Subsidies fossil fuel given by a number of countries have seen encouraging wasteful consumption, reduce energy security, impede investment in energy sources that are environmentally friendly and hamper efforts to tackle climate change. Because of these considerations, in the G20 summit in Pittsburgh in September 2009 G20 leaders agreed to limit and rationalize inefficient fuel subsidies in the medium term and at the same time provide assistance to the.
At the next summit in Toronto in June 2010, in Seoul November 2010 states reaffirm that commitment by reporting conditions inefficient fuel subsidies. Restrictions on subsidies also seen as an important step towards sustainable development and green economy (green economy). As a member of the G-20, Indonesia together with other member countries are committed to rationalizing fuel subsidies and improve energy efficiency. This commitment not only aims to improve energy efficiency, but also deals with the role of Indonesia in climate change. Commitment in climate change mitigation is confirmed Indonesia in the G-20 summit in 2010 in Seoul, where Indonesia plans to remove fuel subsidies gradually and conduct demand-side management.
Energy sector policies in Indonesia
Energy policy in Indonesia has been formulated since 1976 when the government established the National Energy Coordinating Agency (BAKOREN), a ministry-level agency, which is authorized to formulate energy policy and coordination in the implementation. In 1981, BAKOREN Public Policy issued in 1987 and 1991, focusing on three things: intensification, diversification and conservation of energy. Step intensification is done by increasing the activity of survey and exploration of energy resources to determine its economic potential.
Energy diversification is done by reducing dependence on petroleum and divert it to the other energy sources (for power plants and cement factories are set coal as its main energy source). Energy conservation is achieved by increasing energy efficiency. KUBE subsequently compiled in 1998 added two points in the direction of Indonesia's energy policy, namely: set the price of energy is gradually directed to follow the market mechanism and the environment in mind. National Energy Policy (KEN) in 2003 by the Department of Energy and Mineral Resources, a policy document in the field of energy that replaces hereinafter KUBE 1998. KEN 2003, which became the basis of Law No. 30 of 2007 on Energy, has a major passion similar to the previous energy policies.
KEN 2003 is described in more detail into the Presidential Decree No. 5 of 2006 on National Energy Management Blueprint 2005-2025, with the main target of the policy is to achieve Energy elasticity under one in 2025 and the establishment of primary energy mix, which is dominated by the energy source non-fossil fuel (70%) in 2025, with details: natural gas (30%), coal (33%), biofuels (5%), geothermal (5%), liquid coal (2%) and others (including biomass, solar, wind, micro-hydro and nuclear) ( 5%).
Contributions fuel as an energy source which is currently at 49.5% (EMR 2012), is expected to fall to 33% in 2025. The next national energy policy is Law No. 30 of 2007 on Energy. In general, the management of energy in Indonesia according to Law No. 30 of 2007 is to achieve energy independence with a guaranteed supply of energy, increasing energy efficiency, improving people's access to energy (especially for low income groups), and ensuring environmental sustainability. Concerning energy prices, Law No. 30 of 2007 states that energy prices are determined on the economic value and the subsidies given to the poor.
Fossil Fuel Subsidies in Indonesia
Indonesia provides subsidized energy to its citizens as a public service obligation. The rationale is that citizens should benefit from domestic production of oil, coal, and other energy sources through their cheap prices. State-owned enterprises perform this function and the government reimburses them for the resulting losses.
Fuel subsidies were more manageable when Indonesia was a net exporter of petroleum products and low domestic prices represented only an opportunity cost do the government rather than explicit fiscal expenditure. But because declining production and Browning energy demands have necessitated imports, the subsidy burden has transferred to the budget. Rising oil prices since the mid-2000s have added to the extreme budgetary pressure from fuel subsidies, which at times have risen to over 20% of total government expenditure in Indonesia (World Bank 2007). In 2013, the revised national budget allocated 17% of total government expenditure to fuel and electricity subsidies (Lontoh, Clarke, and Beaton 2014). Electricity prices are also capped,
leading to major costs for the government and losses for state-owned electricity companies. In the months prior to the publication of this report, Indonesia has seen dramatic changes in its subsidy policy. Gasoline and diesel prices were increased by nearly 40% in November 2014, and as of January 2015, the government announced it would fully remove the subsidy on gasoline and introduce a “fixed” subsidy on diesel. Here, domestic diesel prices are allowed to fluctuate, with a fixed gap from international prices of 1,000 rupiah (Rp).
