A report by IISD’s Global Subsidies Initiative titled, ‘Beyond Fossil Fuels: Indonesia’s Fiscal Transition,’ finds that the Government of Indonesia has reduced dependence on fossil fuel production revenue, putting it in an ideal position to drive a low-carbon energy transition.
The report was launched in Jakarta on 31 January 2019.
The authors determine that an overall downward trend is clear in terms of revenues from upstream oil and gas, dropping from 35% of total government revenues to 6% between 2001-2016.
31 January 2019: A report by the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD) finds that the Government of Indonesia has reduced dependence on fossil fuel production revenue, putting it in an ideal position to drive a low-carbon energy transition.
Launched in Jakarta on 31 January 2019, the report titled, ‘Beyond Fossil Fuels: Indonesia’s Fiscal Transition,’ examines how the country both taxes and subsidizes oil, gas, coal and electricity. Indonesia’s budget revenues in the form of tax and non-tax revenue from fossil fuel extraction are subject to fluctuations in world prices for oil, gas and coal. The authors find that while these prices are volatile, the overall downward trend is clear. Revenues from upstream oil and gas dropped from 35% of the total government revenues (representing 7% of GDP) in 2001 to just 6% of revenues (less than 1% of GDP) in 2016.
Despite this decline in fossil fuel revenue, Indonesia’s rates of GDP growth (at 3-4% per year) and budget deficit (at 2-3%) remained largely unchanged in the period from 2001 to 2016. The authors attribute this dynamic to both declining value of Indonesia’s oil and gas exports and to several decades of government effort to develop the country’s manufacturing, financial and other sectors. As those new industries have grown, they have become bigger taxpayers, and contributed to diversifying Indonesia’s economy.
However, the report notes, the country still faces several challenges in moving further towards a fiscal system that supports clean energy and a sustainable economy. The authors determine that from 2014 to 2016, the Government of Indonesia collected an annual average of IDR 190 trillion (USD 16 billion) in tax and non-tax revenues from oil and gas extraction. According to the report’s analysis, during the same period it spent the same amount on fuel and electricity subsidies, providing no net benefit to government coffers.
Lucky Lontoh, IISD, spoke to media at the report launch, noting that “To the Government’s credit it has already reformed some fossil fuel subsidies, with positive results… . If Indonesia does more subsidy reform, we can move faster to build clean energy, and save income that can be channeled to investments that benefit everyone.” [Publication: Beyond Fossil Fuels: Indonesia’s Fiscal Transition] [Global Subsidies Initiative Webpage]