The Future of Carbon Tax for Indonesia Emas 2045

By: Fatikha Faradina, a Directorate General of Taxes officer

"We must take care of nature, so that nature will protect us."

This simple yet profound Indonesian wisdom captures the relationship that has long existed between people and nature. Yet today, this relationship is dangerously out of balance. Once revered as the Zamrud Katulistiwa, the Emerald of the Equator, Indonesia’s natural beauty was not just a point of pride, but a vital ecological asset for the planet. From its vast rainforests and coral reefs to its mountainous terrains and fertile deltas, Indonesia has long played a pivotal role as a global biodiversity hotspot and carbon sink. However, the emerald is losing its luster.

According to the Meteorology, Climatology, and Geophysics Agency (BMKG), Indonesia has experienced a significant rise in average temperatures over recent decades. Specifically, BMKG reports an increase of approximately 0.03°C per year since the 1980s, amounting to a total rise of about 0.9°C to 1.2°C over the past 40 years. This warming trend contributes to the increased frequency of extreme weather events across the archipelago.

​Indonesia's greenhouse gas (GHG) emissions stem from multiple sectors, with the energy sector being the predominant contributor. In 2019, the energy sector was responsible for over 638.8 million tons of CO₂ equivalents, marking it as the primary source of emissions. Within the energy sector, the power generation segment stands out, accounting for approximately 43% of CO₂ emissions. This is followed by the transport sector at 25% and the industry sector at 23%. Additionally, the land-use, land-use change, and forestry (LULUCF) sector has historically played a significant role in Indonesia's emissions profile. Over the past two decades, emissions from LULUCF have constituted nearly half of the nation's total emissions, largely due to deforestation and peatland degradation.

Addressing emissions from these key sectors is crucial for Indonesia to meet its climate commitments and transition towards a more sustainable and low-carbon economy. Implementing measures like the carbon tax can serve as a strategic approach to address these challenges, promoting environmental sustainability and aligning with Indonesia's vision for a resilient and prosperous future.​ Indonesia’s vision to become a developed, just, and sustainable nation by 2045 (Indonesia Emas 2045) cannot be realized without climate resilience. The carbon tax, when properly designed and implemented, is not merely a fiscal tool, it is a strategic investment in the nation's ecological, economic, and social future. If managed well, the carbon tax can encourage industries to innovate and decarbonize. Generate funds for reforestation, renewable energy, and green jobs. Protect vulnerable regions like Kalimantan from worsening disasters. In a country blessed with rich biodiversity yet burdened by environmental degradation, carbon taxation can serve as a compass, guiding us toward a future where development and sustainability are not opposites, but partners.

Indonesia has laid its legal foundation through the Law on the Harmonization of Tax Regulations (UU HPP), enacted in 2021. The carbon tax targets sectors producing significant emissions, starting with coal-fired power plants (PLTU). The government initially set the rate at IDR 30 per kilogram of CO₂ equivalent, a modest amount compared to international standards. The policy aims to evolve toward a carbon market mechanism, aligning with Indonesia’s Nationally Determined Contributions (NDCs) and long-term low-carbon development goals. However, real implementation is still in its early stages.

Sweden, a global leader in green taxation, introduced its carbon tax in 1991—starting at around USD 30 per ton of CO₂ and gradually increasing to over USD 130. The result? A 33% drop in emissions while GDP continued to grow. Sweden ensured success by taxing fossil fuels directly at the source, earmarking revenue for green infrastructure and social subsidies including building institutional trust and transparency.

Meanwhile, Singapore, the developed neighbour country, though smaller in scale, implemented a carbon tax in 2019 at SGD 5/ton (set to rise to SGD 50–80/ton by 2030). With a robust MRV (Monitoring, Reporting, and Verification) framework, Singapore channels carbon tax revenue into decarbonization efforts like clean energy R&D and electrification of transport.

So, is Indonesia ready to implement carbon tax?

1. Technical Readiness: one major challenge lies in emission monitoring and reporting. An effective carbon tax system requires robust MRV (Monitoring, Reporting, and Verification) frameworks, digital infrastructure, and cross-agency coordination. Presidential Regulation No. 98/2021 on Carbon Economic Value is an early stage to be implemented, only pilot efforts in the coal power plant sector are underway.

2. Sectoral Compliance: industries especially energy, mining, and manufacturing must adjust to increased operational costs. Without proper incentives or transitional support, carbon tax could face resistance.

3. Public Awareness: unlike Sweden or Singapore, where climate awareness is high, Indonesian public understanding of carbon pricing remains limited. Education and transparent communication are essential to gain trust and support.

4. Political Will : sustainable implementation will depend on the consistency of political commitment, particularly during electoral cycles and regime changes. Long-term climate policy must transcend short-term interests.

The dream of Indonesia Emas 2045, a golden centennial vision of prosperity, sustainability, and global leadership demands a serious reckoning with climate realities. A carbon tax is not a silver bullet, but it’s a crucial step toward long-term climate resilience and economic modernization. So, is a carbon tax in Indonesia truly “impossible”? No. But it is impractical without deep reform, political will, and trust in public institutions. Like taming a forest fire, the solution requires not just a tool, but a complete system, a culture, and most importantly a unified national vision. If Indonesia truly wants to preserve its identity as the Zamrud Katulistiwa, carbon must come at a cost.

This is not just about tax. This is about purpose, perhaps even a glorious one!

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