A Citizens’ Guide to Energy Subsidies in

IndonesiaLearning from international

experienceDamon Vis-Dunbar, IISD

12 October 2012

Fossil-fuel subsidies: A global snapshot

• IEA estimates for consumption subsidies 37 countries:

2009: $312 billion

2010: $409 billion

• Without further reform, spending on fossil-fuel consumption subsidies is set to reach $660 billion in 2020, or 0.7% of global GDP

• GSI estimates + $100 billion for subsidies to producers

Global Fossil-Fuel SubsidiesSource IEA World Energy Outlook 2011

Missing the right target: poor consumers

Share of fossil-fuel subsidies received by the lowest 20% income group, 2010 Source: IEA, World Energy Outlook, 2011

Recent experience in other countries

• Iran, 2010

– Allocated subsidy savings:

• 50% households

• 30% business

• 20% government costs

– Cash transfers not targeted, early payments

– Expansion of banking system for cash transfers & micro-credit

– Timing & measures to control inflation

• Nigeria, 2012– Raised prices of gasoline

N65 to N141/litre with no warning

– Serious corruption issues to address

– Lack of trust in government support measures

– Public demonstrations led to backtracking of reform – although prices still increased (N97/litre)

– Civil society recognise need for subsidy reform but want corruption addressed first

5 key principles for reform

• Development focused – reform is an opportunity to invest resources into more effective social welfare programs and other development priorities

• Inclusive – policy-makers understand concerns of affected groups and mitigate negative impacts as part of reform plan

• Transparency & public communication – public understands rationale for reform including costs and benefits, and decision-making process and plan for reform

• Short & long-term planning – managing short-term crises with longer-term vision and strategy

• Well researched & prepared – evaluate a range of reform options, learn from experience of other countries

Complementary policies to consider

Industry/business- Support to restructure sectors

e.g. retraining programmes- Measures to improve energy

efficiency- Investments in infrastructure

Social- Cash transfers: (un)conditional

- Social safety nets, pensions, health insurance

- Increase (minimum) wages- Pro-poor expenditure

Energy - Investment in rural

electrification, renewable or alternative energies

- Energy conservation, energy security, energy efficiency

policies

Macro-economic- Policies to manage inflation

- Strengthen market forces and encourage competition

Banking- Can help roll out cash transfers

- Credit facilities, e.g. for SMEs and micro-credit

Transport- Expanding public transport

systems- Alternatives for freight (rail or

inland waterways)- Transitional support for taxi

drivers

Alternative social assistance mechanisms

• Ghana, 2005

– Primary & junior school fees eliminated

– Increased health care funding for poorest

– Increased investment in mass urban transport

– Extra funds available for rural electrification

• Jordan, 2008

– Minimum wage & public services wage increased

– One-time bonus for low-income gov. employees & pensioners

– Electricity subsidies continued

– Food subsidies increased

– Reduction of certain import duties

Building public support: Three elements

• Governance

• Public Consultation

• Communication

Discussions points

• Does the government have an effective reform strategy?

• How can civil society participate more effectively in the government’s reform process?

• What opportunities exist to raise public awareness about fossil-fuel subsidies and their impacts?

• What sorts of social protection or other measures are necessary to support reform?

www.iisd.org/gsi

Thank You