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Phasing Out Energy Subsidies in Indonesia

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  • Annabelle Mourougane

    (OECD)

Abstract

The oil price hike in 2007-08 underlined the vulnerability of Indonesia’s energy subsidy policy to oil price volatility. In addition to entailing significant economic and environmental costs, energy subsidies put pressure on the public budget and benefit mostly rich households. Phasing them out would benefit both the economy and the environment. At the same time, past experience in Indonesia and elsewhere suggests that such a reform is likely to face stiff opposition and will therefore need to be carefully designed and communicated. Compensation in the form of targeted cash transfers will help to shield low-income households from attendant rise in energy prices. This Working Paper relates to the 2010 OECD Economic Review of Indonesia (www.oecd.org/eco/surveys/Indonesia). Éliminer progressivement les subventions à l'énergie en l'Indonésie La flambée des prix du pétrole de 2007-08 a montré que la politique de subventions à l’énergie de l’Indonésie était sensible à la volatilité des prix du pétrole. En plus d’entraîner des coûts économiques et environnementaux importants, les subventions à l’énergie pèsent sur les finances publiques et profitent essentiellement aux ménages aisés. Leur suppression progressive aurait donc des effets positifs sur l’économie comme sur l’environnement. Toutefois, l’expérience de l’Indonésie et d’autres pays montre qu’une telle réforme risque de rencontrer une vive opposition et qu’il importe donc d’accorder une grande attention à la façon dont elle est conçue et expliquée. Des mécanismes de compensation sous forme de transferts monétaires ciblés contribueront à protéger les ménages à faible revenu de la hausse des prix de l’énergie induite par la réforme. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de l’Indonésie 2010 (www.oecd.org/eco/etudes/Indonesie).

Suggested Citation

  • Annabelle Mourougane, 2010. "Phasing Out Energy Subsidies in Indonesia," OECD Economics Department Working Papers 808, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:808-en
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    File URL: http://dx.doi.org/10.1787/5km5xvc9c46k-en
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    Cited by:

    1. Arlan Brucal, Inessa Love, Beata Javorcik, 2018. "Energy savings through foreign acquisitions? Evidence from Indonesian manufacturing plants," GRI Working Papers 289, Grantham Research Institute on Climate Change and the Environment.
    2. Wang, Qiang & Li, Rongrong, 2015. "Cheaper oil: A turning point in Paris climate talk?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1186-1192.
    3. Olivier Durand-Lasserve & Lorenza Campagnolo & Jean Chateau & Rob Dellink, 2015. "Modelling of Distributional Impacts of Energy Subsidy Reforms: an Illustration with Indonesia," Working Papers 2015.68, Fondazione Eni Enrico Mattei.
    4. Djoni Hartono & Tony Irawan & Ahmad Komarulzaman, 2014. "Energy Pricing Policies in Indonesia: A Computable General Equilibrium Model," EcoMod2014 7344, EcoMod.
    5. Inessa Love & Beata Javorcik & Arlan Brucal, 2017. "Pollution Haven or Halo? Evidence from Foreign Acquisitions in Indonesia," 2017 Meeting Papers 306, Society for Economic Dynamics.
    6. Blum, Nicola U. & Sryantoro Wakeling, Ratri & Schmidt, Tobias S., 2013. "Rural electrification through village grids—Assessing the cost competitiveness of isolated renewable energy technologies in Indonesia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 22(C), pages 482-496.

    More about this item

    Keywords

    bio-carburants; biofuels; energy subsidies; Indonesia; Indonésie; subventions d'énergie;

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