Jakarta – Amid fiscal constraints and low purchasing power, the Institute for Development of Economics and Finance (INDEF) has proposed implementing an emissions tax as a sustainable source of funding to support incentives for electric vehicles. INDEF believes that efforts to accelerate the adoption of electric vehicles in Indonesia cannot rely solely on conventional state budget incentives.
Head of the Industry Centre at INDEF, Andry Satrio Nugroho, explained that the purchasing power structure of the Indonesian people has slowed down the penetration of electric vehicles. The Indonesian motor vehicle market is still dominated by fossil fuel vehicles, especially in the low-price segment, which is the mainstay of the majority of consumers. Most households, he said, can only afford cars priced below Rp200 million, a segment that is still almost filled with internal combustion engine vehicles.
“If the government wants to accelerate the transition to electric vehicles, it should provide financial support to the Indonesian people. One way to do this is by continuing to offer incentives,” said Andry on Thursday, 18 December.
However, he emphasised that continuing incentives should not necessarily burden the state’s finances. According to Andry, the implementation of an emissions tax could be a policy solution that is both corrective and fair. “This policy also internalises the environmental costs of vehicles that produce high emissions,” he explained.
Based on INDEF simulations, the potential state revenue from emission taxes is estimated to reach a minimum of Rp37.7 trillion per year. This projection is calculated based on the assumption that taxes will be imposed according to vehicle emission intensity, with rates ranging from 10 to 30 per cent of the vehicle’s selling price.
To realise this policy, Andry believes that the government needs to reform regulations, particularly by revising the law on excise goods to include environmental aspects. He emphasised that motor vehicle emissions must be recognised as the basis for imposing excise duties.
In addition to the legal framework, he also highlighted the importance of technical clarity. According to him, the government must establish standardised and binding definitions and methodologies for measuring emissions across ministries, so that they do not change with each new policy regime.
“These standards must be consistent so that the industry and consumers have certainty. The point of excise collection also needs to be determined from the outset, namely at the time of vehicle purchase,” added Andry.
Equally important, INDEF emphasises the need for earmarking the allocation of funds from emission tax revenue. Transparency in the use of funds is considered crucial for this policy to gain public acceptance.
Meanwhile, Clean Air Asia Director Ririn Radiawati Kusuma warned that maintaining the dominance of fossil fuel vehicles has serious consequences for public health. Without changes to transport policy, motor vehicle growth is projected to increase emissions by more than 160,000 metric tonnes and push PM2.5 concentrations to 85 micrograms per cubic metre by 2060.
The knock-on effect of this situation, according to Ririn, is a surge in premature deaths due to air pollution. “By 2060, premature deaths due to PM2.5 exposure could reach 1.8 million per year, followed by an increase in respiratory diseases and the loss of the main source of income for many families,” she said.
He added that Clean Air Asia’s research shows that the transition to electric vehicles can significantly reduce emissions and PM2.5 concentrations. In fact, the higher the adoption rate of electric vehicles, the greater the health benefits that can be felt by the community.
“With the ambitious and aggressive adoption of electric vehicles up to 100 per cent, it is estimated that 36 per cent of premature deaths, or around 700,000 lives, could be prevented by 2060. That is still assuming that the electricity comes from coal. Imagine the benefits if this is accompanied by a clean energy transition,” said Ririn. (Hartatik)
Banner photo: Image generated by OpenAI’s DALL·E via ChatGPT (2024)
