The research examined how Indonesia’s carbon tax regulations support the country’s green economy agenda and greenhouse gas emission reduction targets. The findings are particularly significant as Indonesia has committed to reducing emissions under the Paris Agreement and aims to achieve Net Zero Emissions by 2060. Carbon taxation is widely regarded as one of the government’s most important policy tools for achieving those climate goals.
Carbon Tax Becomes a Key Instrument in Indonesia’s Climate Strategy
Climate change continues to pose major risks to environmental sustainability, economic stability, and social welfare worldwide. Rising greenhouse gas emissions from industrial activities and fossil fuel consumption have intensified global efforts to adopt policies that encourage low-carbon development.
In Indonesia, carbon taxation was formally introduced through Law Number 7 of 2021 on Harmonization of Tax Regulations, which established carbon tax as a fiscal instrument for environmental protection. The policy framework was further strengthened by Presidential Regulation Number 98 of 2021, which regulates carbon economic value mechanisms, including carbon trading and emission reduction initiatives.
According to the study, these regulations demonstrate Indonesia’s commitment to integrating environmental sustainability into national fiscal policy. However, legal readiness has not yet translated into full implementation.
How the Research Was Conducted
The study used a qualitative juridical and literature-review approach to examine carbon tax regulations and their implementation in Indonesia.
Loupatty analyzed national laws, government regulations, academic publications, policy reports, and international studies related to carbon taxation, green economy development, and greenhouse gas mitigation. Most of the references were published between 2022 and 2025, providing an up-to-date perspective on Indonesia’s evolving climate policy landscape.
The analysis focused on regulatory frameworks, implementation barriers, institutional readiness, socioeconomic impacts, and lessons from countries that have successfully adopted carbon pricing policies.
Key Findings: Strong Regulations, Limited Implementation
The research found that Indonesia already possesses a solid legal foundation for carbon taxation. Nevertheless, several major obstacles continue to delay implementation.
Key findings include:
- Indonesia has formally established carbon tax regulations through Law Number 7 of 2021 and Presidential Regulation Number 98 of 2021.
- Planned implementation in coal-fired power plants has been postponed multiple times.
- Heavy dependence on coal and fossil fuels remains a significant barrier.
- Many industries are not yet prepared to transition toward low-carbon production systems.
- Carbon monitoring, reporting, and accounting systems remain underdeveloped.
- Coordination among government institutions responsible for fiscal, environmental, and energy policies remains fragmented.
- Public understanding of carbon taxation and its benefits remains relatively low.
The study concludes that carbon tax implementation is not simply a legal issue. Its success depends on economic readiness, institutional capacity, public acceptance, and long-term policy consistency.
Carbon Tax Could Accelerate Indonesia’s Green Economy Transition
Despite implementation challenges, the study highlights the substantial potential of carbon taxation to support Indonesia’s transition toward a green economy.
Carbon pricing encourages businesses to improve energy efficiency, reduce carbon-intensive activities, and adopt renewable energy technologies. It can also stimulate green investment, technological innovation, and sustainable industrial transformation.
The research notes that investors increasingly favor companies with strong environmental performance and sustainability commitments. As a result, carbon taxation can act as a market signal that encourages industries to prepare for a low-carbon future.
According to Loupatty of Pattimura University, carbon taxation should be viewed not only as a revenue-generating policy but also as a strategic instrument for integrating economic growth with environmental sustainability.
Potential Impact on Greenhouse Gas Emissions
The study found that carbon taxation has significant potential to reduce greenhouse gas emissions in Indonesia.
By increasing the cost of carbon-intensive activities, the policy creates incentives for industries to lower emissions and improve operational efficiency. International evidence reviewed in the study shows that carbon pricing mechanisms have successfully reduced carbon dioxide emissions in several countries when supported by effective environmental governance.
However, continued delays may weaken Indonesia’s ability to achieve its national emission reduction commitments. Without consistent implementation and strong compliance mechanisms, the environmental benefits of carbon taxation may not be fully realized.
Social and Economic Considerations Remain Critical
The research also emphasizes the importance of addressing the social consequences of carbon taxation.
Higher energy prices resulting from carbon taxes may increase transportation costs, production expenses, and consumer prices. Low-income households are particularly vulnerable because they spend a larger share of their income on essential goods and energy.
To minimize these impacts, the study recommends:
- Gradual implementation of carbon taxation.
- Targeted subsidies for vulnerable households.
- Compensation programs for affected communities.
- Incentives for renewable energy adoption.
- Green industrial transition programs.
Such measures can help maintain public support while ensuring environmental objectives are achieved.
Policy Success Requires Strong Institutions
One of the study’s most important conclusions is that effective carbon taxation requires more than legislation.
Indonesia needs stronger institutional coordination, integrated carbon accounting systems, transparent emissions reporting mechanisms, and greater collaboration among government agencies, businesses, and environmental stakeholders.
Public awareness campaigns are also essential to improve understanding of the environmental and economic benefits of carbon taxation.
Without these supporting elements, the study warns that carbon tax policies may struggle to deliver meaningful emission reductions or contribute significantly to Indonesia’s green economy goals.
Author Profile
Linda Grace Loupatty is an academic and researcher in the Department of Accounting, Faculty of Economics and Business, Pattimura University, Ambon, Indonesia. Her research focuses on accounting, fiscal policy, environmental governance, sustainable development, taxation policy, and green economy issues.
Source
Article Title: Analysis of the Implementation of Carbon Tax Regulations in Indonesia in Achieving Green Economy Targets and Reducing Greenhouse Gas Emissions
Author: Linda Grace Loupatty
Journal: Jurnal Ekonomi dan Bisnis Digital (MINISTAL), Vol. 5, No. 2, 2026
Pages: 129–144
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