Understanding the drivers of carbon tax rates: a global analysis of population, gross domestic product, and energy mix

Indonesia currently imposes one of the lowest carbon tax rates globally, raising questions about the structural and economic factors underlying this cautious fiscal stance. This study examines how macrostructural conditions, such as fossil-fuel dependence, gross domestic product (GDP), population size, and the national energy mix, influence the adoption of carbon taxes and national emission levels. Using data from 30 countries from 2019 to 2022, the analysis employs structural equation modeling (SmartPLS) to evaluate the direct and indirect relationships between socio-economic and energy-related variables. Instead of examining the impact of carbon taxes on emissions, we consider carbon taxes as a policy outcome shaped by underlying structural conditions. The findings reveal that fossil-fuel use and population size are positively associated with national emissions, while GDP, carbon taxes, and the duration of their implementation have a mitigating effect. Additionally, we found that the adoption of carbon taxes is significantly influenced by population size, GDP, and the presence of renewable and nuclear energy sources. However, a carbon tax alone does not significantly lower emissions unless it contributes to reducing fossil-fuel consumption. These results offer new insights into why countries such as Indonesia may be reluctant to adopt higher carbon tax rates. They also emphasize the need to align carbon-pricing strategies with the realities of structural and energy systems.