This focus is unfortunate, as by telling just one part of Indonesia’s climate policy story, it risks jeopardizing the support of the Indonesian public for climate action. 

It is worth noting that the Indonesian Chamber of Commerce and Industry (Kadin) backs the government’s climate change initiative. However, Kadin rightly states that carbon taxes cannot stand on their own, but must be part of a broader policy framework. 

It is understandable that many businesses feel concerned about this, as we do not yet know what this framework will look like. But it is by now well understood what would work best – a cap-and-trade system – with well-functioning markets that enable trade in spot, forward and futures contracts (for carbon credits, renewable energy certificates and other instruments) and good access to climate finance. 

Carbon taxes are just a small part of such a system, and if well-designed, the positive impacts of good marketplaces will more than offset the costs of carbon taxes. The government has repeatedly said Indonesia will introduce a cap-and-trade system, and while so far it has not divulged how it will work, why already assume it will be poorly designed? Hopefully we will soon learn more, and in the meantime we can be optimistic.

As long as all countries do what is necessary to keep global warming in check (in a business-as-usual scenario, by 2100 most coastal cities will be inundated and Kalimantan may have turned into a desert), Indonesia is well placed to see its economic growth benefit from its unique position in the world as a powerhouse for the global provision of climate solutions. Focusing on carbon taxes risks blinding people to this opportunity.

The concept of carbon taxes is, in fact, often poorly understood.

Let us take the example of a village that has built its economy on the goods derived from a nearby forest. The village for example, sells furniture made from its bamboo and wood, honey from its bees, or medicinal drinks from its plants. As the village grows so too does pressure on the forest, and the village leadership recognizes that if they do not take better care of it, it will soon no longer be able to supply all their needs. 

So, they have some of the village youth trained in sustainable forest management, and then employ them to maintain the forest's productivity, with success. All villagers who benefit from the forest contribute to the costs of the program through a small tax on the products that they sell. Previously, their use of forest resources had a cost, but came at a price of zero; now, they pay a price, a tax, commensurate with the actual cost. 

Does this tax make the village any poorer? I would argue that, by safeguarding their future, the villagers are actually better off.

The case for introducing a carbon tax is actually even stronger than this.

First, there is a big stick: The surrounding towns are also very concerned about the degradation of the forest, and will start imposing fines and sanctions on products from villages that do not have the appropriate forest-conservation programs. Investors from these towns begin to publicly announce that they will no longer invest in villages that do not take proper care of their environment. 

Second, there are carrots: more finance for the villages that are enthusiastic, and the possibility to turn the forest-management program into not just one of maintaining the forest, but also into a new revenue stream.

See, this particular village has a very large area of forest where it is possible to do a multitude of conservation programs at a cost much lower than elsewhere, and other villages are all too happy to outsource the implementation of their environmental commitments – and they will pay a fair price for this.

Indonesia is that well-placed village. Of course, it needs to bring its own house into order, which means that the real costs of negative externalities such as pollution need to be passed on to economic actors. Instead of costs being passed on the public at large (“beggar thy neighbor”) or to future generations, now it will be “the polluter pays”. 

Companies will be given time to make the transition, and presumably, markets will be allowed to make the process happen smoothly with the least disruption possible. But along with bringing its house into order, Indonesia can start using its abundant natural resources to create new revenue streams, worth billions of dollars. 

Even companies in traditional sectors such as cement, shipping or steel should not assume that on balance, they will lose out. The government will allocate them carbon allowances, which they can sell on the market if they do not need them (for example, when they invest in less polluting technology). Hopefully the government will further incentivize innovation through tradable “white energy”, or energy efficiency certificates.

What rewards companies can reap for their climate actions depend entirely on government policy, but again, let us be optimistic.

The government needs to work closely with the companies and NGOs that will be largely responsible for implementing its policies. But so far, the only aspect of its climate policy that has been divulged in reasonable detail has been its plan to introduce a carbon tax, at Rp 75 (5.3 US cents) per kilogram of CO₂. This would translate, for example, to a carbon tax of Rp 180 per liter of petrol at the pump, a 2 percent price increase. 

Understandably this raises concerns. However, carbon taxes are just the negative part of the climate policy story, and for Indonesia, the positive parts should outweigh the negative. 

Let us wait until we hear the full story before making any negative judgments.

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The writer is the CEO of the Indonesia Commodity and Derivatives Exchange.