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Fossil Fuel Subsidies in Indonesia: Trends, Impacts, and Reforms

Fossil fuel subsidies are a prominent feature of many Asian economies, however they contribute to fiscal imbalances in many countries and restrict public expenditure on development priorities such as education, health, and infrastructure.

Subsidized energy is provided to all Indonesian citizens as a public service obligation. This study measures the size of fossil fuel subsidies such as underpricing of petroleum products and electricity, tax exemptions, and subsidized credit; examines the potential economic, energy, and environmental impacts of reducing them; and discusses options for social safety nets to mitigate the impacts of the reforms. It shows that the short-term adverse impacts of subsidy reform turn positive in the long term as households and industry respond to changing market realities by adjusting energy demand, supply, and production capacity. Policy options for sustainable energy use are provided to aid policy makers in their current subsidy reform process.

 

Download full study here.