Presentation by Lucky Lontoh, Associate and Country Coordinator in IISD's Energy program, IISD.

1. IISD Energy
Lucky Lontoh
Bogor, 8 March 2023
The Role of Fossil Fuel Subsidy
Reform in Energy Transition

2. Indonesia’s Climate Commitments
• Enhanced NDC with increased emission reduction target from 29% in
First NDC and Updated NDC to 31.89% unconditionally and from 41%
in the Updated NDC to 43.20% conditionally.
• Net-Zero by 2060 or sooner.
• Peaking power sector emissions by 2030 at absolute value of no more
than 290 MT CO2
• 23% renewable energy by 2025  34% of renewable energy of all
power generation by 2030 (JETP)

3. Shifting the Flow of Finance
• The JETP announcement represents a marked shift in financial flows in the energy sector.
In 2020, renewables accounted for less than 8% of energy sector investment while fossil
fuels received 65%. If JETP is to be a success, these flows will have to be reversed.
• The increasing availability of concessional finance pledged in the JETP announcement, will
improve project finances. Under the JETP deal in South Africa, for instance, a number of
announced loans will have an interest rate of approximately 3%—far lower than typical
commercially available debt for project finance. Cheap finance can be further “blended”
with commercial finance to enable maximum deployment.
• If the JETP finance is deployed in a manner that aligns with the needs of project
developers, then access to finance will no longer be a barrier to the industry. The
government team leading the project must avoid adding counterproductive conditions or
regulations that prevent the finance from being deployed in a timely manner.

4. G20 dan Fuel Subsidy Reform
To phase out and rationalize over the medium-term inefficient fossil fuel
subsidies while providing targeted support for the poorest. Inefficient fossil
fuel subsidies encourage wasteful consumption, reduce our energy security,
impede investment in clean energy sources and undermine efforts to deal
with the threat of climate change. We call on our Energy and Finance
Ministers to report to us their implementation strategies and timeline for
acting to meet this critical commitment at our next meeting.
G20 Pittsburgh Summit – 2009
Leaders’ Declaration
Seven countries declared having no fossil fuel subsidies

5. How to Approach Fossil Fuel Subsidy Reform

6. Indonesia Successfully Reformed Energy
Subsidy Back in 2015

7. IISD Subsidy Inventory – Indonesia (1/2)
https://www.iisd.org/system/files/2022-06/indonesia-energy-support-
measures.pdf

8. IISD Subsidy Inventory – Indonesia (2/2)
https://www.iisd.org/system/files/2022-06/indonesia-energy-support-measures.pdf

9. Areas to observe in subsidy policy

10. Why this exercise?
Transparency drives informed debate
• We know the effects of support to fossil
fuels and to renewables in terms of
consumption and emissions…
• …and that the majority of the support to
fossil fuels do not benefit the poor or
vulnerable
https://www.iisd.org/publications/target-residential-electricity-subsidies-india-step-2
https://www.iisd.org/publications/cutting-emissions-fossil-fuel-subsidies-taxation

11. Recommendations to Reduce Fossil Fuel Subsidy
• Changing the pricing mechanism for fuel by taking into account flexible price adjustment. The periodic semi-automatic pricing
system currently in place have not been effective.
• Factoring in externalities in pricing system.
• Accelerate the development of renewable energy to phase out the role of fossil fuel.
• Energy transition: Systematic decoupling from fossil fuel by implementing low carbon development, energy efficiency and
conservation, using both national and international funding.
• Encouraging a paradigm shift and direction of government support in the energy industry that encourages investment towards
renewable energy.
• Strengthen the non-subsidy fuel policy instrument in order to stabilize prices and external crisis pressures
• Protecting the interests and welfare of the community in the energy transition process
• Leaving the tradition of using fuel subsidies as a campaign issue
Further reading: Missing the 23 Per Cent Target: Roadblocks to the development of renewable energy in Indonesia
https://www.iisd.org/publications/report/missing-23-cent-target-roadblocks-development-renewable-energy-indonesia

12. Lucky Lontoh
International Institute for Sustainable Development (IISD)
Global Subsidies Initiative (GSI)
Associate | Country Program Coordinator - Indonesia
luckylontoh@gmail.com
https://www.iisd.org/gsi/
https://www.energypolicytracker.org