The Indonesia parliament has approved the creation of a carbon tax set at IDR30,000/kCO2 (US$2.1/kCO2) and aimed to reduce CO2 emissions, in a major tax system overhaul including a higher value added tax (VAT) rate. The government will first develop a carbon trade mechanism in 2021; then, the carbon tax will apply to coal-fired power plants in 2022-2024 based on this cap and tax mechanism and it will be broadened to other sectors in 2025. The country could target emissions on the use of fossil fuels such as coal, diesel and gasoline by factories and vehicles. In addition, the carbon tax may be focused on carbon-intensive sectors such as the pulp and paper, cement, electricity generation and petrochemical industries.
In July 2021, Indonesia submitted an updated Nationally Determined Contribution (NDC). The country has set unconditional reduction target of 29% and conditional reduction target up to 41% of the business-as-usual scenario by 2030. Similar targets were included in Indonesia’s first NDC in November 2016. CO2 emissions from energy combustion are increasing rapidly and regularly (around 5%/year since 1990). They increased by 6%/year over 2013-2019 and declined by 5% in 2020 (566 MtCO2).
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