BRIN Says Carbon Tax Raises Production Costs So People's Purchasing Power Decreases

Jakarta illustration. (Antaranews)

JAKARTA - Researcher at the Center for Behavioral and Circular Economics Research at the National Research and Innovation Agency (BRIN), Raden Deden Djaenudin, said the implementation of a carbon tax must be supported by other policies to reduce social impacts, especially for disadvantaged groups.

"If the goal is to implement a carbon tax, it must be supported by other policies that can reduce the social impact of the implementation of the carbon tax", said Deden in the 'Carbon Tax Webinar, Towards an Era of Green Innovation and Investment' which was attended virtually in Jakarta, Monday.

Deden said, one of the impacts of implementing a carbon tax is to increase production costs so that it will reduce people's purchasing power and have a different impact on the poor and non-poor, where the poor will be more affected.

He said, from kind of literature, that some examples of complementary policies to support the effectiveness of implementing carbon tax policies are the policy of reducing tariffs or increasing the threshold of non-taxable income, or through direct assistance to the community.

The carbon tax will also push up fuel prices which can lead to increased corporate spending. Thus, employers will carry out massive efficiency, including reducing the workforce. Therefore, adequate regulatory support is needed to reduce the social impact of implementing a carbon tax.

"The effectiveness of implementing a carbon tax in Indonesia needs to be supported by other policies", said Deden.

He said that the implementation of a carbon tax would provide wider benefits compared to carbon trading.

Revenue from carbon taxes can be used as a new source of revenue for the state as development capital as well as in economic recovery after the COVID-19 pandemic.

"If carbon trading is relative, the beneficiaries are from the two business entities that transact", he said.

Deden proposes that carbon tax revenues are prioritized for climate change mitigation activities, such as investing in renewable energy by funding wind, hydro, geothermal, solar, bioenergy, and biomass power projects.

Carbon tax revenues can also be used to promote tree planting and reforestation projects, encourage the implementation of Reducing Emissions from Deforestation and Forest Degradation (REDD+), and enhance the role of conservation