Carbon Tax as an Environmental Protection Instrument: Comparative Lessons for Reforming Indonesia's Carbon Pricing Framework

Abstract

Climate change has transformed environmental protection from a sectoral concern into an integral component of legal and fiscal governance. This research examines the effectiveness of the carbon tax as an environmental protection instrument in Indonesia through doctrinal legal research employing statutory, conceptual, and comparative approaches. The analysis focuses on Law No. 32 of 2009, Law No. 16 of 2016, Law No. 7 of 2021, and Presidential Regulation No. 110 of 2025, while comparing Indonesia's framework with the experiences of Sweden, Norway, Canada, and the United Kingdom, as well as recent scholarly literature. The findings indicate that Indonesia's carbon tax framework provides an adequate normative foundation; however, its effectiveness remains constrained by the absence of a binding price escalation pathway, limited sectoral coverage, weaknesses in the measurement, reporting, and verification (MRV) system, and the lack of a revenue recycling mechanism that ensures distributive justice. The comparative analysis demonstrates that the effectiveness of a carbon tax depends on a legal design that integrates gradual rate increases, broader sectoral coverage, a credible MRV system, and the allocation of public revenue to support the energy transition and protect vulnerable groups. The novelty of this research lies in reconstructing the carbon tax as an environmental law instrument grounded in Pigouvian Tax Theory and the Polluter Pays Principle, and in formulating a six-pillar carbon governance model that integrates fiscal law, environmental law, climate change obligations, and environmental justice within Indonesia's decarbonization framework.