Carbon Tax Applied April 2022

Pajak Karbon

The climate on this earth is getting increasingly unhealthy. There are so many toxic gases that make the ozone layer thinner and make the world’s climate unstable. The heat will feel very hot if the ozone layer becomes thinner. Therefore, there is now a carbon tax  which is expected to suppress factories that produce carbon gas or motor vehicles.

For this reason, the carbon tax in Indonesia will be implemented in April 2022. However, there are still people who are confused about this policy. There are even those who are debating the implementation of a carbon tax in Indonesia.

Before you also question this tax in 2022, first learn what a carbon tax  is and also the benefits that you can get.

What is a Carbon Tax?

This tax is indeed one of the policies of the Indonesian government to reduce gas emissions which can damage the environment over time. Of course, this is a policy that must be supported by all parties. Although there are pros and cons, first know what a carbon tax is.

Carbon Tax

Carbon tax is a fee levied on burning carbon-based fuels (coal, oil, gas). More importantly: it is the core policy to reduce and ultimately eliminate the use of fossil fuels which burn unstable and damage our climate.

The tax is even the only way for users of carbon fuels to pay for the climate damage caused by releasing carbon dioxide into the atmosphere. If set high enough, this becomes a strong monetary disincentive that motivates shifts to clean energy across economies, simply by making it more economically profitable to switch to non-carbon fuels and energy efficiency.

Carbon Tax Rate

The amount of costs must be synchronized with plans and targets for reducing greenhouse gas (GHG) emissions. In addition, it is necessary to strengthen institutional readiness to implement the tax.

Fabby insisted that this tax be adjusted for global costs. The World Bank, he explained, has suggested a tax fee of around US$35-40 per ton. In China, when starting trading in emissions, the regulated price was 6.9 US dollars per tonne and will increase to 15 US dollars per ton in 2030. “The government’s figure of 30 rupiah per kg or 30 thousand rupiah per tonne is too cheap,” he said.

Meanwhile, the General Chair of the Indonesian Renewable Energy Society (Meti), Surya Darma, admitted that the rates set in the Carbon Emission Value (NEK) were really cheap compared to other countries.

Why Is There a Carbon Tax?

The carbon tax, of course, exists because of a problem. Carbon’s chemistry is strong but also simple. The amount of CO2 released in the burning of fossil fuels is very proportional to the carbon content of the fuel. This allows a tax to be levied “upstream” on the fuel itself when it is extracted from the ground or imported into Indonesia, which greatly simplifies its administration.

The essence of energy of any fossil fuel is its carbon and hydrogen atoms. The oxidation (burning) of the atoms releases their heat energy but also converts carbon into carbon dioxide. Natural gas, with its high hydrogen to carbon ratio, is the fuel that absorbs the least carbon, while coal is the most abundant.

The CO2 released from burning these fuels rises to the upper atmosphere and stays there. Usually for about a century it traps heat re-emitted from the earth’s surface and causes global warming and other dangerous climate changes.

Carbon Tax Policy

Leveraging existing tax collection mechanisms, taxes are paid “upstream”, i.e., at the point where the fuel is extracted from the Earth and introduced into the trade stream, or imported into Indonesia’s existing Suppliers and fuel processors free of taxation fees as far as market conditions are concerned. allows. Placing a tax on carbon gives consumers and producers a monetary incentive to reduce their carbon dioxide emissions.

Carbon that is chemically bonded into manufactured products such as plastic but is not burned will not be taxed. Similarly, any CO2 from energy production that is permanently sequestered rather than released into the atmosphere will not be taxed (or will receive a replacement tax credit). In addition, some carbon tax proposals include exemptions for export-dependent businesses to help them remain competitive in global markets.

Carbon Tax Act

The Carbon Tax Law has been stipulated in a Law that has been in effect since April 1, 2022.

Law 7/2021 concerning Harmonization of Tax Regulations – Article 13

Setting Points: 

  • Imposition: imposed on carbon emissions that have a negative impact on the environment.
    Direction of imposition of carbon tax: paying attention to the carbon market roadmap and/or carbon tax roadmap that contains a strategy for reducing carbon emissions, priority sector targets, alignment with new and renewable energy development and alignment between various other policies.
  • The principle of carbon tax: the principle of justice (just) and affordability (affordable) by taking into account the business climate, and small communities.
  • The carbon tax rate is set higher or equal to the carbon price in the carbon market with a minimum rate of IDR 30.00 per kilogram of carbon dioxide equivalent (CO2e).
  • Utilization of state revenues from the Carbon Tax is carried out through the APBN mechanism. It can be used, among others, to control climate change, provide social assistance to poor households affected by carbon taxes, subsidize renewable energy, and others. • Taxpayers who participate in carbon emission trading can be granted a carbon tax deduction.
  • Enforcement of the carbon tax: effective on April 1, 2022, which was first imposed on an agency operating in the coal-fired power plant sector with a cap and tax scheme that is in line with the implementation of the carbon market which has already started in the coal-fired power plant sector.

Presidential Decree 98/2021 concerning the Implementation of NEK – Article 58

Setting Points: 

  • Carbon levies are defined as state levies both at the central and local levels, based on carbon content and/or potential carbon emissions and/or total carbon emissions and/or performance of Mitigation Actions.
  • Furthermore, the arrangement for its implementation is carried out in accordance with the provisions of the legislation.
  • Thus, carbon levies can be in the form of existing state levies (eg Motor Vehicle Tax, Fuel Tax, PPnBM), as well as other levies that will be applied (eg the imposition of a Carbon Tax).

Carbon Tax Purpose

This tax is held because there are various definite purposes which are also for the benefit of the community for their own health. The various objectives of holding a carbon tax are as follows:

Reflecting the True Cost of Burning Carbon

The purpose of this tax is to reflect the true cost of burning carbon. These costs are borne by the affected parties, such as homeowners, farmers, and ultimately the government. Taxes ensure companies and consumers pay for the external costs they impose on society.

Creating Healthy Surrounding Climate

The purpose of holding a carbon tax is to make the surrounding climate healthy. If there is a carbon tax regulation, it will make many people think twice about using motorized vehicles or factories will increase awareness to switch to healthier sources of energy or transportation.

How is Carbon Tax Implemented in Indonesia?

The implementation of this tax in Indonesia, the government began to implement the Indonesian carbon tax on April 1, 2022. This application is intended to suppress carbon emissions which are a form of environment or green economic growth.

The special staff of the minister of finance for the formulation of Fiscal and Macroeconomic Policies, Masyita Crystallin, said that the policy of implementing the carbon tax in Indonesia is used to overcome the negative environmental impacts, so that through carbon pricing or the economic value of carbon as a price for greenhouse gas emissions.

“This can help implement the polluters pay principle in which the polluter will bear the price of the pollutant issued at the price of the economic value of carbon,” said Masyita to the questioner.

Thus, carbon pricing is intended to correct market failure by utilizing market policies. So that it can give a negative signal to sectors that have high greenhouse gas emissions. Which is an incentive for the industrial sector that has low greenhouse gas emissions.

Then Masyita continued that Indonesia has negative emission externalities through the economic value of carbon which is implemented through the cap and trace and cap and tax mechanisms. So this tax is only imposed on emissions above the stamp of each sector.

With these two mechanisms, business people will be encouraged to take an action to prevent climate change by reducing emissions below the limit or emission cap.

As previously discussed, these two schemes are also contained in the Presidential Regulation or Presidential Regulation Number 98 of 2021 in an operational framework for Carbon Economic Values.

Indonesia is one of the countries that will implement 2022 first, which is the first country to be the first mover of the world carbon tax, especially in countries with new or emerging economies.

The main objective of implementing this Indonesian tax is to change economic behavior to be able to switch to green, low-carbon economic activities. This is also in line with the government’s efforts to reduce greenhouse gas emissions by 29% on its own and 41% with international support by 2030.

The implementation of taxes provides a strong signal that drives the development of carbon markets, technological innovations, and investments that are more efficient, environmentally friendly and low-carbon. The state will use it to help people with low incomes in the form of social programs.

Who Is Subject to a Carbon Tax?

Talking about who will be subject to a carbon tax can be introduced in various industrial sectors, including:

Steam power plant sector

For the initial stage on April 1, 2022, this tax will begin to be set in the steam power plant sector or PLTU. This is considering that the PLTU produces a lot of greenhouse gas emissions due to the burning of fuel in the form of coal as a power plant.

Determination of tariffs and sectors will be imposed periodically which takes into account many things including economic recovery and the impact on emission reduction.

Transportation Sector

After the power plant, it will also be implemented in the transportation sector. The transportation sector itself is the majority target, which accounts for 97 percent of the total target. The rest is a contribution from the waste, agriculture and industry sector of only 3 percent.

The transportation sector has not seen a significant reduction in emissions to date. Therefore, future climate control policies will be focused on the transportation sector.

Forestry Sector

Did you know that there are industries that use the forestry sector, for example, the pulp or paper industry.

Yes, paper or tissue is mostly made of wood fiber. The process of making paper is also very dependent on machines that emit quite high emissions.

petrochemical sector

In the petrochemical sector, taxation will indeed be imposed. However, the petrochemical industry stated that the government needs to review the carbon policies contained in the Macroeconomic Fiscal Policy Framework (KEM PPKF) 2022.

This is indeed not without reason, the petrochemical industry still thinks that this application needs to be socialized directly.

Considering that export products will be more expensive and less expensive than imported products. So that this petrochemical company will discuss expensive up to 4 million dollars per year.

Carbon Tax Impact

Climate change cannot be underestimated by anyone. The government with a tax policy, business people need to pay attention to the impact of the imposition of the tax.

Carbon Tax Benefits

  • Reducing greenhouse gas emissions
  • Improving the country’s economy and improving people’s welfare.
  • Finance the education, health, public transportation sectors, creating green industries.
  • Development of new, environmentally friendly energy.

Disadvantages of Carbon Tax

  • Economic weakness at the time of initial implementation.
  • Business actors will find it difficult to apply new energy that is more environmentally friendly.
  • Increase production prices.
  • Production will be used according to need but will have an impact on high demand so that prices will also increase.


From the discussion on the carbon tax above, it can be concluded that in order to reduce greenhouse gas emissions, the government needs to set up a new policy on tax collection.

The limited application of the carbon cap & tax will be applied to the coal-fired power plant sector first in 2022 at a rate of 30 thousand/tCO2e. the carbon tax rate will be evaluated periodically and can be set higher or equal to the carbon price in the carbon market.

Then in 2025 the government will impose a carbon tax on the transportation, land clearing, and development sectors.

So that business actors will try to reduce gas emissions resulting from industrial production to become more environmentally friendly.

The implementation of this tax is in line with the government’s expectation in preparing a regulation that can be applied in various industrial sectors that produce a lot of carbon gas produced from the combustion of industrial processes.

Tax policy also cannot actually stand alone, but is a comprehensive policy package to reduce emissions and a stimulus for the transition to a more sustainable economy.

Maybe from the business side, this tax is indeed burdensome. However, the proceeds from the collection of carbon tax funds will be used to increase development costs, invest in environmentally friendly technologies, or can also help people with low incomes.


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