Indonesia will delay the enforcement of a tax on coal-fired power plants’ carbon emissions originally due to roll out on April 1 to around July, as reported by Bloomberg on March 28. A finance ministry official stated that Indonesia sees room to postpone the carbon tax to ensure the new levy is consistent with plans for setting up a carbon market in 2025. Additionally, the delay involves the Finance Ministry’s concerns over other global dynamics such as inflation and the war in Ukraine. Analysts also pointed out the carbon tax could undermine manufacturing competitiveness, which is recovering from the impact of the COVID-19 pandemic.
Coal-fired power accounts for 60% of Indonesia’s electricity consumption. To control the emissions from the power sector, the country has trialed carbon tax for 32 coal-fired power plants and set emission caps for them. It was to set specific emission caps and impose a carbon tax of USD2.09 per ton on the emissions exceeding the allowances from April 1. Indonesia sees carbon tax as the basis for establishing a carbon market by 2025, in a move to fund the country’s carbon neutrality goal by 2060. The Finance Ministry estimated that Indonesia needs to invest USD365bn in total from 2020 to 2030 to reduce 29% of emissions, representing a financing gap of 40%. To fill the gap, the country also proposed establishing Blended Finance Alliance under the Group of 20 (G20) framework in March, which it expects will fund the country’s renewable power plants and environmental conservation projects.