Revisiting fuel-conservation

Revisiting fuel-conservation

The market pricing mechanism and fiscal measures the
government, state oil company Pertamina and State Electricity
Company (PLN) have and will implement will help encourage fuel
efficiency, cut fuel and electricity consumption and consequently
government spending on the fuel subsidy.

The government announced last week all large industrial
enterprises would be required to buy diesel oil and industrial
fuel at market prices. Now only export-oriented businesses and
shipping and big fishing companies will be subject to market
prices. Small and micro firms and cooperatives still can get
their fuel needs at subsidized prices.

The central government also is considering slapping higher
luxury sales taxes on big-capacity passenger cars and local
administrations will impose progressive car registration taxes on
people owning more than one car.

These fiscal measures would dampen the demand for passenger
cars and would consequently help reduce fuel consumption because
our transportation still depends almost entirely on oil fuel.

Likewise, PLN is considering raising electricity charges for
industrial users during peak hours and slapping penalties on
industrial users for power usage in excess of their quotas.

Pricing policies obviously have an immediate bearing on the
viability of fuel efficiency investments as large users are
forced to use the most energy-efficient machinery. In countries,
such as Indonesia in which oil fuel prices are subsidized,
industrial enterprises often do not bother to invest in energy
efficiency measures.

Markets are a powerful and fundamental force in massive
implementation of energy efficiency. Subsidies, which depress
fuel prices can provide a significant disincentive for fuel
efficiency investments, and the removal of this barrier can
become an important step toward creating an investment climate in
which fuel and electricity efficiency can prosper.

However, the measures cited above would not by themselves help
develop a more diversified base of energy and reduce the
country's vulnerability due to being too heavily dependent on
fossil-based fuels if the government does not implement a
comprehensive energy conservation program.

To be effective, energy diversification and fuel efficiency
programs should be integrated into a comprehensive energy
conservation program based on a special law that stipulates
compulsory and voluntary conservation measures complete with
fiscal and financial incentives for the development of renewable
energy sources.

Many countries have enacted and implemented energy
conservation promotion acts, which stipulate not only compulsory
conservation measures but also fiscal and financial incentives
for factories and buildings making investment in energy
conservation.

An energy conservation promotion act is more effective in
improving efficiency in energy use and in developing energy
diversification through integrated energy planning and increased
use and contribution of renewable sources of energy in overall
energy supply.

Legislation obliges industrial companies to conduct in-house
management of energy efficiency through maintenance and
housekeeping measures, replacement of selected equipment, which
may require additional investment or modification of entire
manufacturing processes which may require large scale investment.

Energy intensity tends to differ from one product to another.
But fuel conservation and efficiency is especially crucial for
industries with high energy intensity such as iron and steel,
chemicals, petroleum refining, pulp and paper, and cement
production.

All these measures will be possible only with the support of
fiscal measures and financial incentives such as bank loans with
easier terms. Governments have at their disposal a variety of
instruments such as tax credits or subsidized or low-interest
loans through which energy efficiency improvements can be
promoted.

The severe fuel-supply problems the nation is currently facing
and the huge fuel subsidies that threatens the state budget with
an unmanageable deficit should provide a momentum for the
government and the House of Representatives to design a
comprehensive energy-conservation program and empower its
implementation through a special law.