By: Felicia Grace Ratnasari Utomo (Research Staff at Purnomo Yusgiantoro Center (PYC)).
I Dewa Made Raditya Margenta (Research Staff at Purnomo Yusgiantoro Center (PYC)).
Japan’s success story in implementing the carbon tax and emission trading scheme (ETS) all together can be the best lesson for Indonesia, which its carbon pricing is still up in the air.
The latest Intergovernmental Panel on Climate Change (IPCC) report illustrates that without immediate, rapid, and large-scale reductions in greenhouse gas (GHG) emissions, limiting warming to close to 1.5 degree Celsius (°C) or even 2°C will be beyond reach. This situation definitely raised a red flag on the global climate agenda.
Thus, every nation, especially top GHG global emitters, should speed up their clean energy transition and encourage climate policies as their mitigation plan. One of the climate policies that can be promoted is the carbon pricing instrument.
Carbon pricing instrument has been widely used globally in the shape of the carbon tax and ETS. This vital instrument plays a crucial role for every country to achieve its net-zero emission target. The generated revenue is also essential to catalyse clean and sustainable development.
According to the World Bank, 64 carbon pricing instruments are currently implemented since the first introduction in 1990. This number will surely increase along with the commitments made by several other countries. Each country has a different approach to implementing the carbon pricing instrument. Some countries such as Germany, the Republic of Korea, and New Zealand choose ETS. Meanwhile, other countries such as Netherlands, South Africa, and Singapore implement the Carbon Tax.
Interestingly, Japan has concurrently implemented the Carbon Tax and ETS as their climate mitigation plan, and it runs successfully. This success story should trigger Indonesia to replicate what Japan has accomplished.
Japan ETS And Carbon Tax
As the first Asian country that implemented carbon pricing instruments, Japan, through the Tokyo Metropolitan Government (TMG), started the initiative with carbon dioxide (CO2) cap-and-trade mandatory (or the Tokyo ETS) in 2010. Tokyo ETS targets GHG emissions from commercial and industrial buildings factories, heat suppliers, and other facilities that consume large quantities of fossil fuels.
A year later, the Saitama Prefecture followed Tokyo’s footsteps in introducing ETS, aiming for GHG emissions from buildings and factories. The carbon price set in Tokyo ETS and Saitama ETS is similar despite the different targets. They also give credit to companies who performed outstandingly, and it is essential to mitigate the burden of compliance.
However, unlike Tokyo ETS, Saitama ETS has no penalty when covered sectors fail to meet the reduction targets.
Japan also introduced a carbon tax in 2012 with the price of US$ 2.6/tCO2e (tonnes [t] of CO2 equivalent [e]). This instrument is taxed to all sectors contributing to GHG emissions in Japan, such as industry, building, power sector, and fossil fuels. This carbon tax scheme covers a 75 percent share of Japan’s emissions.
Disclaimer: This opinion piece is the author(s) own and does not necessarily represent opinions of the Purnomo Yusgiantoro Center (PYC).
This opinion has been published on The Asean Post.
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