International Experiences with LPG Subsidy Reform: Options for Indonesia

The document outlines strategies for Indonesia to reform its regressive LPG subsidies, which currently allow high-income households to capture a disproportionate share of benefits. It identifies four international pricing mechanisms—deregulated, automatic adjustment, pre-determined increases, and stabilization mechanisms—and argues that the ideal goal is market pricing achieved through gradual transitions. The report emphasizes that reforms must be paired with targeted social protections to ensure low-income households maintain access to clean cooking fuels. It details various international targeting models, including El Salvador's mobile-phone based vendor payments, India's Direct Benefits Transfer (DBTL) and voluntary 'Give it Up!' campaign, Peru's FISE voucher system, and Thailand's electricity-consumption based eligibility. Finally, it highlights the critical role of communication and the demonstrable effectiveness of alternative subsidy delivery systems in securing public approval for reform.

• LPG subsidies in Indonesia are currently regressive because the availability of low-cost 3-kg cylinders allows higher-income households with more buying power to capture a larger share of the benefits.
• International LPG pricing generally falls into four categories: deregulated systems that minimize market distortions; automatic adjustment systems linked to world prices; pre-determined price increases to reach market levels; and stabilization mechanisms that use funds to smooth price shocks.
• Effective subsidy reform should adhere to three core principles: depoliticizing pricing to move toward market rates, managing impacts on vulnerable groups through targeted policies, and building public support via consultation and communication.
• Various countries have implemented diverse targeting mechanisms to protect the poor: El Salvador uses mobile phones for real-time transaction data at vendors; India utilizes bank-account transfers (DBTL) to reduce corruption; Peru provides monthly vouchers via electricity bills (FISE); and Thailand uses electricity consumption limits to determine eligibility.
• Thailand's attempt to target LPG subsidies to low-income households and small businesses was largely unsuccessful, with only 400,000 of an estimated 8 million eligible buyers registering due to burdensome registration processes and fears of taxation.
• Public support for subsidy reform is strongly linked to the perceived effectiveness of the replacement system; in El Salvador, public opinion shifted from 70% disapproval in January 2011 to 68% approval a year later as the targeted system was delivered effectively.

APA

Toft, L., Beaton, C., & Lontoh, L. (2016). International Experiences with LPG Subsidy Reform: Options for Indonesia. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/international-experiences-with-LPG-subsidy-reform-executive-summary-en.pdf

Chicago

Toft, Lasse, Chris Beaton, and Lucky Lontoh. International Experiences with LPG Subsidy Reform: Options for Indonesia. International Institute for Sustainable Development, 2016. https://www.iisd.org/system/files/publications/international-experiences-with-LPG-subsidy-reform-executive-summary-en.pdf.

Wikipedia

{{cite report |last1=Toft |first1=Lasse |last2=Beaton |first2=Chris |last3=Lontoh |first3=Lucky |title=International Experiences with LPG Subsidy Reform: Options for Indonesia |publisher=International Institute for Sustainable Development |date=January 2016 |url=https://www.iisd.org/system/files/publications/international-experiences-with-LPG-subsidy-reform-executive-summary-en.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{toft2016international, author = {Toft, Lasse and Beaton, Chris and Lontoh, Lucky}, title = {{International Experiences with LPG Subsidy Reform: Options for Indonesia}}, institution = {International Institute for Sustainable Development}, year = {2016}, month = jan, url = {https://www.iisd.org/system/files/publications/international-experiences-with-LPG-subsidy-reform-executive-summary-en.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }