Indonesia to take gradual approach in pricing and capping emissions

Jakarta

INDONESIA, the world's top exporter of thermal coal, will take a gradual approach in pricing and capping greenhouse gas emissions when it rolls out its first carbon tax and trade policy in 2022.

South-east Asia's largest economy, which relies on coal for 70 per cent of its electricity, will set an official limit starting April 1.

Those emitting above the cap will be required to purchase offsets or pay a tax of 30,000 rupiah (S$2.80) per metric tonne of carbon dioxide equivalent, the country's fiscal policy chief Febrio Kacaribu said in a recent interview.

"We want to start it low and slow," he said, adding that it is a necessary compromise to get buy-in from lawmakers amid "challenging" talks about the energy transition and its potential toll on jobs.

Indonesia will become the second country in South-east Asia to price carbon, after Singapore, which imposes a S$5 levy per tonne of CO2.

In a pilot run this year, 32 coal-fired power plants face emission limits ranging from 0.918 to 1.094 tonnes of CO2 per megawatt hour depending on how much electricity they generate, according to the energy ministry's data.

"The cap is a bit too high now," Kacaribu said, and the carbon price is "very low" - less than half the proposed amount and one of the cheapest in the world.

The government plans to lower the cap to create more demand for carbon credits, then ensure the increase in the credits' price doesn't disrupt the economy before raising the emissions tax.

Indonesia, also a major source of the world's palm oil, has been vocal at the recent COP26 climate talks about its need to protect its economic interests while addressing global warming.

While the archipelagic nation has experienced first-hand the danger of rising water levels and extreme natural disasters, it is well aware of the importance of fossil fuels both to its power supply and its exports.

International and private-sector financing is key to helping Indonesia meet its climate targets, with President Joko Widodo calling on rich countries to make good on their pledge of US$100 billion in annual financing for poorer nations' green transition.

The government is preparing ways for that funding to come in. It could open its market to global carbon trading once nations agree on the ground rules, Kacaribu said.

The Indonesia Stock Exchange and its London counterpart have said they will work together on a carbon bourse.

Emissions trading could also be expanded beyond coal plants after 2025 to potentially its forestry sector, paving way for Indonesia to tap interest from developed nations for offsets using its swathes of mangroves and rainforests that act as carbon sink.

Indonesia needs US$270 billion to meet its commitment to cut emissions by 29 per cent against the business-as-usual scenario in 2030.

Of that amount, US$250 billion would go to the energy and transport sectors, with hefty costs to decommission coal plants and develop renewable energy sources.

"We have started to move with our first steps, now we are asking the world to move with their first or second steps," Kacaribu added. "We offer projects. Are they going to come with similar intentions and start collaborating with us?" BLOOMBERG