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ndonesia has enjoyed impressive economic growth for over a decade, averaging 6 percent per annum. That growth has been matched by commendable efforts to lift millions of Indonesians out of poverty, while curbing pollution and safeguarding the environment.

A critical aspect of Indonesia’s green growth strategy is to lessen dependence on fossil energy. For more than 40 years, nevertheless, fossil fuel subsidies have been an integral part of Indonesia’s energy policies. Fossil fuel subsidies are essentially any government action that lowers the cost of fossil fuels.

Subsidies, however, never reduce the true cost of energy; they just move it onto the population in a
different way, whether through taxes, foregone revenue or foregone expenditure. Ultimately, someone still pays!

In Indonesia, fossil fuel subsidies have taken the form of reductions in the price of gasoline and diesel for the consumer. Here, as elsewhere, fuel subsidies were put in place for noble reasons, primarily around improving social welfare. Unfortunately, subsidies are not performing well as a social policy, benefitting mostly middle and upper income classes who consume more energy.

Reports indicate that in 2014 over 50 percent of subsidized fuel was bought by the richest 20 percent of the Indonesian population. Nevertheless, reform needs to be carefully planned to avoid unintended consequences for vulnerable households.

In early 2015, the Jokowi administration followed through on commitments made during the presidential campaign and removed significant subsidies to gasoline and diesel. It has also signaled its intent to reform subsidies to electricity and liquefied petroleum gas.

These are major achievements with global significance: Fossil fuel subsidies encourage wasteful consumption, disadvantage renewable energy, and depress investment in energy efficiency.

Removing fossil fuel subsidies therefore contributes to reducing global greenhouse gas emissions. Looking towards the next major climate change summit, COP22 in Marrakech next month, Indonesia’s achievements should stand as a model of global leadership on fossil fuel subsidy reform.

One key opportunity for this could be for Indonesia to endorse the international Communiqué on Fossil Fuel Subsidy Reform.

The Communiqué encourages the international community to advance reform through three principles: transparency; ambition; and targeted support for the poorest. In all three areas, Indonesia has made significant progress, which should be showcased at COP22 through the Communiqué.

First, subsidies in Indonesia are transparent as they are made public every year through the state budget. In addition, as part of the Group of 20 (G20), Indonesia has volunteered to have its subsidies evaluated by an independent peer review panel.

This is a huge statement from the government and makes Indonesia among the leading countries within the G20. So far only the US and China have conducted peer reviews.

Second, Indonesia’s approach to subsidy reform has been very ambitious. Gasoline and diesel reforms freed up Rp 211 trillion (US$15 billion) from the state budget, resources that are now spent on other and more important development priorities. For example, from the subsidy removal there were increases of Rp 6.5 trillion for the education budget and Rp 6.5 trillion for the health budget, which are direct investments in people’s futures.

In addition, around Rp 60 trillion was dedicated to infrastructure investments. These numbers are not trivial by any standards, and more reforms are planned for 2017.

Third, on targeted support, Indonesia has actively used its social welfare programs to protect the poorest when energy prices increase. Recently, the government has developed a single registry of households for targeting its major social assistance policies, known as the Unified Database.

Electricity subsidy reform is expected to rely on this database to target subsidies to poor households only.

In preparation for COP22, Morocco’s Environment Minister, Hakima El Haité, recently called on countries to arrive in Marrakech with subsidy reform “foremost in their minds”.

Should Indonesia choose to endorse the Communiqué ahead of COP22, it would send a very strong signal to the world that subsidy policies can indeed be reformed to the benefit of people and societies alike.
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Casper Klynge is Danish ambassador, Trevor Matheson New Zealand ambassador and Johanna Brismar Skoog Swedish ambassador to Indonesia. Lasse Toft is senior policy analyst with the International Institute for Sustainable Development (IISD).