) Number 7 of 2021 concerning Harmonization of Tax Regulations (HPP). Carbon tax will be imposed on carbon emissions that have a negative impact on the environment.

On the other hand, the Executive Head of the Supervisor of Financial Sector Technology Innovation, Digital Financial Assets and Crypto Assets, Financial Services Authority (OJK) stated that 99 coal-based power plants have the potential to participate in carbon trading. In addition to the power plant sector, carbon trading will also be enlivened by other sectors, such as the forestry sector, plantations, oil and gas, and general industry.

Carbon exchanges trade carbon credits, which are certificates or permits that entitle a company, industry, or country to emit 1 ton (1,000 kg) of CO2 or an equivalent amount of a different greenhouse gas (GHG). The market limits the total amount of CO2 that can be emitted, but the emission rate is not predetermined.

The opposite is the case with a carbon tax, where the emission tariff is predetermined, but the total amount of emission reductions is not. The emission tariff and the total amount of emission reduction will be the main differences between carbon tax and carbon credit.

Under the HPP Law, the carbon tax rate is set higher or equal to the carbon price in the carbon market per kg of carbon dioxide equivalent (CO2e) or equivalent unit. In the event that the carbon price in the carbon market is lower than IDR 30.00 per kg CO2e, the carbon tax rate is set at the lowest IDR 30.00 per kg per CO2e.