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Indonesia has committed to achieving carbon neutrality by 2060 and reducing greenhouse gas emissions by 29 percent independently, or up to 41 percent with international support, by 2030. These commitments arise from its ratification of the Paris Agreement and are reflected in national development planning documents, including the 2020–2024 National Medium-Term Development Plan. To operationalise these commitments, Indonesia introduced a carbon tax through the Law on Harmonization of Tax Regulations. The tax reflects the “polluter pays” principle, whereby entities responsible for emissions bear the environmental cost of their activities.
In my paper “Managing International Carbon Trading through Collaborative Governance (Indonesian context)”, I outline the measures the Indonesian government can take to engage in international carbon trading, and the benefits derived from these global transactions. Carbon pricing mechanisms, including taxes and emissions trading systems (ETS), are recognised globally as effective tools to reduce emissions while promoting economic efficiency. The Indonesian Financial Services Authority (OJK) officially launched IDX Carbon on the 26th September 2023, marking Indonesia’s entry into structured carbon markets by enabling the trading of carbon emission allowances and carbon credits. By July 2024 – 9 months later – average carbon prices reached IDR 51,580 per ton CO₂e, well above the domestic carbon tax benchmark of IDR 30,000 per ton.
This price differential signals both opportunity and risk. If Indonesian carbon credits become internationally certified, surplus emission reductions may be traded abroad under Article 6 of the Paris Agreement. However, without regulatory safeguards, large-scale exports could undermine domestic emission targets. My paper therefore explores two main questions:
- How can fiscal instruments regulate international carbon trading?
- How can collaborative governance ensure effective monitoring of such transactions?
Regarding the former, the Indonesian government could apply export duties to carbon credits to regulate international carbon trading. This would serve the dual purpose of generating state revenue and regulating export volumes of carbon credits to protect domestic emission targets.
Scenario analysis
Conducting a qualitative descriptive approach, I simulate two scenarios in which Indonesia exports surplus emissions. Between 2019 and 2023, Indonesia’s energy sector consistently recorded surplus emission reductions, reaching 11.67 million tons CO₂e in 2023. If internationally certified, these surplus units could potentially be exported.
The first scenario uses the carbon tax benchmark of 30,000 IDR/ton ($2.50 aud/ton), whereas the second takes the market price of $51,580/ton ($4.33 aud/ton).
| Carbon Price = 30,000 IDR/ton (benchmark) | Carbon Price = 51,580 IDR/ton (market price) | |
| Total export value | 350.1 billion | 601.9 billion |
| Income tax (PPh) Article 22 (1.5%) | 5.25 billion | 9.03 billion |
| Export duty (7.5%) | 26.65 billion | 45.82 billion |
| Potential revenue | 39.9 billion
(3.35 million aud) |
54.85 billion
(4.6 million aud) |
These simulations demonstrate that international carbon trading may contribute significantly to state revenue. However, export regulation must ensure that domestic Nationally Determined Contribution (NDC) targets remain prioritised.
To effectively monitor exports of carbon credits, multiple agencies must collaborate and utilise an integrated data system. Important data inputs include carbon unit sales, export declarations, tax payments, carbon quota allocations, and sustainability reports. Relevant agencies include: IDX Carbon platform, Financial Services Authority (OJK), Ministry of Environment and Forestry (KLHK), Directorate General of Taxes (DJP), and the Directorate General of Customs and Excise (DJBC). Joint supervision by these agencies would prevent double reporting, ensure proper levy collection, and maintain compliance with emission caps.
Indonesia’s participation in international carbon markets presents both environmental and fiscal opportunities. Export duties and PPh Article 22 can function as regulatory safeguards while generating revenue. Revenue simulations indicate potential fiscal gains of approximately IDR 40–55 billion based on current surplus levels.
However, international carbon trading must be governed through collaborative institutional frameworks. Integrated monitoring systems are essential to ensure transparency, prevent regulatory gaps, and safeguard national emission reduction commitments.
Note
This study relies on qualitative analysis and surplus data limited to the energy sector. Carbon prices are volatile, and Indonesia has yet to establish comprehensive regulations for international carbon trading. Future research may employ quantitative modelling across multiple sectors and assess macroeconomic impacts.