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identifies forestry and peat, energy and transport, agriculture, industry, and waste as primary
sectors for emissions reductions. The action plan is also complemented by another presidential
regulation (Law no. 71/2011) on the implementation of a national greenhouse gases inventory. The
two plans, along with the NEP14, require renewable energy to play an important role in meeting
the country’s energy demand in order to mitigate climate change. 27 It remains to be seen, however,
whether these targets will be met and if the government will be able to overcome challenges to
increasing the role of renewable energy in the energy mix. The targets set in the National Action
Plan also inform Indonesia’s commitments for the Paris 2015 UN Climate Change Conference
talks in December 2015. Beyond any commitments made for the Paris conference, Indonesia
should signal a post-2020 emissions reduction target.
Challenges to Achieving the Objectives of the National Energy Policy
There are a number of policy and structural challenges to Indonesia achieving the objectives
of its national energy policy. This section examines each of these challenges and assesses to what
extent the current Jokowi government has taken action to address them.
Subsidies
In the late 1960s, when oil and gas production and exports were first ramping up in Indonesia,
the government introduced subsidies on oil products in the transportation, industrial, and
power-generation sectors in order to stimulate economic development. 28 However, since the
country ceased to be a net exporter of oil in 2004, heightened demand for oil products and
political pressure to maintain subsidies meant that government spending on subsidies steadily
increased and became a significant burden on the state budget. The fuel subsidy was projected
to balloon to 20% of the Indonesian state budget in 2014 because of anticipated movement in
international market prices. Almost unanimously, experts on Indonesian energy policy identified
the elimination of fuel subsidies as the top priority for the incoming Jokowi administration.
Previous administrations had lacked either the political will or political capital to take on this
important reform, and attempts to do so were often met with public protests and, in more extreme
cases, rioting. 29
In addition to fuel subsidies, Indonesia subsidizes electricity prices. In 2012, total spending on
energy subsidies was equivalent to the central government’s combined capital and social spending
and three times its infrastructure budget. Subsidies represent a huge opportunity cost and also
disproportionately benefit high-income households. 30 By keeping the domestic prices of fuel
(petrol, diesel, and kerosene) and electricity below their true market levels, government subsidies
disrupt the normal mechanism for transmitting fluctuations in world oil prices and the rupiah’s
exchange rate to the domestic market, thereby shifting risk to the government budget.
In an attempt to address this issue, in November 2014 President Jokowi, less than a month after
taking office, raised subsidized fuel prices by an average of 30%. This move was widely interpreted
27 “Powering Up,” 30.
28 Siew Hua Seah, “Can Indonesia’s Policy of Reconfiguring Its Energy Mix by Increasing Natural Gas Usage Support Its Initiatives to Reform
Energy Subsidies?” Oxford Institute for Energy Studies (OIES), OIES Paper, November 2014, 1.
29 Joe Cochrane, “Indonesia Struggles to End Fuel Subsidies,” New York Times, May 2, 2013.
30 “Powering Up,” 17.
INDONESIA’S ENERGY POLICY u STUART
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