Carbon tax could be one solution for Indonesia to achieve sustainable development goals (SDGs)

Carbon EmissionIndonesia

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October 5th, 2021

The Indonesian government has expressed a plan to collect a carbon tax Rp 75 per kilogram (kg) of carbon dioxide equivalent (CO2e) or equivalent units. The intention is to encourage investment in technologies that reduce carbon emissions. But how practical is it?


By Putu Sukma Kurniawan

Teaching Staff of Accounting Study Program, Ganesha University of Education


Currently, the government is planning the implementation of a “carbon tax” to ensure economic and business activities in Indonesia run sustainably – one of which is for environmental conservation and reducing the impact of the climate crisis.


A carbon tax is a tax imposed on economic activity that produces carbon emissions that cross a certain limit. This tax is also imposed on businesses that produce a variety of other adverse impacts on the environment.


Based on the results of the analysis, the imposition of a carbon tax even has the potential to provide additional revenue for the country up to Rp 57 trillion.


On the other hand, the implementation of this tax can also help the government achieve Tujuan Pembangunan Berkelanjutan (TPB) or more commonly known as sustainable development goals (SDGs).


The SDGs are the commitment of interstate governments to sustainable development in 17 areas – from food, gender, industry, to climate – so that the next generation has a better quality of life.


Land fires in oil palm plantations


Working with industry to reduce emissions


The government’s plan to implement a carbon tax is a major leap forward in realizing the climate and environmental commitments contained in the SDGs.


The government itself has outlined the long-term goals of the SDGs that Indonesia wants to achieve by 2030.


Point 13 explains the government’s targets to counter the effects of the climate crisis – one of which is through long-term reductions in carbon emissions.


Last year, for example, the government stated a target to reduce greenhouse gas emissions by 29% by 2030.


To realize this, it needs active support from all components including the private sector.


Here, implementing a carbon tax could increase the participation of the business community to cut emissions from their economic activities, while creating a balance between economic growth and environmental protection.


A carbon tax can make this happen in four ways.


1. Form of pressure from stakeholders (stakeholders)against the private sector


During this time, the industrial sector produces negative social and environmental impacts. An example is the palm oil industry that often causes land fires.


The wider community – represented by the government – can “force” businesses to mitigate these adverse effects and support the goals of the SDGs.


2020 research from Australia, for example, shows that governments have a high role to play in ensuring businesses are involved in delivering environmental commitments.


The Australian government believes that business people not only have an obligation to maintain their business continuity but also have a high contribution to social and environmental issues.


One form of this pressure is the existence of clear regulations regarding the implementation of carbon taxes.


During this time, economic activity tends to produce negative impacts on social and environmental fields, but there is no mechanism that can withstand these impacts.


Regulations on carbon taxes are clearly a form of pressure from stakeholders so that economic activity also thinks about the impact, especially on environmental issues.


2. Encourage companies to invest in technologies that reduce carbon emissions


A carbon tax could incentivize the private sector to innovate products that would result in lower carbon emissions.


Some industry players, for example, have tried to do something new.


Some companies in the mining industry have a high commitment to invest in environmentally friendly technologies and conduct business activities by generating low emissions.


One of them is by building a low-emission power plant.


3. Divert funding for climate crisis mitigation projects


Funds raised from the carbon tax can be used by the government entirely for programs related to reducing the impact of the climate crisis, as well as supporting various initiatives from communities related to environmental conservation.


Some future programs that can be supported, for example, are climate villages and strengthening the role of indigenous peoples.


For example, the Irish Government in 2020 is using funds from a carbon tax to strengthen economically vulnerable social communities. This fund is also used to help achieve the goals of the SDGs.


The government also continues to strive to cooperate with international institutions that have high concerns on issues related to climate change.


4. Encourage the private sector to switch to renewable energy


The use of renewable energy could reduce Indonesia’s reliance on fossil energy – one of the biggest sources of carbon emissions.


Unfortunately, the mix of renewable energy use in Indonesia is still not on target.


For 2020, the mix of new renewable energy reaches 11.20% while the target for 2025 is to reach 23%.


The implementation of a carbon tax can provide a positive boost economically and environmentally for industries to catch up with this energy lag so as to indirectly support the long-term goals of the SDGs.


Industries will also be encouraged to use renewable energy, such as solar energy incorporate business activities.


The long road to establishing economic and environmental balance


Carbon taxes are a form of how efforts to protect the environment can run in conjunction with the country’s economic development.


In the long term, for example, achieving the SDGs goals in one country – especially related to the environment – can attract funds from global investors to enter the country.


However, the implementation of a carbon tax in Indonesia will certainly bring its own challenges for the government.


Turmoil in society can occur because changes in the industrial sector to the use of environmentally friendly energy will be costly, which can eventually lead to price increases for consumers.


It needs good communication with the private sector and other stakeholders to roll out this policy. In addition, there is also a long-term commitment from all parties to the implementation of this policy.


The implementation of a carbon tax needs to be done gradually and with rigorous evaluation in the field. But when is a good time to start if not now?


This article was originally published by The conversation, on August 26, 2021, in Bahasa, Indonesia and has been republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License. You can read the original article here. The views expressed in this article are those of the author alone and not of the WorldRef.


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