Indonesia mulls cut in fossil fuel subsidies

Indonesia may cut subsidies on fossil fuels within a year in order to bolster the competitiveness of renewable energy sources, according to an environment official.

The head of Indonesia's National Council on Climate Change, Agus Purnomo, told Reuters news agency last week that the government is also considering introducing policies that would oblige national power company PLN to obtain a portion of its electricity from renewable sources.

State-run power monopoly PLN is currently not required to purchase electricity generated from renewable energy suppliers.

However, the country is under growing pressure to curb carbon emissions and according to a 2007 World Bank report is now the world's third-biggest emitter of greenhouse gases.

The World Bank last year estimated that Indonesia's total subsidies for fuel and the oil-burning electricity industry cost more than $20bn a year – more than government spending on housing, law and order, health and education combined.

Some economists have forecast that fossil fuel consumption would drop by one-fifth if the subsidy were scrapped entirely. However, the complete removal of the subsidies is highly unlikely, given that previous cuts have led to social unrest.

Purnomo said a subsidy would continue to exist but would be "below the distortion level that discourages renewable energy".

The National Council on Climate Change has warned that the government's lack of support for the development of renewable power will leave the country facing an energy shortage in less than 20 years.

In 2005, Indonesia set a renewables target of 10 per cent by 2025, rising to 30 per cent in 2035. But the council has warned that the nation is currently in danger of falling short of these goals.

The council's vice chairman, Armi Susandi, told the Jakarta Post newspaper last week that the country's oil supplies will be depleted within 17 years. "If we do not reach the renewable energy target, there will be an energy shortage and we will have to import [oil]," he warned.

Indonesia's renewable energy development has been hampered by a lack of private and state investment, in addition to a dearth of local industry expertise.