In June, Reuters reported that Indonesia’s finance minister had proposed a tax of $5.20 per tonne of carbon dioxide equivalent (CO2e)—officially, 75 rupiah per kilogram. In that month’s carbon tax update I wrote that I would be surprised if Indonesia—the world’s fourth-largest country by population and sixteenth-largest by GDP—followed through with the plan.
Indeed, the plan has been tamped down significantly. “Indonesia is treading carefully as it watches how the global race to cut greenhouse gases limits fossil fuel output, leaving many countries short of reliable energy sources,” Bloomberg’s Claire Jiao and Grace Sihombing explained in October. “From China’s factory outages to Europe’s soaring electricity bills, it’s a cautionary tale for Southeast Asia’s largest economy, where the pandemic has sapped household income and the coal sector has proved to be a rare bright spot.”
Reuters now reports that Indonesia will charge coal-fired power plant operators a carbon tax of $2.09 per tonne of CO2 equivalent on emissions above a set limit beginning in April 2022.
While the first program adjustment to catch the eye is that the charge has been cut by more than half, the more significant caveat is that only emissions above a set limit will be subject to the tax. Similar to the new program in China, Indonesia’s will be based on emissions intensity—emissions per unit of electricity output. In its trial period, the energy ministry set a cap of 0.918 tonne CO2e per megawatt hour for power plants with a capacity above 400 MW and 1.013 tonne for plants with 100 MW-400 MW and 1.094 tonne for mine-mouth plants with the same capacity.
As Reuters describes, “The trial involved power plants emitting more carbon than an allotted cap trading their excess output with those emitting below the cap. Under the current plan, excess emissions that could not be covered by carbon trading will be taxed.”
This indicates that power plants remaining under the thresholds will not be subject to the new carbon tax at all, regardless of their cumulative emissions. While Indonesia produces more than 60 percent of its power with coal and more than 80 percent of it when coal, natural gas, and oil are tallied together, the research and analysis available as of this writing do not make clear what percentage of power generating sources fall above and below the plan’s emissions-intensity thresholds.
The tax, though trimmed down, won’t be without impact. As Bob Saril, a director at Indonesia’s state utility PLN, told Reuters in October, “Power prices will obviously rise because 87% of our power generation is from non-renewable energy.”
What’s more, the plan does not make Indonesians whole through any sort of reimbursement or tax reduction elsewhere. Instead, according to the University of Indonesia’s Lisa Wijayani, the revenue from the tax will fund renewable energy projects.
The plan also runs in a contradictory direction to other Indonesian policies intended to alleviate energy affordability challenges. According to the Climate Policy Initiative, “Indonesia still provides subsidies to fossil fuels, namely diesel, kerosene, LPG, and electricity that is largely powered by coal. In fact, the spending for fossil fuel subsidies consistently outweighs the spending on climate activities.”
It should be noted that Indonesia’s carbon tax developments come amid controversy emerging from the UN climate conference hosted in Scotland in November. While in Glasgow Indonesia agreed to forest preservation measures, its environment minister, Siti Nurbaya Bakar, later said the country could not “promise what we can’t do” and that “the massive development of President Jokowi’s era must not stop in the name of carbon emissions or in the name of deforestation.”
I’ll close this November recap by reiterating what I wrote in June: Indonesia has the potential to be a real economic superstar in the coming decades. It has a young population and is poised to join Malaysia and Thailand in the wealthier tier of ASEAN countries. This carbon tax plan and the broader push for decarbonization will throw that into doubt, as many in Indonesia recognize.
