Indonesia’s Energy Support Measures Hit IDR 279 Trillion in FY 2020, Disproportionately Benefitting Fossil Fuels—New Report
Jakarta, June 22, 2022—Energy support measures in Indonesia hit IDR 279 trillion in FY 2020, of which a staggering 88%—IDR 246 trillion—was allocated to fossil fuels, according to a new report from the International Institute for Sustainable Development (IISD) released today.
The government provided at least IDR 74 trillion to support the oil and gas industry, IDR 112 trillion for fossil fuel-based electricity, and IDR 61 trillion for the coal sector, according to the study, titled Indonesia’s Energy Support Measures: An inventory of incentives impacting the energy transition. Indonesia’s incentives for fossil fuels were 117 times higher than support for renewable energy that received only IDR 2 trillion, representing less than 1% of the total support measures, while IDR 31 trillion went to biofuels and IDR 19 billion to electric vehicles.
The report warns that in the current context of high energy prices, these figures are expected to increase significantly in 2022 after the Indonesian parliament in May approved a government request for an additional IDR 350 trillion in energy subsidies, adding to the IDR 154 trillion already spent in the first quarter of the year.
The study—which covers incentives supporting different types of energy beyond those measures officially classified as “subsidies” in Indonesia’s accounts—puts a spotlight on the country’s overwhelming support for the fossil fuel sector in the period from 2016–2020, with 94% allocated on average per year to prop up oil and gas, coal, and fossil fuel-based electricity, and just 1% allocated to renewables. Experts warn that Indonesia’s disproportionate support for fossil fuels is slowing the energy transition, draining the public budget, accelerating climate change, and harming people’s health.
“Indonesia critically needs to shift support away from fossil fuels to clean energy to meet its climate and renewable energy targets, and decrease reliance on price-volatile fossil fuels,” says IISD’s Anissa Suharsono, lead author of the report. “These incentives represent an enormous cost to the public budget—particularly in the current context of high energy prices—and take a heavy toll on people’s health and the climate.”
The report, which explores the extent to which Indonesia’s current energy support measures reflect its goals to reach 23% of renewable energy by 2025 and net-zero emissions by 2060, highlights that current policies are undermining the country’s energy targets and environmental imperatives. The report’s authors provide concrete recommendations for the government to realign its incentives by reforming policies that benefit the fossil fuel sector and instead incentivizing investments in renewable energy.
In the midst of soaring energy prices and a cost-of-living crisis, targeting support to the poor and vulnerable becomes key to preserving scarce public resources. These should be used efficiently and serve to pave the way for a just transition away from fossil fuels, IISD experts recommend.
To do that, the government could improve targeting for the two of the largest supports provided—the reimbursement to state-owned energy company Pertamina for below-market pricing of fuels, and the subsidy to the state electricity firm PLN to provide cheap power—which mostly benefit the wealthier segment of the population that consumes the largest share of fuel and electricity.
“Reforming policies that support fossil fuels and ensuring that lower-income groups receive targeted support to help face price increases will free up resources that can instead be invested in renewable energy, clean transportation, and sustainable infrastructure,” says study co-author Lourdes Sanchez of IISD. “That would ensure the poor are protected while allowing Indonesia to transition towards cleaner energy sources to build a sustainable energy system that is more resilient to global price shocks and provides affordable clean energy for all Indonesians.”
The International Institute for Sustainable Development (IISD) is an award-winning independent think tank working to accelerate solutions for a stable climate, sustainable resource management, and fair economies. Our work inspires better decisions and sparks meaningful action to help people and the planet thrive. We shine a light on what can be achieved when governments, businesses, non-profits, and communities come together. IISD’s staff of more than 120 people, plus over 150 associates and consultants, come from across the globe and from many disciplines. With offices in Winnipeg, Geneva, Ottawa, and Toronto, our work affects lives in nearly 100 countries.
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