Abstract:

A carbon tax is a market-based fiscal instrument designed to internalize the negative externality generated by greenhouse gas (GHG) emissions. Beyond its function as a climate-mitigation tool, carbon tax also has the potential to become a source of financing for the transition toward a green economy. This study comprehensively analyzes the design and implementation of a carbon tax, particularly in the Indonesian context, and its impact on economic growth and green investment. Using a descriptive-analytical approach supported by international empirical literature, national policy documents, and a simple revenue-projection exercise, the study finds that carbon tax does not necessarily generate a trade-off between environmental protection and economic growth. At Indonesia's minimum statutory rate of IDR 30,000 per ton of CO2 equivalent, the national revenue potential from the energy sector alone is estimated to rise from approximately IDR 19.16 trillion in 2019 to IDR 23.65 trillion in 2025, while a moderate international benchmark rate of USD 5 per tCO2e would raise this potential to roughly IDR 76.36 trillion per year. With an appropriate design, particularly through revenue-recycling mechanisms, protection for vulnerable groups, and a credible and predictable price signal, a carbon tax can generate a double dividend, delivering environmental benefits alongside economic and green-investment gains.