Fragmented Carbon Tax Governance in Indonesia

Institutional Conflicts, Legal Certainty, and Lessons from Finland

Abstract

This study examines the construction of institutional authority over carbon tax administration in Indonesia and formulates an ideal design informed by Finland's model. Using normative legal research with statute-based and comparative approaches, the analysis identifies four interlocking normative deficits in Indonesia's carbon tax governance: operational unworkability of the statutory mandate, a norm-hierarchy conflict between Law No. 7/2021 on Tax Regulations Harmonization (HPP Law) and lower-level regulations, fragmented attribution of authority among the Directorate General of Taxes (DJP), the Financial Services Authority (OJK), and the Ministry of Environment and Forestry (KLHK) without binding resolution mechanisms, and systemic incoherence between fiscal and market-based carbon instruments. The normative shift from Presidential Regulation 98/2021 to Presidential Regulation 110/2025 widens the gap between the fiscal mandate of the statute and actual implementation by explicitly positioning the carbon tax as a residual instrument subordinate to mitigation, quota, and offset mechanisms. Drawing on Finland's experience since 1990, the study demonstrates that unified fiscal attribution, upstream tax integration, and systemic coherence are achievable without creating new institutional structures, while acknowledging contextual differences in administrative capacity, European Union membership, and economic development. Indonesia's ideal design requires an omnibus Government Regulation establishing the DJP as the sole fiscal authority, revision of Presidential Regulation 110/2025 to restore the primacy of the carbon tax over carbon trading, and binding data-exchange protocols between institutions, preceded by structured inter-ministerial consultation to address political resistance. The novelty of this study lies in its integrated four-theory analysis of institutional authority construction and the normative consequences of the Perpres 98/2021 to 110/2025 transition in a gap unaddressed in prior literature on Indonesian carbon pricing.