In the scope of environmental law, one of the generally known principle is the polluter pays principle. In essence, this principle stipulates that every person or legal entity that causes environmental pollution must bear the costs arising from the pollution, including in the form of fines or recovery costs.
The purpose of implementing this principle is so that the social cost or negative externality that arises in the form of pollution or environmental damage can be borne or mitigated by the party that causes the most pollution.The term used is internalize the externality. For example, in the use of fossil fuels such as gasoline for motor vehicles. The costs that arise are not just the price of gasoline that must be paid by buyers for their motor vehicles(private costs) but also emissions from motor vehicles that can cause air pollution and respiratory diseases (social costs). Unfortunately, often these social costs are not taken into account in the price of gasoline sold.
According to Ronald Coase in his 1960 paper, the problem of social cost lies in how these costs are apportioned, which is often unfair. This cost is often borne by those who are also unknowingly affected by pollution, not solely by the polluter. This is what underlies the formation of the polluter pays principle, that the party most responsible for negative externalities (and should bear the cost most) is the polluter itself.
However, the internalization of social costs that are too high can also cause economic problems. For example, the increase in electricity rates from non-renewable energy sources such as coal-fired power plants. On the one hand, this increase is in line with the internalization of externalities in the form of air pollution. However, without being accompanied by a cheaper production, massive adoption, and increase in electricity from renewable sources, air pollution will continue to occur while electricity prices will also become more expensive. A fair and just transition is also needed in implementing the internalization of externalities.
Polluter Pays Principle In Legislation
In general, Law 32/2009 on Environment Protection and Management as amended by Law 6/2023 on Job Creation Law, has recognized and regulated the polluter pays principle. For example, in Article 2j Law 32/2009, the polluter pays principle is recognized as the basis for the implementation of environmental protection and management. Then in Article 87(1) Law 32/2009, in general every legal subject committing violation in the form of environmental pollution and/or damage must pay compensation for the losses and/or take certain measures. This principle is also implemented for strict liability action based on Article 88 Law 32/2009, especially for activities involving hazardous substances and/or abnormally dangerous activities.
Similar provisions also exist for other sectoral laws. In the maritime sector, Article 52/(3) Law 32/2014 on Maritime Affairs highlights that the dispute resolution process and application of marine pollution sanctions are carried out based on the polluter pays principle and the precautionary principle. Furthermore, in the Article 67 Law 27/2007 on Management of CoastalAreas and Small Islands also states that every person in charge of activities that manage coastal areas and small islands, shall be directly and immediately responsible when pollution occurs, with an obligation to give compensation resulting from their actions.
In the waste management sector, Article 29((1) of Law 18/2008 on WasteManagement contains a prohibition on waste management that causes pollution and/or environmental damage, for example burning waste. Moreover, Articles 40and 41 of Law 18/2008 contain sanctions in the form of imprisonment and fines for waste management that is against the law and causes public health problems and/or environmental pollution.
Another one is Government Regulation 46/2017 on Environmental EconomicInstruments. This provision sets out a comprehensive framework for environmental economic instruments implementation, addresses development planning and economic activities in line with the polluter pays principle, both for the government as well as private sectors.
Carbon Tax
One obvious example of polluter pays principle implementation is the carbon tax policy. Simply put, every activity that produces carbon emissions will be taxed in a certain amount as a form of internalization of externalities. This principle is implemented through Article 13(1) of Law7/2021 on Harmonization of Tax Regulations which stipulates that carbon tax is imposed on carbon emissions that have a negative impact on the environment. In the Article's explanation, it is also stated that the carbon tax is imposed asa form of Indonesia's commitment to fulfilling the Nationally DeterminedContribution under the Paris Agreement.
However, the carbon tax rate imposed in Indonesia tends to be very low when compared to other countries that implement similar policies. When this article was written in January 2025, the carbon tax was set at the same price as the carbon exchange of Indonesia (IDXCarbon), which currently sits at IDR 55.237 per ton CO2.This price cannot fall below minimum IDR 30.000 per ton CO2 (equivalent to 1,84USD per ton CO2) as regulated in Articles 13(8) and 13(9) Law 7/2021. This price is similar to Japan (1,9 USD per ton of CO2) but very low when compared to many other countries such as Singapore (18,47 USD per ton of CO2), South Africa (10,08 USD per ton ofCO2), Netherlands (71,48 USD per ton of CO2), Finland (99,98 USD per ton ofCO2), and Uruguay (167,17 USD per ton of CO2, highest in the world).
This fact shows the dilemma of implementing the polluter pays principle in the carbon tax realm. Subjectively, it can be said that the price of carbon tax in Indonesia is still very low and has not been able to produce disincentives for industry to immediately switch to low-carbon business activities. On the other hand, too sharp an increase can also cause economic instability, the impact of adjusting business activities that still produce high carbon emissions.
The current low price of carbon tax should also be utilized by the private sector to begin making the transition to low-carbon business activities through various available mechanisms. Late transition can leave business activities far behind when carbon tax continues to increase sharply along with high pressure to switch to a sustainable and green economy.
Likewise the previous example of gasoline price and electricity generated from coal-fired power plant, the implementation of this principle must ensure a just transition for all parties involved, especially the one most vulnerable from the impact of environmental pollution and degradation. (AE)
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