Carbon Tax Impacts on Agricultural Sector Output Prices in Indonesia: A Computable General Equilibrium Analysis

Abstract

Carbon pricing mechanisms are increasingly being adopted in developing economies as fiscal instruments for climate mitigation, yet their distributional impacts on the agricultural sector remain poorly understood. This study employs a multi-sector Computable General Equilibrium (CGE) model — INDOFISCAL1 (INDOFISR66) calibrated to Indonesia's Social Accounting Matrix (SAM) with 66 industrial sectors and 200 household groups to quantify the sectoral output price effects of carbon tax implementation at three tariff scenarios: IDR 30/kg CO₂ (SIM1), IDR 50/kg CO₂ (SIM2), and IDR 75/kg CO₂ (SIM3). Results reveal highly heterogeneous impacts across 23 agricultural sub-sectors. Under the baseline scenario (SIM1), palm oil experiences the most severe output price decline (−107.50%), followed by rubber (−44.36%), other crops (−22.71%), tobacco (−14.49%), and poultry (−13.61%). Conversely, coffee (+1.15%), cloves (+1.20%), and other estate crops (+1.16%) register modest price gains through substitution effects. The transmission mechanism operates through three channels: direct production cost burden, input-cost cascade from energy and transport sectors, and aggregate demand contraction (−6.20% household consumption). We demonstrate that emission intensity per unit of output — not absolute emission volume is the primary determinant of agricultural burden, with important implications for the design of compensatory and revenue-recycling policies under Indonesia's carbon pricing framework.