Abstract
This research paper identifies fiscal policy gaps that occur in Indonesia’s renewable energy (RE) sector and analyses its political economy. Primary data from 37 stakeholders and secondary data from fiscal policies from Indonesia’s 2007–2017 taken from Ministry of Finance (MOF) and Ministry of Energy and Mineral Resources (MEMR) regulation databases. The fiscal policy data were analysed using a cluster approach and meta-synthesis method. The results show that Indonesia has experienced multi-faceted principal-agent problems between PT PLN, the agent with sole authority to manage electricity transmissions, and various principals, namely the Ministry of State Owned Enterprises (MSOE), the MEMR, the Ministry of Industry (MOI) as the intermediary between domestic and foreign RE industries, and the MOF. While changing the MEMR’s feed-in-tariff (FiT) policies sends an uncertain policy signal, the MOF’s fiscal incentive policies other than FiT to promote RE development in Indonesia remain sub-optimal; the fiscal policies required to incentivise a large volume of small- and medium-scale investment in RE are absent. Differentiated tax rates and tax-break periods for national and foreign companies on the micro, small and medium scales could significantly accelerate the development of RE by both domestic and foreign companies, supporting Indonesia in achieving its sustainable development goals and emission reduction targets under its nationally determined contribution.
Highlights
Indonesia is a large developing country in transition whose renewable energy (RE) sources and ambition to utilise them are immense, but progress has been slower than expected
The third section explains the methodology used in this research; the fourth answers the first question and identifies the fiscal policy gap in Indonesia’s RE to support the country’s RE development; the fifth responds to the second question and discusses the political economy that shapes the development and the implementation of fiscal policies for RE sector in Indonesia; the last section offers concluding remarks and policy recommendations
RE developers are often restricted by Ministry of Energy and Mineral Resources (MEMR) Ministerial Decree Number 54 Year 2012, which obliges them to source as much as 38% of their RE equipment and components domestically; while this policy may be intended to promote local production, it limits the progress of RE development projects
Summary
Indonesia is a large developing country in transition whose renewable energy (RE) sources and ambition to utilise them are immense, but progress has been slower than expected. Aidy Halimanjaya: The Political Economy of Indonesia’s Renewable Energy Sector and Its Fiscal Policy Gap policy to simplify investment procedures to attract large investments [8], and the enactment of Government Regulation Number 9 Year 2016 on the reduction of corporate income tax, have been developed to attract investment more broadly, including RE development. These efforts aim to help the country to achieve its RE targets by 2025, the National Parliament is reluctant to develop RE by providing direct financial benefits to companies through feed-in-tariff (FiT) policies due to its preference to subsidise only poor people [9]. The third section explains the methodology used in this research; the fourth answers the first question and identifies the fiscal policy gap in Indonesia’s RE to support the country’s RE development; the fifth responds to the second question and discusses the political economy that shapes the development and the implementation of fiscal policies for RE sector in Indonesia; the last section offers concluding remarks and policy recommendations
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