Estimating the Effects of Energy Subsidy Removal on Indonesias Economic Sectors Using Input-Output Analysis

학위논문 (석사)-- 서울대학교 대학원 : 협동과정 기술경영·경제·정책전공, 2016. 2. 허은녕.Energy subsidies often have adverse effects on the economy and the environment, stimulating excessive energy consumption, wrongly targeted subsidy, and pressure on the state budget. The implementation of energy subsidy reform might not be easy to carry out, however, due to the strong objection to it and the political challenges involved, but the government should continuously work to reallocate the subsidy. Still, energy subsidy removal may have an impact on economic growth, resident welfare, energy consumption, etc. This paper estimates the effects of energy subsidy removal in Indonesia particularly in the oil fuel and electricity sectors, in relation with sustainable economic development indicators such as inducing price increase in the other economic sectors as well as in the GDP, employment, and energy consumption and environmental aspects. Input-output analysis is undertaken to explore the impacts in the short term. The estimation results showed that energy subsidy removal will have the largest impact on the refinery, electricity, and transportation sectors. In all these industries, the high energy consumption and energy cost account for a high proportion of the industry prices. Energy subsidy removal will lead to an about 1.2% (9.2 Peta Joule) drop in the total energy consumption and a 1% (3.3 million tons) drop in CO2 emission compared with the 2009 levels. The price increases of the commodities produced by different sectors are likely to enforce knock-on effects on the final demand and potentially would be paid off by a 0.53% drop in the GDP compared with the 2009 level. A decline in the total output will lead to excess labor per unit output. It is estimated that employment will be reduced by 849,000 as a result of the energy subsidy removal. In addition, energy price removal will reduce the peoples real income and purchasing power, with the higher-income group in the urban areas likely to be the most affected.Chapter 1. Introduction 1 1.1 Background 1 1.2 Purpose of the Study 3 1.3 Thesis Structure 3 Chapter 2. Overview of Indonesia Energy Subsidy 5 2.1 Indonesia Energy Situation 5 2.1.1 Oil and Gas 6 2.1.2 Coal 10 2.1.3 Renewable Energy 12 2.1.4 Electricity 14 2.2 Energy Subsidy in Indonesia 16 2.3 Magnitude of Energy Subsidy 22 2.4 Literature Review 26 Chapter 3. Methodology and Data 33 3.1 Price-gap Approach 33 3.2 Estimating Price Effects and Other Factors 36 3.2.1 Input-output Price Model 36 3.2.2 Estimating CPI Changes for Different Income Groups 39 3.2.3 Partial-Equilibrium Approach 40 3.2.4 Input-output Demand Driven Model 45 3.3 Data 46 Chapter 4. Empirical Results and Analysis 56 4.1 Energy Subsidies in Indonesia 56 4.2 Effects on Relative Prices, Output and Employment 58 4.3 Income Effects for Different Income Groups 66 4.4 Effects on Energy Consumption 69 4.5 Effects on GHG Emissions 71 Chapter 5. Conclusion and Policy Recommendation 74 5.1 Conclusion 74 5.2 Policy Recommendation 75 5.3 Limitations and Further Study 76 Bibliography 79 Appendix 83 Appendix 1-a: National Input-Output Table for 2009 in current price (Industry by industry) 83 Appendix 1-b: National Input-Output Table for 2009 in current price (Industry by industry) 84 Appendix 2: Change in Relative Price 85 Appendix 3: Decline in Demand 86 Appendix 4: Decline in Total Output 87 Appendix 5: Decline in Energy Consumption 88 Appendix 6: Decline in CO2 Emission 89 Appendix 6: Decline in Employment 90 Appendix 7: Increase in CPI 91Maste