Carbon Tax Effectiveness in Indonesia: Challenges and International Comparisons

Abstract

Carbon tax has been introduced in Indonesia as part of climate change mitigation strategies through Law No. 7/2021 on Harmonization of Tax Regulations (UU HPP), with the aim of supporting the achievement of Net Zero Emission by 2060. This study aims to analyze the effectiveness of carbon tax implementation using a library research approach, covering global perspectives, national context, and international comparisons. The findings indicate that Indonesia’s carbon tax rate (IDR 30/kg CO₂e or approximately USD 2.1/ton) remains too low compared to international standards, and thus has limited capacity to incentivize industries to transition toward low-emission technologies. Moreover, the country’s heavy reliance on fossil fuels and limited renewable energy infrastructure pose significant barriers. Nevertheless, carbon tax has substantial potential if properly designed, particularly by allocating revenues to clean energy development and social compensation mechanisms. With strong cross-sectoral policy support, carbon tax can serve as an effective fiscal instrument to reduce emissions and strengthen sustainable development in Indonesia.