Indonesian Fuel Subsidy Removal Impact on Environment: A Partial Equilibrium Analysis

  • Ahmad LuthfiEmail author
  • Shinji Kaneko


Due to its accelerating economy and growing population, Indonesia consumed more and more energy. It has become an oil-importing country since 2003. Furthermore, Indonesia’s energy policy has changed drastically since the Asian crisis by giving more funds to fuel subsidy than development fund. These facts made scholars and international institutions urge the government of Indonesia to remove the subsidy. One of the benefits of removal of subsidy is lessening CO2 emission due to lower fuel consumption. There are several studies conducted to estimate the impact of subsidy removal using descriptive analysis, computable general equilibrium and partial equilibrium analysis. This paper tries to estimate the CO2 emission reduction using partial equilibrium analysis based on several price adjustment scenarios. The policy implication of this paper would be that the government should keep the ongoing removal of fuel subsidy because this action would be more environmental friendly by saving around 70 million tonnes CO2 which is double compared to IEA estimation using 1998 data (IEA 2000).


Fuel subsidy Subsidy removal effect Partial equilibrium analysis 


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Copyright information

© Springer Japan 2016

Authors and Affiliations

  1. 1.Graduate School for International Development and CooperationHiroshima UniversityHiroshimaJapan

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