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Indonesia will start to implement its carbon tax from April 2022

22 Nov 2021

Indonesia will start to implement a cap and trade CO2 emission scheme and a carbon tax in the coal-fired power plant sector from 1 April 2022. Under the mechanism, operators above cap emission level must obtain a permit from other economic activity that reduces emission or pay a carbon tax. The minimum carbon tax rate is set at IDR30,000/tCO2 (US$2.1/tCO2). The country will not authorise cross-border carbon trade. Until 2024, the carbon tax will only apply to coal-fired generation but the scheme will be extended to other sectors starting from 2025. Indonesia 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 later be focused on carbon-intensive sectors such as the pulp and paper, cement, electricity generation and petrochemical industries.

The creation of a carbon tax was approved by the parliament in October 2021. The government had initially proposed a higher carbon tax rate of IDR75,000/tCO2 but the rate was reduced at the introductory stage; it is expected to be market based eventually.

In July 2021, Indonesia submitted an updated Nationally Determined Contribution (NDC) that kept the targets of its first NDC (November 2016). The country has set an unconditional reduction target of 29% and a conditional reduction target of up to 41% of the business-as-usual scenario by 2030. 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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