ENERGY DEVELOPMENT
5.6 CARBON TAX AND EMISSION INTENSITY REDUCTION
Based on Article 65 paragraph 1 Law No. 32 of 2009 on Environmental Protection and Management, everyone has the right to a good and healthy environment as part of human rights. Considering the importance of reducing green house gas emission, the Government of Indonesia has ratified Paris Agreement through Law No. 16 of 2016 as Indonesia’s commitment in reducing GHG to international world.
Carbon has important economical value that reflects sustainable resources management for people’s welfare. The Government of Indonesia needs substantial fund to carry out GHG emission reduction mitigation and meet the target of Nationally Determined Contribution (NDC). Therefore, carbon economical value needs to be regulated in Presidential Regulation to be immediately legalized and implemented.
The government of Indonesia is Drafting Presidential Regulation on Carbon Economical Value and Presidential Regulation on National GHG Inventory and Low Carbon
97 Indonesia Energy Outlook 2021 Development. In 2020, both drafts have been synchronized and are expected to be completed in 2021.
The draft of Presidential Regulation on Carbon Economical Value is aimed as the basis and guidance of GHG emission reduction as well as the arrangement to control carbon emission in national development. The target of emission reduction in 2030 is 29% (834 million ton CO2) with own efforts and 41% (1,081 million ton CO2) with international support.
The effort to meet NDC target is done through climate change mitigation and climate change adaptation. It will be formulated in a roadmap that will further regulated in Ministerial Regulation. The mitigation on climate change is carried out in energy sector, waste, industrial process and the use of product, agriculture, forestry and other sectors based on the development of science and technology. The mitigation plan is done through GHG inventory, GHG emission baseline formulation and stipulation, climate change mitigation target, and climate change mitigation action plan.
The GHG inventory is reported by regent/major to governor, governor to minister, business player to related minister, related minister to minister, and minister to president through coordinating minister of maritime and investment. It is done once a year.
GHG emission baseline is formulated based on annual GHG inventory report, GHG emission historical data, scientific data basis on GHG emission, and economic and socio-cultural aspect. The calculation of GHG emission reduction from climate change mitigation is done by comparing baseline GHG emission and GHG inventory.
To meet NDC target, the government, regional government, business player and society hold Carbon Economic Value through:
1. Carbon trade in domestic and foreign trade through emission trade and emission offset trade
2. Performance based-payment based on emission reduction done by government, regional government or business/activity
3. Crabon levy through incentive mechanism and/or disincentive based on performance/mitigation
4. Other efforts based on the development of science and technology
GHG emission trade system will use cap and trade scheme. Cap is defined as the upper margin of GHG emission set by the government or state administrator. Trade allows the trade of gap between GHG emission and Cap. Meanwhile, offset is the use of carbon credit from mitigation activities outside emission trade system to reduce GHG emission.
GHG emission trade system allows emission producer to buy and sell emission contract to meet the mandatory of regulated emission Cap. This concept of GHG emission trade has been implemented in many other countries in the world.
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In 2021, the Ministry of Energy and Mineral Resources has carried out carbon trade test with 80 units steam PP by using cap and trade scheme. The steam PP consists of 54 PLN units and 26 IPP units where 10 units are located in mine mouth and 70 units are non- mine mouth. The steam PP capacity is divided based on Minister of Energy and Mineral Resources Regulation No. 9 of 2020 on Electricity Supply Efficiency by PT PLN (Persero). Next, cap is calculated based on average GHG emission intensity value in 2019 on steam PP as the participants of carbon trade test by taking into account the surplus of emission quota allocation. The details of Cap in carbon tax test in 2021 is presented in Table 5.3.
There are 28 carbon trade transactions between power plant units and total carbon transfer of 42.45 thousand ton CO2 resulting in more than IDR 1.2 billion incentive.
PT PLN (Persero) has also conducted emission trade between steam PP voluntarily.
The government of Indonesia has formulated Roadmap of Carbon Market in Energy Sector. The Cap uses weighted average per cluster that will be implemented in 2021- 2024. After 2024, the Cap uses ideal benchmark per cluster. In 2021, sectoral scope of carbon market in power plant sector. In 2022-2024, the market scope is expanded to oil and gas sector especially Carbon Capture Storage (CCS) and Carbon Capture, Utilization, and Storage (CCUS). After 2024, carbon market sectoral scope is projected to expand to industrial and aviation sector. In 2022-2024, independent verificator with the capability of monitoring carbon market is expected to be established. After 2024, the Government of Indonesia will establish a national institution to run carbon market and carry out independent verficator accreditation as carbon market verficator.
In October 2021, the government and the House of Representatives has set carbon tax tariff at the lowest of IDR 30 per kilogram CO2 especially in power plant sector in Draft of Law on taxation rules harmonization. Tax collection will be done if power plant produces CO2 above Cap (emission upper margin) set by the government. Carbon tax collection is planned in April 2022. Tax carbon is expected to change people’s behavior and increase people and business player’s awareness to reduce GHG emission.
Table 5.3 Cap in Carbon Trade Test in 2021
Source: DG Electricity, 2021
Power Plant Type Installed capacity (MW) Cap Value (ton CO2/MWh)
Coal PP X > 400 0.918
Coal PP 100 ≤ X ≤ 400 1.013
Mine Mouth Coal PP 100 ≤ X ≤ 400 1.094
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