THE POTENTIAL IMPACT OF CARBON TAX IMPLEMENTATION ON INDONESIA'S OUTPUT AND EMPLOYMENT LEVELS
Creators: name: SYAHRITUAH SIREGAR
name: LUTHFI FATAH
name: M. HANDRY IMANSYAH
name: SUNARDI
Publisher: name: Zenodo
Year: 2024
Subjects: Industries, Carbon Tax, Output, Employment, Intensity, Share.

description: Abstract

At present, climate change presents a substantial obstacle to our existence, resulting in extensive effects on ecosystems, businesses, and society globally. Indonesia, a significant contributor to worldwide greenhouse gas emissions through deforestation, agriculture, and fossil fuel consumption, demonstrates its dedication by officially supporting the Paris Agreement. Indonesia is obligated to comply with the targets outlined in the Nationally Determined Contribution (NDC) in order to reduce carbon emissions. Indonesia has made a resolute pledge to implement a carbon tax by 2025. It becomes a main instrument in the scenario of combatting global warming. Industries may have concerns about implementing carbon pricing due to the potential for higher production costs. In the absence of adequate measures to tackle these problems, there are possibilities of opposing it. The study aims to analyze the potential effects of implementing a carbon tax on the production levels and employment rates in Indonesia. This study utilizes input-output analysis as the primary instrument. The result shows that the implementation of carbon tax has the potential to reduce total output by 0.126% and total employment by 0.045%, with the highest intensity observed in the manufacturing sector with a decrease of 0.388% and 0.074% consecutively.  The decrease in output and employment per sector is highly influenced by the interrelationship of input-output, not directly on the carbon tax value incurred or the scale of production. The top six sectors experiencing the highest impact intensity consistently also rank within the top 10 in terms of contribution to the total economic output decline. The impact on employment shows that the service sector and agricultural sector are the most affected, with a 42.74% and 33.28% decrease respectively in job opportunities to the total decrease, while the intensity in decline discovers manufacturing sector experiences the highest reduction (0.074%), followed closely by the mining sector (0.0609%). The top four sectors in terms of job opportunity decline intensity are also among the top ranks in terms of the share of carbon tax they bear. The top three sectors in terms of contribution to job loss are the Non-edible Crops sector, the Paddy sector in the Agricultural sector, and the Commerce sector in the Service sector. The Commerce sector has the highest contribution to job loss at 20.26%, followed by the Non-edible Crops sector at 10.53% and the Paddy sector at 9.19%. Policymakers need to consider the potential economic contraction and inflationary effects when designing carbon tax policies and account for broader aspects to mitigate adverse impacts. The transition to a low-carbon economy for long-term ultimate goal involves macroeconomic costs and requires careful policy planning to balance environmental goals with economic stability and growth.