Financing Green Recovery From Fossil Fuel Taxation and Subsidy Reform

The document proposes that Indonesia generate approximately IDR 261 trillion per year by reforming fossil fuel subsidies and introducing new taxes on coal and transport fuels. These funds could cover COVID-19 health and social protection expenditures while supporting a transition to renewable energy. The authors recommend a phased approach to price reform, including targeted social safety nets to protect vulnerable populations from rising energy costs.

• Indonesia's fossil fuel subsidies are costly and regressive, benefiting wealthier citizens more than the poor. In 2019, total subsidies were approximately IDR 124 trillion (USD 8.6 billion), with IDR 43 trillion (USD 3 billion) allocated to transport fuels and IDR 13 trillion (USD 0.9 billion) to coal.
• Reforming subsidies and introducing new taxes on transport fuels and coal could generate IDR 261 trillion (USD 18.1 billion) annually. This amount is nearly half of Indonesia's total COVID-19 recovery spending in 2020 (IDR 584 trillion) and could fully cover health and social protection expenditures.
• A modest tax increase of IDR 500 per litre on gasoline and diesel could raise an additional IDR 31 trillion (USD 2.2 billion) per year. Combined with subsidy reform, transport fuel measures could deliver over IDR 154 trillion (USD 10.7 billion) annually.
• Implementing a coal tax of IDR 78,700 per tonne could generate IDR 49 trillion (USD 3.4 billion) annually. Together with the current 10% VAT and subsidy reform, total annual revenue from coal could reach IDR 107 trillion (USD 7.4 billion), which would fully cover 2020 COVID-19 health expenditures (IDR 56 trillion).
• The current Domestic Market Obligation (DMO) policy, which caps coal prices at USD 70 per ton, obscures the true cost of electricity. Reforming this policy would create a level playing field for renewables, as solar PV and wind costs (USD 0.03/kWh) are now lower than subsidized coal-fired power costs (USD 0.08/kWh).
• To prevent energy poverty and inflation resulting from higher energy prices, the government should use tax revenues to strengthen social protection and target subsidies to vulnerable consumers rather than commodities.

APA

Sumarno, T. B., & Sanchez, L. (2021). Financing Green Recovery From Fossil Fuel Taxation and Subsidy Reform. International Institute for Sustainable Development. https://www.iisd.org/system/files/2021-12/fossil-fuel-taxation-subsidy-reform-indonesia.pdf

Chicago

Sumarno, Theresia Betty, and Lourdes Sanchez. Financing Green Recovery From Fossil Fuel Taxation and Subsidy Reform. International Institute for Sustainable Development, 2021. https://www.iisd.org/system/files/2021-12/fossil-fuel-taxation-subsidy-reform-indonesia.pdf.

Wikipedia

{{cite report |last1=Sumarno |first1=Theresia Betty |last2=Sanchez |first2=Lourdes |title=Financing Green Recovery From Fossil Fuel Taxation and Subsidy Reform |publisher=International Institute for Sustainable Development |date=September 2021 |url=https://www.iisd.org/system/files/2021-12/fossil-fuel-taxation-subsidy-reform-indonesia.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{sumarno2021financing, author = {Sumarno, Theresia Betty and Sanchez, Lourdes}, title = {{Financing Green Recovery From Fossil Fuel Taxation and Subsidy Reform}}, institution = {International Institute for Sustainable Development}, year = {2021}, month = sep, url = {https://www.iisd.org/system/files/2021-12/fossil-fuel-taxation-subsidy-reform-indonesia.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }