Second, it gives significant revenue that can solve budget deficit problems. First, it is an effective climate change mitigation strategy. The Finance Ministry claims that putting a price on carbon is a policy that Indonesia should adopt for a number of reasons. The discussion started in 2009 but has not yet entered wider public debate up to this point due to other priorities. Besides, fossil fuel subsidies are the biggest stumbling block to the development of renewable energy, an answer to climate change challenges.In light of this ambiguity, Indonesia has considered implementing a carbon tax. Subsidizing fossil fuel use is simply unjustifiable. In the following year, the spending on fuel subsidies ballooned to $24 billion, more than twice the spending on public health.įossil fuel is the major source of anthropogenic greenhouse gas emissions, the main culprit behind global warming. The subsidies amounted to US$18.3 billion or 30 percent of the total state budget in 2011 alone. On the other hand, the country has spent and continues to spend a massive amount of money on fossil fuel and electricity subsidies. On the one hand, it has taken an ambitious stance by pursuing a voluntary target to reduce GHG emissions by 26 percent by 2020 and an additional 15 percent with international aid. Indonesia has an ambiguous policy in addressing climate change. The proponents of a carbon tax should be able to communicate their ideas better by showing clearly how a carbon tax will affect low-income households and industries in the first few years after the introduction of the policy and how the revenue from a carbon tax will be returned to individuals and businesses. Yet the long-term benefits for the economy and environment outweigh the disadvantages. More tax will erode the competitiveness of industries in the short run. This is because it has considerable economic implications particularly for low-income families. Nevertheless, a tax policy is never politically popular. In fact, it can also be an entry point to restructure highly subsidized fossil fuel-based economies. It is based on the notion that charging polluters based on how much they pollute will result in behavioral change toward greener practices.Įconomists argue that a carbon tax is a powerful and effective policy to reduce emissions. A carbon tax is one imposed on the carbon content of fossil fuel. A carbon tax is a possible solution although it is not perfect. However, unlike market instruments, regulatory approaches do not consider cost-effectiveness of emission reduction measures and therefore can be very costly. Regulations can be effective to determine the direction and set national targets. To achieve environmental excellence, both command and control (regulatory) approaches and market instruments such as taxation and incentives are necessary. There is a wide range of policy instruments that countries can use to lower their emissions and ultimately shift from a fossil fuel-based to low-carbon economy. Moreover, the cost of inaction will be too high to handle and will place an overwhelming burden on future generations.
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