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Jakarta Post

What can Indonesia gain from a fuel economy policy?

Jakarta   /   Mon, October 3, 2016   /  02:55 pm
What can Indonesia gain from a fuel economy policy? Not an odd sight: Cars are trapped in a long traffic jam along Jl. Sudirman, South Jakarta, on Friday. The city administration decided to permanently apply the odd-even policy on Aug. 30. (JP/Jerry Adiguna)

With regard to President Joko “Jokowi” Widodo’s instruction to increase the country’s car production to 2.5 million units by 2019 and to increase car exports by 300 percent by 2017, it is timely to develop automobiles with low fuel consumption and low CO2 emissions, which are preferred by international buyers. 

It is also important to issue fiscal and non-fiscal policies that can encourage the production of environmentally friendly automobiles in line with global market trends. 

Producing more environmentally friendly cars is in line with Indonesia’s commitment to reduce greenhouse gases by 26 percent by 2019 and by 29 percent in 2030 (National Determined Contribution [NDC]), which was declared at the 21st UNFCCC meeting in Paris in December 2015, and signed as Indonesia’s NDC in New York in April 2016. 

The potential to limit oil imports is also within the framework of energy security, which, according to a policy analyst, could lead to Indonesia harvesting an economic benefit (Net Present Value) equal to Rp 4,400 trillion (US$340 billion).

Indonesia, as a middle-income economy, is considering improving its fuel economy policy for the benefit of consumers, industry and the country. 

In line with such a policy, based on government regulation No. 41/2013 regarding sales tax on luxury goods (PPn BM), which is imposed on automobiles, cars with low fuel consumption and low carbon emissions are subject to lower tax rates. 

The so-called Low Cost Green Car (LCGC), with an engine capacity of 1,200 CC and fuel consumption of at least 20 liters per kilometer, is for example, exempt from PPn BM.

Meanwhile, the Low Carbon Emission Car (LCEC) is still waiting for special tax treatment from the government. 

The special tax treatment given to the LCGC and LCEC programs needs to be expanded to other cars using a carbon dioxide index as reference to further encourage people to buy automobiles with low fuel consumption.

This would encourage the automotive industry to produce vehicles with better fuel economy, as preferred in the global market. Furthermore, the introduction of regulations on minimum standards for low fuel consumption, CO2 emissions and fiscal incentives is necessary. 

Cars with lower fuel consumption and CO2 emissions should, for example, pay lower luxury tax. This would in the long-run lower the national energy consumption.

The government, automotive industry and other stakeholders should, therefore, hold a dialogue to establish acceptable standards of fuel economy as the basis to determine the appropriate fiscal incentives. 

At the ASEAN regional level, for instance, a series of discussions on fuel economy were held in Manila in March 2016. In Indonesia, a number of activities, such as a national workshop, cost-benefit analysis and public campaign on fuel economy, have been held since 2006.

The Industry Ministry is viewed as the most appropriate ministry to promote the implementation of fuel economy standards and car labeling. 

The finance ministry should also be involved in such a program, especially in determining fiscal incentives, while the automotive industry could play an important role in the implementation of fuel economy standards.

Based on the fact that the road transportation sub-sector contributed 0.148 gigatons of CO2 emissions (Gton CO2e) a year in 2015, it could increase dramatically to 0.513 Gton CO2e a year in 2030 if we do nothing to mitigate it. This means it will more than triple the baseline in 2015. It would be a chance to achieve the NDC commitment that was signed in New York last April, while the issue of a CO2 reduction agenda from the energy sector, especially for transportation, is still a minor agenda in the loop-line of NDC discussions. 

The transportation sector is the most ready to execute the CO2 reduction agenda through fuel economy standards. We are running out of time. 

It is, therefore, now timely to accelerate the implementation of the CO2 reduction agenda in the transportation sector as our commitment to the global agenda, in line with the national agenda to increase our energy security and improve the competitiveness of the national automotive industry.


The writer is executive director of KPBB and environmental reader of Thamrin School for Climate and Sustainability.

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Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.