Strengthening the Carbon Market Ecosystem: The Importance of Carbon Tax Implementation

The implementation of a carbon tax is considered to play a crucial role in driving the effectiveness of Indonesia’s carbon market. The tax is intended to be a primary instrument for accelerating the transformation towards a low-carbon economy, in line with the country’s definition of Carbon Economic Value (NEK).

Ary Sudijanto, Deputy for Climate Change Control and Carbon Economic Value Governance at the Ministry of Environment, stated that the NEK policy is not solely about seeking funding to tackle the impacts of climate change. “More importantly, NEK is an instrument for incentives and disincentives for our economic transformation towards a low-carbon economy, towards a greener economy,” Ary explained during the Ekoniklim Talkshow 2026.

According to Ary, the carbon tax serves as a disincentive instrument. However, he noted that the carbon tax cannot operate in isolation; it must be part of the entire carbon trading ecosystem in Indonesia. He acknowledged that transaction volumes on the Indonesian Carbon Exchange are still relatively limited. “Actually, this carbon tax can become a price setter, where the price of carbon certificates can reflect the actual cost required for decarbonisation,” he said.

Ary mentioned that if the carbon tax rate is too low compared to the cost of reducing emissions, businesses will simply choose to pay the tax or buy carbon credits without investing in their own emission reduction efforts. Therefore, the carbon tax is expected to act as a floor price for carbon in the market.

In practice, the government will first strengthen the emission trading mechanism in accordance with Presidential Regulation Number 110 of 2025. Through this scheme, the government will set an emission cap for various sectors. Companies that exceed their emission limits will have options: they can buy carbon credits from companies with surplus allowances, purchase carbon offsets in a limited amount, or pay the carbon tax.

Currently, the emission cap mechanism is only being implemented in the power generation sector. Ary said the government plans to expand the scheme to other sectors in the future to ensure carbon pricing becomes more effective. “Later, when everything is running, the carbon tax will serve as a floor price. If a company doesn’t want to make any effort, it will have to pay, and this is to ensure a level playing field,” he concluded.