Abstract
A major energy transformation is required to prolong the rise in global temperature below 2 °C. The Indonesian government (GoI) has set a strategy to gradually remove fuel subsidies to meet its 2050 ambitious energy targets. Using a recursive dynamic computable general equilibrium (CGE) model, the present study aimed to determine whether or not the current energy subsidy reforms would meet the targets of both energy mix and energy intensity. It also incorporated the environmental aspect while developing a source of a detailed database in the energy sector. The energy subsidy reform policy (followed by an increase in infrastructure and renewable energy investments) could be the most appropriate alternative policy if the government aims to reduce energy intensity and emission, as well as improve energy diversification without pronounced reductions in the sectorial and overall economy. However, all simulations suggested that the removal of energy subsidy does not enough in attaining the targeted energy mix and energy intensity goals. Thus, the Indonesian government should also introduce progressive programs in renewable energy.
Highlights
Energy transition, from fossil-based to zero-carbon energy, has been a tremendous global concern in the Paris Agreement objective [1], as energy consumption is the most significant contributor to the increasingly growing emission
The price of imports and imports substituting domestic products are increasing at the same level
This study attempts to highlight its effect on energy diversification and energy intensity, while other energy subsidy reform analysis focused on welfare indicators
Summary
From fossil-based to zero-carbon energy, has been a tremendous global concern in the Paris Agreement objective [1], as energy consumption is the most significant contributor to the increasingly growing emission. Countries implement various measurements to encourage energy transition. Energy pricing systems (such as energy or fuel taxation and emission trading system (ETS)) are commonly used market strategies to encourage citizens and investors to favor clean energy over polluting one [5]. Sustained implementation of fossil energy subsidies in developing countries is a significant barrier to a clean energy system and needs to be overcome in the first place [6]. The removal of energy subsidy is heavily encouraged in developing countries
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