25 years have passed since the Kyoto Protocol was signed on December 11, 1997, marking the first international commitment to suppress greenhouse gas (GHG) emissions, yet global air pollution still persists to arise even as far to reach a concerning level. In 2022, a report by International Energy Agency showed that global carbon dioxide emissions grew 0.9 percent reaching a new highest point of yearly emissions surpassing 36.8 gigatonnes after a spike increase of 6 percent likewise in the previous year.
Currently, the international community has yet another treaty to mitigate climate change. The commitment which was signed back in 2015 is called the Paris Agreement and Indonesia is one of the jurisdictions participating in its ratification. This reality shows the government's strong pledge to reduce the national emissions rate, which in 2021 was at a level of 2.19 tonnes per capita. With the reduction target set by the Ministry of Energy and Mineral Resources at 5.36 million metric tons in 2022, this number essentially equals the emissions produced by 2.44 million citizens within a year. Despite this, what is the truly effective resolution to cut down the carbon emissions rate?
Since Finland became the first jurisdiction to implement it in 1990, the World Bank in its State and Trends of Carbon Pricing 2021 Report revealed that carbon tax policy has become a widely implemented fiscal policy in 25 countries as a measure to control carbon pollution levels. A working paper published by the International Monetary Fund (IMF) in 2019 showed that this corrective tax has proven effective in building a low-carbon economy.
Under the Tax Regulations Harmonization Act Number 7 of 2021, Indonesia has partaken as one of the countries that is going to implement a carbon tax policy starting in 2025 after previously had been delayed from the original plan of April 1, 2022. Essentially, several benefits can be reaped from the imposition of carbon tax in reinforcing the establishment of a low-carbon economy in ways that are fiscally sustainable.
Suppressing the Emissions Rate by Modifying Economic Behaviour
In 2020, the Ministry of Environment and Forestry recorded that the annual actual national GHG emissions rate was at 1.05 billion tonnes of carbon dioxide equivalent (CO2-eq) which was equal to 2.97 percent of the global emissions rate in that year. The energy sector still maintained to become the largest contributor accounting for more than half (55,62%) of total emissions, implying the economy persisting high dependency on carbon-intensive energy sources.
Enacting carbon tax in the economy should be able to materialize the eminent function of taxation as a form of regulator (regulerend). Its enforcement on which economists commonly know as corrective or Pigouvian taxation may restructure the economy in a more energy-efficient direction, while at the same time bolstering the transition process to low-carbon technology and energy sources.
Levying taxes on carbon emissions might potentially create a financial momentum that encourages businesses to avoid additional costs occurring from emitting carbon. This in turn will force the adaptation of business model alternatives that produce fewer carbon emissions as supported by an article published in 2022 by international firm Ernst & Young. Under this postulate, businesses will internalize those additional costs and find a better resolution to reduce emissions either in a direct way such as by using resources available more efficiently as emphasized by multinational company Hitachi Energy in their Sustainability 2030 Report, or indirectly by increasing the amount invested on developing a more efficient technology which emits fewer carbon waste.
Moreover, the existence of a carbon tax policy may become an incentive that encourages people to use public transportation more for mobility. Therefore, the economic impact which rationally will occur is the reduction of fuel usage for personally-owned vehicles without substantially affecting the economic output as a whole as to what happened in Sweden which has started to impose a carbon tax policy covering 40 percent of greenhouse gas emissions within the country, including vehicle fuels, yet astonishingly gave positive outcome to the gross domestic product (GDP).
Those circumstances as discussed emphasized the existence of direct effects from the enforcement of carbon tax policy on suppressing greenhouse gas emissions by way of changing how the economy uses carbon-intensive resources to be more efficient. On the other side, carbon taxes may additionally be considered a double dividend as it does also bring a fiscally sustainable revenue stream to the state budget. How those revenues are utilized will determine the further positive impact of carbon taxation.
Funding the Energy Transition Mechanism Using the Carbon Tax Revenues
The availability of clean energy infrastructure certainly is essential in determining the success of the transition toward clean energy sources itself. Consequently, low-carbon energy technology must become a publicly available good with prices that are affordable to every kind of households such as emphasized by the Secretary General of the United Nations during the launching of the Organization’s State of the Global Climate 2021.
Despite of that, developing renewable energy sources technologies in Indonesia will require a staggering amount of national budget of at least 25 billion dollars for the next eight years. This is where the fiscal revenue earned from the carbon taxes imposition occupies a pivotal role in supporting the availability of those needed funds.
Allocating the carbon tax revenue through a scheme that public policy disciplinarians know as earmarking will conjointly determine the final result of implementing this tax policy. With the aim to reduce GHG emissions, the revenue may be earmarked to the budget of clean energy infrastructure and energy-efficient technology research and development such as the decisions taken in South Africa, India, Japan, and Switzerland.
Without a doubt, the revenue does not necessarily ought to be solely allocated just to develop infrastructures. Carbon taxes imposition has a substantial amount of potential revenue with 25 countries that have long actively imposed it earning on average additional revenue equal to 0.14 percent of gross domestic products in 2020 as reported in the dataset belonging to the World Bank. With this massive potential, earmarking may be done for more than one expenditure, among those is building social welfare.
In Norway, the revenue acquired from the carbon tax levy which has been actively implemented since 1991 is used to create pension funds for low-income households. On the other hand, both Denmark and Switzerland also allocate the revenue to subsidize social protection and health insurance costs.
Hereinafter, a portion of carbon tax revenue can be budgeted to increase the amount of social assistance funds available to support economically marginalized households, especially during these times when the economy still gradually recovering from the aftermath of the pandemic. In this scheme which is commonly known as the citizen dividend, carbon tax policy not only be just a mere corrective tax to tackle GHG emissions but also executes the role of tax policies as an instrument to redistribute income and wealth within the economy.
Summary
Empirically speaking, carbon taxes have proven to be an effective mechanism for tackling the carbon emissions rate in numerous countries since it was first implemented more than three decades ago. Indonesia will soon become another jurisdiction applying carbon tax policy as a measure to mitigate climate change.
In essence, enforcing the carbon taxes will not be bounded to be just a form of corrective taxation that shifts the economic behaviors toward a low-carbon direction, but as far as to possess a massive potential to become a fiscally sustainable revenue stream that can be utilized either to develop infrastructures needed to prepare the transition towards the clean energy sources or improve the welfare of the citizens. Therefore, we can safely conclude that the introduction of a carbon tax policy to the economy ought to be embraced altogether as a double dividend that is able to build both environmental and fiscal sustainability simultaneously.
Kategori: Ekonomi Hijau
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