Carbon Tax Policy as a Strategy for Sustainable Economic Development in Indonesia – Comprehensive Study Notes

Declining environmental quality over recent decades → treated as a polemic & global concern.
- WHO: $9/10=90\%$ of people inhale air with high pollutant concentration (IEC, 2020).
- Air pollution = 4th leading premature-death factor worldwide (Greenpeace Indonesia, 2019).
2015 Paris Agreement (UNFCCC) signed by $196$ UN member states ⇒ global answer to climate issues.
- Indonesia ratified via Law No. 16 / 2016.
Emission facts (Indonesia):
- $2020: 40.2$ Mt CO₂e; $2021:+2.7\% \Rightarrow 41.4$ Mt (Databoks 2022).
- Premature deaths from air pollution 2020: $9{,}610$ lives (Jakarta 6 100, Surabaya 1 700, Bandung 1 400, Denpasar 410).
Motive for carbon-tax idea: strategic state tool to reduce emissions & fulfil Paris-Agreement pledges.
- First introduced globally by Finland (1990); Sweden & Denmark cut CO₂ by $7{-}15\%$ ; adoption spreads to Japan, France, Singapore, Mexico, etc.

Law No. 7 / 2021 on Harmonization of Tax Regulations (UU HPP)
- Article 13 = legal basis for carbon tax.
- Targets energy sector, esp. coal (largest pollutant source).
Constitutional & ideological anchoring:
- Preamble & Art. 28H (1) UUD 1945 → right to healthy environment.
- Art. 33 (4) → Pancasila-economy pillars: efficiency w/ justice, sustainability, environmental insight.
- 5th precept of Pancasila: "Social justice for all Indonesians" ↔ corrective environmental justice.

Greenhouse-gas (GHG) rise 2010-2018: $\approx4.3\%$ per year (KLHK data).
Average national temperature rise 1981-2018: $+0.03\,^{\circ}\mathrm{C}/\text{yr}$ (BMKG).
Environmental risks: forest fires, flash floods, biomass-production shifts → food scarcity, $80\%$ hydrometeorological-disaster share.
Economic loss projection: $0.66{-}3.45\%$ of GDP (KLHK 2020).

Ian Parry: levy on fossil fuels proportional to carbon content.
Hoeller & Wallin: tax on hydrocarbon-based fuels.
Core purpose: internalise negative externalities → price signal nudges behaviour to greener activities.
Indonesian proposed rate: $(Rp\ 30.00/\text{kg CO}_2e)$
- Intention: behaviour change, green-product innovation, ESG-aligned investment, sustainable growth.

Corrective-justice orientation (Kuehn; polluter-pays principle).
Deep-ecology viewpoint (Prof. Satjipto Raharjo): law serves all living beings, not humans alone.
Roscoe Pound’s “Law as a Tool of Social Engineering” → tax = behavioural re-design instrument.

Article 13 (5) UU HPP limits tax subject to “persons/bodies that buy carbon-containing goods OR conduct emission-generating activities” → interpreted as ONLY consumers, producer side omitted.
Article 13 (8)–(9) sets flat minimum rate $Rp\ 30.00/\text{kg}$ regardless of emission magnitude.
- Too low vs. global guidance:
- World Bank & IMF recommend $USD\ 35{-}100/\text{t} \Rightarrow Rp\ 507{,}500{-}1{,}400{,}000/\text{t}$
- Minimum suggested domestic equivalent: $Rp\ 507.5/\text{kg}$
Target reduction: $29\%$ CO₂ cut by $2030$ & net-zero by $2060$ seen as unattainable under current rate.

Need for clear implementing body & inter-agency coordination.
- Proposal: dedicated Carbon-Tax Audit Board under ESDM, KLHK, MoF.
Risk of corruption at local-government interface (Lord Acton maxim: “power tends to corrupt…”).

Sweden: $USD\ 137.24/\text{t}=Rp\ 1{,}921.36/\text{kg}$ → 4th best air-quality ranking.
Finland:
- Transport fuels: $USD\ 72.83/\text{t}=Rp\ 1{,}019.62/\text{kg}$
- Other fossil fuels: $USD\ 62.25/\text{t}=Rp\ 871.50/\text{kg}$
- Air-quality rank 5th.
Mexico: $USD\ 4.53/\text{t}=Rp\ 63.42/\text{kg}$ → air-quality rank 72/106 (developing-country benchmark).
Indonesia: $Rp\ 30.00/\text{kg}$ ≪ peers; notable gap vs. pollution severity (#9 worst PM2.5 in 2020).

Substantive Revision of UU HPP
- Amend Art. 13 (5): subject = “every person and/or entity that TRADES goods with carbon and/or performs emission-producing activities.”
- Clarify object of tax (goods & activities).
- Adjust rate to ≥ $Rp\ 507.5/\text{kg}$ (≈ USD 35/t).
- Issue Government Regulation (PP) detailing collection mechanism & sanctions.
Structural Enhancements
- Create Carbon-Tax Audit Board; mandate MRV (measurement-reporting-verification) of emissions.
- Formal MoU for cross-ministry coordination; strengthen provincial/municipal oversight; anti-corruption safeguards.
Cultural/Behavioural Programs
- Nationwide education, business outreach, incentives for low-carbon tech, green R&D, eco-label adoption.
- Embed sustainable habits among consumers: choose low-carbon products, reduce fossil-fuel use, etc.

Inter- & intra-generational justice: ensuring current economic activities do not burden future generations.
Polluter-pays aligns moral responsibility with financial cost.
Carbon tax as revenue tool → funds climate adaptation, health care, or green infrastructure (double dividend).
Supports creation of green-investment climate; signals certainty to markets.

Indonesian current tax rate: $(T_{IDN}=Rp\ 30/\text{kg})$
World Bank–IMF floor: $(T_{WB}=USD\ 35/\text{t}=Rp\ 507{,}500/\text{t}=Rp\ 507.5/\text{kg})$
Swedish rate: $(T_{SWE}=USD\ 137.24/\text{t}=Rp\ 1{,}921.36/\text{kg})$
Finland transport: $(USD\ 72.83/\text{t}=Rp\ 1{,}019.62/\text{kg})$
Mexican rate: $(USD\ 4.53/\text{t}=Rp\ 63.42/\text{kg})$
CO₂ growth 2010-2018: $\Delta CO_2\approx4.3\%/\text{yr}$
Temp increase 1981-2018: $\Delta T=0.03\,^{\circ}\mathrm{C}/\text{yr}$
Emission-reduction pledge: $29\%$ by $2030$ ; net-zero by $2060$ .

Carbon tax in Indonesia is conceptually aligned with Pancasila, constitutional rights, and sustainable-development goals, but present design is sub-optimal.
Strengthening in substance (broader subjects, realistic rate, clear PP), structure (dedicated audit body, inter-agency cooperation), and culture (public awareness & behavioural shift) is imperative for achieving emission reduction targets and sustainable economic growth.