Energy Economic Development: Electricity Subsidies in Indonesia

Abstract

Electricity subsidies in Indonesia have been a pivotal instrument in promoting economic growth, enhancing social equity, and ensuring energy accessibility. This study provides a comprehensive examination of the impacts of these subsidies, utilizing a mixed-methods approach that includes econometric analysis, qualitative surveys, and policy reviews. The findings reveal that while subsidies have supported industrial productivity and improved living standards for low-income households, they also present significant inefficiencies and fiscal burdens. Universal subsidies have led to overconsumption and disproportionately benefited higher-income households, thus exacerbating social inequalities. The environmental analysis highlights the adverse effects of subsidizing fossil fuel-based electricity, including increased greenhouse gas emissions and environmental degradation. In response, the Indonesian government has initiated reforms to promote renewable energy sources, garnering strong public support and demonstrating potential for a sustainable transition. These reforms aim to reduce reliance on coal and oil-based power plants, lower emissions, and ensure a stable, affordable electricity supply. Policy recommendations include shifting from universal to targeted subsidies to improve equity and efficiency, integrating advanced technological solutions for better subsidy management, and continuing to invest in renewable energy development. The study underscores the importance of stakeholder engagement and transparent communication to build consensus for reform. Future research should focus on long-term impacts of subsidy reforms and the role of technological innovations in enhancing subsidy programs. In conclusion, electricity subsidies in Indonesia have achieved significant successes but require targeted reforms to address current challenges. By aligning subsidy policies with economic, social, and environmental goals, Indonesia can foster a more equitable, sustainable, and prosperous future. The insights from this study provide a roadmap for policymakers to navigate the complexities of subsidy reform, balancing the goals of economic growth, social equity, and environmental sustainability.