Impacts of Fiscal Policy on Green Technologies Transfer

Abstract

Under the 2016 first nationally determined contribution, the Indonesian government announced emission reduction targets of 29% and 41% by 2030 without and with international assistance, respectively. Germany, Japan, and the United States (US) are three key players among the Organisation for Economic Co-operation and Development (OECD) countries that have actively assisted the Indonesian government through several channels, such as bilateral assistance (loans and grants), and low-carbon technologies transfer. In terms of the energy efficiency sectors, in its 2017 National Energy Plan, the Indonesian government has described its intention to achieve a 17% increase in energy efficiency across industries compared to the business as usual condition (BAU). In order to achieve these energy efficiency targets, several fiscal policies were suggested to be implemented by the Indonesian government, including reducing value-added tax (VAT) and import duty on imported energy efficiency equipment and providing tax incentives for energy efficiency producers, particularly in the industrial manufacturing, building and transport sectors. Against this background, this study assesses both the direct and indirect impacts of selected fiscal instruments in the energy efficiency sector in Indonesia in terms of low-carbon technologies (green technologies) using multi-region input–output analysis. The findings of this study reveal that fiscal policy in the energy efficiency sector would bring benefits not only for the Indonesian government as a recipient country but also for Germany, Japan, and the US as providers of low-carbon technologies (green technologies) to Indonesia.