Energy Subsidies in Indonesia

This policy brief analyzes Indonesia’s mechanisms for adjusting domestic fuel prices in response to fluctuating world prices, consistent with existing efforts to reform diesel and gasoline prices. It also offers some insights regarding the ongoing LPG pricing reform process.

A new report from the Nordic Council of Ministers finds that redirecting fossil fuel subsidies toward the clean energy transition could help climate vulnerable countries reap major savings while slashing greenhouse gas emissions.

Removal of consumer subsidies can lead to carbon emission reductions (6 to 8 per cent by 2050 globally), Reductions that can be improved further with a switch or a "SWAP" towards sustainable energy. This report describes the scale and impact of fossil fuel subsidies on sustainable development. It describes the SWAP concept to switch savings made from fossil fuel subsidy reform, towards sustainable energy, energy efficiency and safety nets. The report provides potential SWAP outlines for Bangladesh, Indonesia, Morocco and Zambia. "Making the Switch" was written for the Nordic Council Ministers by the Global Subsidies Initiative of IISD and Gaia Consulting.

As part of its work on energy policy and sustainable development in Indonesia, the Global Subsidies Initiative publishes a regular briefing on issues related to energy subsidies.

This World Bank book, edited by by Gabriela Inchauste and David G. Victor, brings together detailed chapters on the political economy of subsidy reform in four countries—the Dominican Republic, Ghana, Indonesia and Jordan —and draws overall lessons from their experiences. IISD's Global Subsidies Initiative (GSI) contributed Chapter 4, "Indonesia: Pricing Reforms, Social Assistance and the Importance of Perceptions," on Indonesia's experiences with overcoming political obstacles to gasoline and diesel subsidy reforms. The chapter begins by reviewing the economic, fiscal and political context surrounding these subsidies. It then places them in their historical context, outlining the history surrounding their creation as well as the six major reform attempts since the 1997—98 Asian Financial Crisis.

The Government of Indonesia has been considering a new wave of electricity subsidy reforms since January 2016—delaying its plans twice now for a combination of political and practical reasons.

In addition to Indonesia’s objective of increasing the share of renewable energy in their generation mix, the country’s electricity sector is facing a number of challenges, notably the need to meet rising demand for electricity and to serve consumers in geographically remote regions. This report demonstrates that subsidies are still an important part of the state-owned electricity company and that remote areas are not seeing previous improvements in the same way as populated ones are. Also, coal generation is getting the main focus of the capacity-increase programs, despite the important potential of renewable sources.

As part of its work on energy policy and sustainable development in Indonesia, the Global Subsidies Initiative publishes a regular briefing on issues related to energy subsidies.