ROLE OF CO2 GAS EMISSION TAX ON FOSSIL FUEL IN REDUCING ENVIRONMENTAL IMPACT “A PERSPECTIVE FOR INDONESIA”

Abstract

In the year 2001, Indonesia was ranked 21st in producing CO2 emissions. In 1990 the
total emission of CO2 from the burning of fossil fuel was estimated at 83.8 million tonnes
and by the end of the year 2020 the total emissions are estimated to be 368.3 million
tonnes. Currently, Indonesia has no specific regulation in place for controlling CO2 emissions
either in the form of an act or government regulation.
Some approaches in controlling such emissions are through “common and controlâ€
and or “market based instrument†(sometimes this term is called “economic instrumentâ€).
Based on experience from developed countries, economic instrument in the form of carbon
tax or emission tax is preferred due to it’s effectiveness compared with the common
and control instrument.
This empirical study is intended to analyze the role of economic instrument in the form
of a carbon or emission tax on the energy of fossil fuel through a modified DICE (Dynamic
Integrated Model of Climate Change and the Economy). The DICE model is also
called a “Three –Box Model†or “Two Folded Modelâ€
By using some rate of social preference (R), the model outcome suggests that appropriate
optimal taxes for petrol and coal are if model using R value of 5%. Value of carbon tax
per ton in optimal condition for period of 1990-2019 is within the range $US3.90 – 40.35
or $US1.06 -11.00 USD CO2 per ton. The price is equivalent to $US 0.002 – 0.024 per
liter petrol and $US 1.95 -20.25 per ton coal.
Based on the model output it is indicated that carbon or emission tax with optimal
scenario has no significant impact on income per capita relative to “Base Caseâ€. Should
the government apply tax instruments with optimal scenario, revenue of emission taxes will
fall between $US 457.6 – 2,362.8 million for period 1990-2019. The revenue consists of
$US 376.1 – 1,585.6 million generated from petrol and $US 81.4 – 777.2 million from
coal.