Carbon Monetization as a Fiscal Strategy: Retrospective and Prospective Analysis of Indonesia
Abstract
Research Originality — This research introduces a combined retrospective and prospective analytical approach to examine the fiscal potential of carbon monetization in Indonesia. By linking past fiscal experiences with forward-looking revenue projections, it provides a comprehensive perspective on how carbon pricing instruments can address climate financing needs.
Research Objectives — The study aims to evaluate the potential of carbon monetization as a fiscal strategy to support Indonesia in achieving its Enhanced Nationally Determined Contributions (NDCs). Specifically, it investigates whether carbon taxes and carbon credits can close the financing gap for climate commitments.
Research Methods — This study applies retrospective analysis using historical fiscal data on climate budget tagging (CBT) and international climate funding, complemented by prospective analysis to project revenues from carbon taxes and carbon credit markets. Input-output analysis is also employed to link sectoral multipliers with carbon emissions, offering a distinctive methodological approach in the Indonesian context.
Empirical Results — The findings reveal a substantial financing gap between available funds and Indonesia’s NDC requirements, with current fiscal resources covering less than 20 percent of the estimated needs. Retrospective analysis shows that Climate Budget Tagging and international funding remain inadequate. Prospective simulations indicate that carbon taxes could generate IDR 12–22 trillion annually, while carbon credits could yield up to USD 61.9 billion, making them significant alternative financing instruments.
Implications — The results imply that carbon monetization is not only an environmental necessity but also a strategic fiscal tool. For policymakers, it provides evidence-based insights to align climate action with sustainable economic growth.
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