Indonesia Carbon Pricing System (Carbon Tax, Cap-and-Trade, NEK)
ENFORCEMENT TIMELINE
Enacted 2021 (implementation postponed)
Overview
Indonesia introduced a hybrid carbon pricing system combining a carbon tax (Pajak Karbon) and emissions trading (Cap and Trade) under Article 13 of the Tax Harmonisation Law (Law No. 7/2021: UU HPP). In 2025, Government Regulation No. 110 (PP 110/2025) established a comprehensive regulatory framework for the operation of the Economic Value of Carbon (Nilai Ekonomi Karbon: NEK) and greenhouse gas emissions management.
Under the cap-and-trade approach, emissions caps are set for specific sectors (such as coal-fired power plants), and any excess must be offset by purchasing emission allowances through the IDX Carbon exchange. Under the cap-and-tax approach, a carbon tax applies where allowances are not purchased or where the cap is exceeded. The tax rate is set at a minimum of Rp30/kg CO₂e (Rp30,000/tCO₂e), with adjustments possible according to market prices. The Carbon Unit Registry System (SRUK) has been introduced as a central management platform to ensure transaction transparency.
Enforcement Timeline
2021: Carbon tax legislated through the passage of the Tax Harmonisation Law (Law No. 7/2021).
From 2025: Timing of tax application to the coal-fired power sector under phased adjustment.
Business Impact
Japanese companies operating in Indonesia, particularly in the energy and manufacturing sectors, need to prepare for the full-scale introduction of the carbon pricing system. Manufacturers heavily reliant on coal-fired power should review their business plans to account for increased emission allowance purchase costs. At the same time, participation in low-carbon technology support programmes and carbon credit generation projects may present new business opportunities. As the system's liquidity and procedural standardisation remain challenges, ongoing monitoring of regulatory developments and cooperation with local experts is important. The formation of a carbon market in ASEAN's largest economy will affect regional supply chains as a whole.