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Could energy subsidy reform improve Indonesia's economic growth?

Effective energy subsidy policy reform could also facilitate the new government’s goal of achieving 8 per cent annual economic growth, by freeing up an estimated 33.7 trillion Indonesian Rupiah IDR (~ 1.9 billion USD) in fiscal resources from LPG and 23.8 trillion IDR (~ 1.5 billion USD) from electricity subsidies, as explained below.

What is Indonesia's energy subsidy policy?

The ETP Forum helped coordinate support to Indonesia’s G20 Presidency in 2022 and ASEAN Chairship in 2023. This energy subsidy policy brief explores Indonesia's household subsidies for energy consumption, and lays out a pathway for reform that will be crucial for achieving a just transition in Indonesia.

Would Indonesia benefit from tackling fossil fuel subsidies?

While Indonesia would benefit from tackling fossil fuel subsidies at all levels, this new CPD policy brief looks specifically at household subsidies for energy consumption. It outlines the case for reform, and demonstrates how the government could free up an estimated 50 trillion Indonesian Rupiah (over $3 billion USD) from the state budget.

How much money does Indonesia spend on energy subsidies?

Energy subsidies remain a significant burden on Indonesia's state budget. In 2024, the government allocated Rp 386.9 trillion ($23.9 billion) for energy subsidies, which included: Solar Diesel Subsidy (Rp 89.7 trillion): The government covers 43 percent of the market price of Rp 11,950 per liter for Solar diesel, equivalent to Rp 5,150 per liter.

Should energy policy reforms be ratcheted up in Indonesia?

Energy policy reforms have to be ratcheted up in Indonesia. The nascent literature on energy policy reform focuses on the technocratic aspect (Resosudarmo et al., 2023), the political economy of regional energy planning (Setyowati & Quist, 2022), and the policy commitment across ASEAN countries (Overland et al., 2021).

Why is energy adoption low in Indonesia?

ble energy adoption in Indonesia remains low due to the government's own policy of maintaining massive subsidies for fossil fuels. As Indonesia plans to achieve net-zero emi sions by 2060 or sooner, and the power sector’s emissions peak in 2030, energy subsidy and Summ ryThe Importance of Analyz