Energy Minister Explains Carbon Tax Schemes

MINISTRY OF ENERGY AND MINERAL RESOURCES

REPUBLIC OF INDONESIA

PRESS RELEASE

NUMBER: 406.Pers/04/SJI/2021

Date: 17 November 2021

Energy Minister Explains Carbon Tax Schemes

Carbon tax will lead to price increases, at both upstream and downstream sides, for marketers who emit carbon, Minister of Energy and Mineral Resources (EMR), Arifin Tasrif, has said in a Work Meeting with Commission VII of the House of Representatives of the Republic of Indonesia (DPR RI) in Jakarta on Monday (15/11).

Arifin explained the results of an internal exercise by the Ministry of EMR, showing three basic calculation schemes for carbon tax in the energy sector, namely USD2 per metric ton (Rp30 per kg CO2e), USD5 per metric ton (Rp75 per kg CO2e), and USD10 per metric ton (Rp150 per kg CO2e).

When the carbon tax policy is enacted, there will be additional costs at both production and consumption sides if carbon-based fuels, including coal, oil, and natural gas, are produced.

For example, if the carbon tax is set at USD2 per metric ton or Rp30 per kg CO2e, the additional cost is USD0.1 per metric ton of coal with emission intensity of 38.3 kg CO2 per metric ton and oil with emission intensity of 46 kg CO2 per barrel. The additional cost of natural gas which has emission intensity of 6,984 kg CO2 per MMSCF is USD0.01 per MSCF.

For consumers, they will have to pay an additional amount of Rp64 per liter when they use fuels with emission intensity of 2.13 kg CO2 per liter. For gas or LPG consumers, there is an additional price of Rp1,638 per MSCF for gas with emission intensity of 54.6 kg CO2 per MSCF and Rp38 per kg for LPG with emission intensity of 1.26 kg CO2 per kg.

The carbon tax also lifts the cost for coal consumers. There is an additional cost of Rp29 per kWh for electricity generation and USD5 per metric ton in industries that use coal with emission intensity of 2.526 kg CO2 per metric ton or 0.95 kg CO2 per kWh.

In the electricity subsector, if the national electricity sales are assumed at 265.85 TWh and CO2e emissions 5.33 metric tons per year, a carbon tax of USD1 per metric ton will increase state revenue by Rp76.49 billion.

However, the Cost for Generating Electricity (BPP) will rise by Rp76.49 billion, electricity subsidies Rp20.46 billion, and compensation Rp61.38 billion.

Based on Law Number 7 of 2021 on Harmonization of Taxation Regulations, a carbon tax is imposed on carbon emissions that impact negatively on the environment, and such carbon tax considers the carbon tax roadmap set by the government and/or the carbon market roadmap.

The carbon tax tariff is set at a minimum of Rp30.00 per kg CO2e, and the tax will become effective as of April 1, 2022 for coal-fired power plants. Tax will be levied if the amount of emission exceeds the determined emission limit (cap). Meanwhile, carbon tax subjects are individuals or entities that purchase carbon-containing goods and/or carbon-generating activities. (IY)

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