Energy Transition in Support of the Low-Carbon Development Initiative in Indonesia: Transport sector

This policy brief argues that Indonesia must implement effective fuel pricing mechanisms—such as smoothing, ratcheting, or price caps and floors—to complete its fuel subsidy reforms and avoid returning to expensive subsidy policies. While 2015 reforms saved over USD 15 billion by capping diesel subsidies and removing support for 'Premium' gasoline, subsidies persist. IISD recommends phasing out polluting fuels and redirecting funds toward low-emission infrastructure, renewable energy, and stricter emission standards to reduce social costs like air pollution and greenhouse gas emissions.

• The current fuel pricing regime in Indonesia, while intended as a public service, creates significant social costs including greenhouse gas emissions, traffic congestion, and air pollution and its related illnesses.
• In 2015, Indonesia implemented major transport fuel subsidy reforms that saved over USD 15 billion. These reforms included removing budgetary support for "Premium" gasoline and capping the diesel subsidy at IDR 1,000 per litre (USD 7.5 cents).
• Despite 2015 reforms, fuel subsidies persist. For example, prices for Premium gasoline remained steady until April 2018, even as international oil prices nearly doubled.
• IISD recommends implementing pricing models such as ratcheting, smoothing, or a cap and floor to reduce subsidies and price fluctuations. Additionally, it suggests phasing out or increasing prices for the most polluting fuels, improving biofuel governance, and redirecting subsidy funds toward low-emission transport infrastructure, higher emission standards, and the transition from coal to renewables.

APA

McCulloch,, T. L. (2019). Energy Transition in Support of the Low-Carbon Development Initiative in Indonesia: Transport sector. International Institute for Sustainable Development. https://www.iisd.org/publications/energy-transition-indonesia-transport-sector

Chicago

McCulloch,, Tara Laan,Neil. Energy Transition in Support of the Low-Carbon Development Initiative in Indonesia: Transport sector. International Institute for Sustainable Development, 2019. https://www.iisd.org/publications/energy-transition-indonesia-transport-sector.

Wikipedia

{{cite report |last1=McCulloch, |first1=Tara Laan,Neil |title=Energy Transition in Support of the Low-Carbon Development Initiative in Indonesia: Transport sector |publisher=International Institute for Sustainable Development |date=23 October 2019 |url=https://www.iisd.org/publications/energy-transition-indonesia-transport-sector |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mcculloch2019energy, author = {McCulloch,, Tara Laan,Neil}, title = {{Energy Transition in Support of the Low-Carbon Development Initiative in Indonesia: Transport sector}}, institution = {International Institute for Sustainable Development}, year = {2019}, month = oct, url = {https://www.iisd.org/publications/energy-transition-indonesia-transport-sector}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }