Indonesia delays carbon tax roll-out amid rising costs

Indonesia is delaying the roll-out of its carbon tax from tomorrow to July, a move that analysts say will help its economic recovery and support businesses amid surging energy prices.

Last October, South-east Asia's biggest economy initiated a new levy of as much as 30,000 rupiah (S$2.80) per tonne of carbon dioxide equivalent (CO2e) for emissions generated by coal power plant operators beyond a set limit.

"The road map has not been finished and we are still preparing for a few regulations so that (the tax) can be implemented mid-year," said Finance Minister Sri Mulyani early this week, noting that the government is seeking a balance between carrying out reforms and helping the economy recover.

An official with the Finance Ministry's Fiscal Policy Office said last week that the delay takes into account global developments, such as inflation and the war in Ukraine.

Business players have voiced concerns over potentially higher power costs that can hurt industrial competitiveness.

Indonesia, the world's eighth-biggest greenhouse emitter, has introduced the carbon tax as part of its attempt to gradually wean itself off fossil fuel and meet its target of net-zero emissions by 2060 or sooner. The tax will also serve as a reference for a carbon market to begin in 2025.

The country also has a wider plan to impose a tax on carbon-emitting industries, including pulp and paper, cement and petrochemicals, but the tax structure has not been finalised.

Last November, Indonesia passed another regulation that sets a price on carbon emissions and creates a mechanism to trade carbon. Technical rules to implement carbon trading are under deliberation.

Economist Satria Sambijantoro of Bahana Sekuritas said the delay in the carbon tax roll-out would help economic recovery.

He told The Straits Times: "It's a trend worldwide to delay for a while the transition into renewable energy and temporarily rely on fossil fuel energy to facilitate the surging energy demand due to the economic reopening."

He noted that the launch of the carbon tax this year will be timely, amid Indonesia's role as the Group of 20 president.

Bahana estimates that potential carbon tax revenue in the first year of its implementation will reach between 29 trillion rupiah and 57 trillion rupiah, assuming a tax rate of between US$5 (S$6.80) and US$10 per tonne of CO2e, which it considers sensible for developing countries like Indonesia.

Executive director Fabby Tumiwa of the Institute for Essential Services Reform said a few regulations have to be harmonised and issued to implement the carbon tax.

"It's more appropriate to delay the tax until the regulations can be implemented fully and not trigger confusion," he said.