Evaluation of Tax Incentive Policy for Low Carbon Industries in Indonesia

The increase of industrial activities, which still rely on fossil fuels in the near term, can lead to higher emissions contributions than anticipated in producer or consumer markets. The government has a responsibility to make efforts to transform high-carbon industries towards greater resources efficiency and encourage the use of renewable energy sources. In many countries, to encourage investment and activities in low carbon industries, the goverment provides tax incentives. This study examines a carbon tax and cap-and trade scheme as policy alternatives in Indonesia. Tax incentive schemes in Indonesia at present are not comprehensive, scattered, and have not focused on efforts to reduce green house gases (GHG) emissions in the industrial sectors. Tax incentive policies have not been effective in promoting low carbon industry.