The Effects of Energy Price Changes: Heterogeneous Welfare Impacts, Energy Poverty, and CO2 Emissions in Indonesia

The empirical context of our study is Indonesia, a country with a long tradition of regulating consumer energy prices and a recent change in subsidy policies, facilitated by dramatically falling oil prices. Historically, the scenario of fuel subsidy abolition has received much attention on the country’s political agenda, primarily because of the large potential for effi- ciency and distributional gains on the one hand and the political risk of abolishing subsidies on the other. This makes the country an ideal case for studying the welfare implications of energy price changes in a detailed fashion. We analyse a scenario of rising energy prices for a set of commercial energy items used by households and estimate the impact on household welfare, energy poverty, and demand-related carbon emissions. Our findings are relevant for the country’s policymakers as, with a resurging oil price, the ongoing phasing out of fuel subsidies, and some domestic climate policy ambitions as reflected by the Nationally Deter- mined Contribution (NDC) to the Paris Agreement, energy prices are likely to rise for Indonesian households in the future.  [GIGA Working papers No. 302].