Carbon Tax and Environmental Justice in Indonesia: Assessing the Distributional Effects of Carbon Pricing on Households and Industries

Abstract

Indonesia's transition toward a low-carbon economy increasingly relies on fiscal instruments capable of changing producer and consumer behavior while generating public revenue. Carbon taxation, however, may produce unequal economic effects across industries, households, and regions. This article examines the environmental and distributive justice implications of carbon pricing in Indonesia. Using normative juridical and policy analysis, the study evaluates carbon tax design, taxpayer obligations, revenue allocation, and mechanisms for mitigating potential regressive effects. The article argues that carbon taxation should not be assessed solely according to its environmental effectiveness but also according to who bears its economic costs and who benefits from the resulting public revenue. Energy-intensive industries may face significant compliance costs, while households may experience indirect price increases. The study proposes a carbon tax justice framework combining polluter-pays principles with targeted social protection, transparent revenue allocation, industrial transition assistance, and regional redistribution. Particular attention is given to the need to ensure that low-income households do not disproportionately bear the costs of decarbonization. The article concludes that carbon taxation can contribute to both environmental and fiscal objectives when its design explicitly incorporates distributive justice and mechanisms protecting economically vulnerable groups.