Equity and Efficiency: An Examination of Indonesia’s Energy Subsidy Policy and Pathways to Inclusive Reform

Abstract

The Indonesian Government’s substantial investment in energy subsidies, designed to assist poor and vulnerable households, ironically favors the wealthy and exacerbates inequality. This study delves into household-based energy subsidy policies in Indonesia, focusing on their effects on gender and social inclusiveness. By combining qualitative document analysis with micro-level data analysis—typically reserved for social protection programs—and national socioeconomic data, this study reveals significant access gaps to energy subsidies. The findings indicate that the existing policy benefits affluent households, leaving marginalized groups such as female-headed households, individuals with disabilities, and the elderly from low-income families without access to subsidies. This gap stems from the current price-based subsidy approach and the unequal distribution of energy services. The study recommends a fundamental shift from commodity-based subsidy policy to direct household subsidies, removing barriers to access and encouraging more equitable, gender-responsive, and inclusive policies. The benefits of these reforms can optimize subsidy budget allocation, increase targeting accuracy, and encourage pro-poor measures. In addition, this can spur the development of local alternative energy, thereby contributing to a just energy transition in Indonesia.