Indonesia Takes ‘Low and Slow’ Path to Carbon Tax and Trade

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Indonesia, the world’s top exporter of thermal coal, will take a gradual approach in pricing and capping greenhouse gas emissions when it rolls out its first carbon tax and trade policy next year.

Southeast Asia’s largest economy, which relies on coal for 70% of its electricity, will set an official limit starting April 1, with those emitting above the cap required to purchase offsets or pay a tax of 30,000 rupiah ($2.10) per metric ton of carbon dioxide equivalent, fiscal policy chief Febrio Kacaribu said in an interview on Wednesday.

“We want to start it low and slow,” Kacaribu said. It’s a necessary compromise to get buy-in from lawmakers amid “challenging” talks about the energy transition and its potential toll on jobs, he added. The nation will become the second country in Southeast Asia to price carbon, after Singapore, which imposes a S$5 ($3.72) levy per ton of CO2e.

In a pilot run this year, 32 coal-fired power plants face emission limits ranging from 0.918 to 1.094 tons of CO2 per megawatt hour depending on how much electricity they generate, according to the energy ministry’s data.

“The cap is a bit too high now,” Kacaribu said, and the carbon price is “very low” -- less than half the proposed amount and one of the cheapest in the world. The government plans to lower the cap to create more demand for carbon credits, then ensure the increase in the credits’ price doesn’t disrupt the economy before raising the emissions tax.

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