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Indonesia defers carbon tax launch to July due to global turmoil, energy market volatility

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Indonesia defers carbon tax launch to July due to global turmoil, energy market volatility

Highlights

Government focuses on ensuring stable energy, food supply

Carbon market scheme, laws, regulations require refinement

Long-term carbon tax roadmap still work in progress

  • Author
  • Anita Nugraha
  • Editor
  • Norazlina Jumaat
  • Commodity
  • Electric Power Energy Transition Natural Gas
  • Topic
  • Energy Transition Environment and Sustainability

The Indonesian government has decided to defer the implementation of its carbon tax to July from its original plan in April due to the global economic turmoil and ongoing disruptions to the energy sector, a government official said over the weekend.

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The Southeast Asian country is grappling with the impact of the Russia-Ukraine conflict and monetary policy changes by the US Federal Reserve on commodity prices, mainly energy and agricultural commodities.

"This condition puts pressure on inflation in many countries in the world, including Indonesia. With these developments, the government is ensuring the availability and stabilization of energy and food prices in the country, including providing various forms of social protection to protect the poor and vulnerable from the impact of price increases," Febrio Kacaribu, Indonesia's Head of Fiscal Policy Agency, Ministry of Finance, said in a statement.

Kacaribu said the process of improving the carbon market scheme, including the relevant laws and regulations, which will complement the implementation of the carbon tax, also requires refinement.

Therefore, the government will apply a carbon tax once the regulations and the electricity sector are ready, as power generation will be the first sector that the carbon tax will encompass in Indonesia.

"This readiness is important as the core objective of implementing a carbon tax is to have the optimal impact," Kacaribu said.

He said the ministry of finance is drafting various technical regulations for the implementation of the carbon tax, such as tariffs and the basis for levelling the tax. It is reviewing the methodologies for calculating the carbon footprint of plants, collecting, paying or depositing the tax, reporting emissions, as well as the longer-term carbon tax roadmap.

Kacaribu said the process of compiling a carbon tax roadmap needs to include a strategy for reducing carbon emissions under the Nationally Determined Contributions, or NDC, made to the United Nations, priority sector targets, alignment with new and renewable energy development, and alignment with other regulations.

"In its implementation, the government will pay attention to the right [energy] transition so that the implementation of this carbon tax remains consistent with the momentum of post-pandemic economic recovery," he said.

The imposition of a carbon tax will be carried out in stages by taking into account the priorities in achieving the NDC target, the development of the carbon market, the readiness of the sector, and the condition of the Indonesian economy, he said.

The objective for a carbon tax in Indonesia is to fulfil the principles of justice, making sure that energy remains affordable, while still prioritizing the interests of the community, according to Kacaribu.

Oil and gas emissions

Under its NDC, Indonesia has set a target of reducing emissions by 29% with its own efforts and 41% with international support by 2030. In addition, the government has also set a long-term strategy for low carbon climate resilience in 2050 and a net zero emission target in 2060 or sooner.

"The various renewed efforts and commitments show the government's seriousness in addressing the impacts of climate change. Therefore, we need to optimize all existing instruments, including the state budget and private funding," Kacaribu said.

Meanwhile, Indonesia's upstream regulator SKK Migas is starting a discussion on the development of legal frameworks to control carbon emissions. It is in line with Indonesia's energy mix road map under which oil and gas contributes more than 40% of national energy needs until 2050.

"Seeing the large contribution of upstream oil and gas, it is deemed necessary to prepare legal instruments so that the upstream oil and gas industry does not only focus on the impact on the environment but also on increasing investment and finance," Didik Sasono Setyadi, SKK Migas' Head of Legal Division, said.

Setyadi said the carbon emissions scheme cannot be viewed solely from an environmental point of view, but also from the point of view of energy security and independence, economy, and of course the benefits for the country.

He added that this is important considering that upstream oil and gas also has a production target of 1 million b/d and 12 Bcf/d of gas in 2030.

In order to strike a balance between controlling carbon emissions and meeting oil and gas targets, national interests need to be protected, Setyadi said.