TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Pandemic and carbon tax regime to kick-start green economy
The carbon tax will raise the output price, particularly for energy-intensive products, which makes a detrimental impact on competitiveness, notably in worldwide commerce-exposed industries.
Change Size
President Joko Widodo gives a speech at the World Leaders Summit on forests and land use at the United Nations Climate Change Conference (COP26) in Glasgow, Scotland, on Nov. 2, 2021. (President Secretariat/BPMI Setpres/Lukas)
T
he COVID-19 pandemic has disrupted supply chains and hampered economic recovery in most countries including Indonesia. It is worth recalling that in 2020 our economy contracted 2.1 percent, the first negative growth since 1998. The economy started to recover last year, but the growth rate is estimated at below the pre-pandemic level of 5 percent.
According to the World Health Organization, the link between biodiversity loss, climate change and pandemic is crystal-clear. From the helicopter view, in many instances, climate change acts as a threat multiplier. Therefore, biodiversity loss and climate change are twin catastrophes that should be simultaneously addressed. In this regard, holistic strategies incorporating the whole gamut of fiscal policy and ecological strategy should be in place.
Using the pandemic as the kick-start, the government has revamped the environmental fiscal framework. This strategy is streamlined by the strong commitment under the Nationally Determined Contributions (NDC) to boost the environmental adaptation capacity and support climate resilience as emphasized by President Joko “Jokowi” Widodo at the UN Climate Change Conference (COP26) in Glasgow last November.
As a concrete follow-up action, the Finance Ministry is promoting the Climate Change Fiscal Framework (CCFF) as the cornerstone of fiscal incentives and tax strategies. Many studies have suggested the urgent need to integrate the environmental pricing instruments into the tax system: carbon and energy taxes, and green incentives.
The 2021 Harmonized Tax Law is evidence of the government’s strong political will to bolster climate resilience. The law introduces a carbon tax, which will be imposed at a minimum rate of Rp 30 (0.2 US cents) per kilogram of CO2 equivalent starting April 2022. This law also addresses the long run of Indonesia’s carbon trading road map in supporting net-zero emissions by 2060.
However, it is worth noting that this new law should anticipate the following three sets of short-run negative effects. The first is the sectoral and regional impacts. It is worth acknowledging that the energy and mining sector will be heavily affected and most likely will cause a multiplier effect and dwindle regional economies such as in Kalimantan, Sulawesi and Sumatra.
The second is the competitiveness effect. In this context, the carbon tax will raise the output price, particularly for energy-intensive products, which makes a detrimental impact on competitiveness, notably in worldwide commerce-exposed industries.
