ASSESSING THE POTENTIAL OF CARBON TAX TO BOOST FISCAL REVENUE AND MITIGATE ECONOMIC EXTERNALITIES

Abstract

As a key instrument within the Pigouvian tax framework, the carbon tax is theoretically positioned to mitigate negative externalities resulting from various economic activities. This article aims to reaffirm the strategic role of the carbon tax in boosting government revenue while simultaneously addressing environmental externalities in Indonesia. The study applies a mixed-method approach, incorporating literature review, secondary data sourced from prior academic publications and official government platforms, as well as simulation calculations utilizing the exponential smoothing method to estimate potential fiscal gains from carbon tax implementation. Findings suggest that between 2021 and 2025, the Indonesian government's adoption of a carbon tax policy could reduce greenhouse gas emissions from 1,157.64 Gt CO₂e to 2,180.82 Gt CO₂e and increase state revenues ranging from IDR 125.54 trillion to IDR 156.20 trillion. These revenues could be allocated to support initiatives fostering a green economic ecosystem. This article serves as a reaffirmation of the urgent need for carbon tax implementation in Indonesia, urging policymakers to avoid further delays in its enactment by 2025.