Taxing coal to hit the goals: a simple way for Indonesia to reduce carbon emissions

Taxing coal is a simple and effective means to promote a clean energy transition in Indonesia, and the experience of India demonstrates that it is politically and economically feasible. This brief makes the case for higher coal taxation in Indonesia in order to reflect its cost to society and increase government revenues to fund other development priorities. While an excise, sales, or export tax would be relatively simple and cost effective to administer, any increase in energy prices is politically challenging to implement (OECD, 2019). The revenues from the tax can be used to ease implementation through funding compensation for vulnerable groups, as well as economic stimulus to boost jobs and growth. Higher coal taxes would be a step toward carbon pricing for Indonesia. They would also put the country on a path toward meeting its climate commitments and help reduce the growing problem of air pollution.

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