International Experiences With LPG Subsidy Reform

With diesel and gasoline reforms implemented in early 2015, the Government of Indonesia is now turning its focus toward liquefied petroleum gas (LPG) subsidies. 

LPG subsidies in Indonesia today, as with other fossil fuel subsidies, are regressive in nature. Anyone can buy low-cost 3-kg LPG cylinders, so a larger share of benefits tends to be captured by higher-income households, who have more buying power. However, effectively designed and targeted LPG subsidies could significantly improve the performance of LPG subsidies, making them an effective policy tool for the promotion of clean cooking among low-income households.

This transition is similar to many other countries, where the close links between LPG subsidies and energy access have seen reform policies centre on better targeting of assistance, to ensure that low-income households can continue to access modern, clean forms of energy once LPG prices increase.

This report investigates international experience and best practices on how to reform LPG subsidies, with a focus on countries’ efforts to ensure that energy access is not compromised by higher LPG prices.