LPG Subsidy Reform in Indonesia: Lessons learned from international experience

Indonesia's LPG subsidies are regressive, primarily benefiting wealthier households and straining the national budget. The report analyzes proposed targeting mechanisms, such as facial biometrics, and evaluates the climate impact of switching to electric induction stoves. By examining how India and Mexico implemented fuel tax increases and targeted social protections during economic crises, the report argues that Indonesia can leverage low oil prices to reform subsidies and redirect funds toward vulnerable populations.

• Indonesia's LPG subsidies are socially inefficient and regressive, as the majority of benefits accrue to wealthier citizens rather than the poor. A study indicated that only about 39% of users of subsidized 3-kg LPG cylinders are from the lowest 40% of income households, while wealthier households receive higher total subsidies per household.
• The Indonesian government has explored targeting LPG subsidies through a closed distribution system. The National Team for the Acceleration of Poverty Reduction (TNP2K) piloted a scheme using facial biometric technology via the LinkAja smartphone application to verify eligibility based on electricity subsidy data.
• Switching from LPG to electric induction stoves in Indonesia could increase greenhouse gas emissions due to the country's heavy reliance on coal for electricity. Cooking with an electric induction stove is estimated to cause 0.855 tCO2e per year, compared to 0.408 tCO2e for LPG, resulting in an annual increase of 0.447 tCO2e per household.
• High upfront costs act as a barrier for middle-income households switching to electric cooking. The total cost for an induction stove, ferromagnetic utensils, cable, and tariff upgrades is approximately IDR 4.8 million (USD 342), which is significant given that lower middle-class monthly income is below IDR 7.5 million.
• India successfully increased fuel excise taxes during the COVID-19 crisis to generate revenue for relief packages without immediately raising retail prices, by offsetting the taxes against collapsed global oil prices. This generated an estimated INR 1.4 trillion (USD 19.2 billion) for the Central Government between April and December 2020.
• India implemented a social protection measure providing up to three free LPG refills to 75 million beneficiaries of the Pradhan Mantri Ujjwala Yojana (PMUY) between April and November 2020. However, efficiency was limited as only 60% of the targeted free cylinders were distributed due to overestimation of need and technical banking errors.
• Mexico utilized the Oportunidades conditional cash-transfer program, adding an energy component (Oportunidades Energéticas) between 2007 and 2010 to protect the poor from high oil prices. This targeted approach was highly progressive, with around 85% of the subsidies reaching the poorest 40% of households in the first year.
• The report recommends that Indonesia shift LPG subsidies away from the wealthy to support those most affected by the COVID-19 crisis, utilize robust data collection to avoid excluding intended beneficiaries, and implement a public endorsement plan to minimize opposition to price increases.

APA

Kuehl, J., Maulidia, M., Bajaj, K., & Boelts, S. (2021). LPG Subsidy Reform in Indonesia: Lessons learned from international experience. International Institute for Sustainable Development. https://www.iisd.org/system/files/2021-05/lpg-subsidy-reform-indonesia.pdf

Chicago

Kuehl, Jonas, Martha Maulidia, Kavya Bajaj, and Silke Boelts. LPG Subsidy Reform in Indonesia: Lessons learned from international experience. International Institute for Sustainable Development, 2021. https://www.iisd.org/system/files/2021-05/lpg-subsidy-reform-indonesia.pdf.

Wikipedia

{{cite report |last1=Kuehl |first1=Jonas |last2=Maulidia |first2=Martha |last3=Bajaj |first3=Kavya |last4=Boelts |first4=Silke |title=LPG Subsidy Reform in Indonesia: Lessons learned from international experience |publisher=International Institute for Sustainable Development |date=May 2021 |url=https://www.iisd.org/system/files/2021-05/lpg-subsidy-reform-indonesia.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kuehl2021lpg, author = {Kuehl, Jonas and Maulidia, Martha and Bajaj, Kavya and Boelts, Silke}, title = {{LPG Subsidy Reform in Indonesia: Lessons learned from international experience}}, institution = {International Institute for Sustainable Development}, year = {2021}, month = may, url = {https://www.iisd.org/system/files/2021-05/lpg-subsidy-reform-indonesia.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }