Environmental Taxation in the Geothermal Sector as an Economic Environmental Instrument

The collisions that occur between these three plates have played a very important role in the formation of geothermal energy sources in Indonesia.4 Based on data from the Ministry of Energy and Mineral Resources, it is estimated that Indonesia will become the largest geothermal power producer in the world by 2021 with the capacity of geothermal power plants in Indonesia reaching more than 3,550 Megawatts (MW). [...]the State is faced with responsibility for fulfilling the right to a clean and healthy environment as stipulated in Article 28H paragraph (1) of the Indonesian Constitution 1945. [...]the State not only has the authority to collect taxes in the geothermal sector, but also has an obligation to control environmental damage and pollution due to geothermal exploration and exploitation. National authorities should endeavour to promote the internalization of environmental costs and the use of economic instruments, taking into account the approach that the polluter should, in principle, bear the cost of pollution, with due regard to the public interest and without distorting international trade and investment.11 In Chapter 33 of Agenda 21 (Financial resources and mechanisms), Section 33.16 (Innovative financing) states, New ways of generating new public and private financial resources should be explored, in particular: a.Various forms of debt relief, apart from official or Paris Club debt, including greater use of debt swaps; b. The use of economic and fiscal incentives and mechanisms; c. The feasibility of tradeable permits; d. New schemes for fund-raising and voluntary contributions through private channels, including non-governmental organizations; e. The reallocation of resources at present committed to military purposes}1 In line with Article 43 paragraph (1) of Law No. 32 of 2009, environmental taxes are incentives and/or disincentives used in Indonesia in order to preserve the environmental functions imposed by both central and regional governments.13 Regulation of tax collection in the geothermal sector is still not perfect as regards environmental recovery instruments. Besides that, in the concept of tax collection on geothermal management, the budgetary function must be balanced with regulatory functions to control environmental damage.