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The Distributional Impact of Environmental Policy: The Case of Carbon Tax and Energy Pricing Reform in Indonesia

Listed author(s):
  • Arief Anshory Yusuf

    ()

    (Department of Economics, Padjadjaran University)

This research is an attempt to further understand the social and environmental dimension of sustainable development focusing on the impact of environmental reforms, such as pollution reduction and energy pricing policy, has on inequality and poverty for the case of Indonesia. A multi-sector, multi-household, Computable General Equilibrium (CGE) model is used to provide the basis for two important empirical case studies: (i) the effects of a carbon tax, and (ii) energy pricing reforms. The main finding from the carbon tax study suggests that in contrast to most studies from developed countries, the introduction of a carbon tax in Indonesia would not necessarily be regressive. It is shown to be strongly progressive in rural areas, and either neutral or slightly progressive in urban areas, with overall progressive distributional effect nationwide. The industries that experience the largest contraction are generally more energy intensive. The owners of factors of production in these industries are largely concentrated among higher income households and people living in the cities. For the analysis of counter factual scenarios on energy price reforms, the results suggest recognizing the difference between urban and rural household's income and expenditure patterns are crucial in the attempt to minimize the adverse distributional impacts of the energy pricing reform. In general, this study shows there is not necessarily a conflict between environmental and equity objectives, especially when the policies or reforms to achieve environmental goals are carefully designed.

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File URL: http://www.eepsea.org/pub/rr/2008_RR1.pdf
File Function: First version, 2008
Download Restriction: no

Paper provided by Economy and Environment Program for Southeast Asia (EEPSEA) in its series EEPSEA Research Report with number rr2008101.

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Date of creation: Oct 2008
Date of revision: Oct 2008
Handle: RePEc:eep:report:rr2008101
Contact details of provider: Web page: http://www.eepsea.org

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  1. Decaluwe, B. & Patry, A. & Savard, L. & Thorbecke, E., 1999. "Poverty Analysis Within a General Equilibrium Framework," Cahiers de recherche 9909, Université Laval - Département d'économique.
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