Targeting vertical and horizontal impacts of carbon pricing in Indonesia

In this study we explore the short-run distributional incidence of a stylized carbon pricing mechanism in Indonesia. We explore the full range of the vertical and horizontal income dimension of stylized carbon price scenarios, drawing on an input-output based price transmission model in combination with a recent, large and detailed household survey. We identify various revenue recycling scenarios, drawing both on hypothetical and existing social transfer schemes in Indonesia, including unconditional cash transfers based on the Unified Database (UDB) as the major social transfer registry.

We find that welfare effects in Indonesia would be progressive, however showing a large variation within income groups. Decomposing welfare losses reveals that both the vertical and horizontal variation is mainly driven by direct household energy use. While all revenue recycling schemes significantly reduce the average burden, available targeting mechanisms are imperfect and exclude a substantial share of poor and vulnerable households.

Authors: Sebastian Renner (MCC Berlin) Djoni Hartono (University of Indonesia) Jan Steckel (MCC Berlin) Arief A. Yusuf (Padjadjaran University)

Speaker: Dr. Sebastian Renner was for many years part of GIGA and currently is senior researcher at the MCC (Mercator Research Institute on Global Commons and Climate Change) in Berlin

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