The government has been actively promoting the transition of fossil-fuel based vehicles to electric motor vehicles amid efforts to reduce pollution that has been the center of public attention and concern as of late. Electric vehicles are perceived as the solution to various socio-environmental issues. However, this has prompted several questions such as, “Why electric vehicles?” and “How is the government stimulating their adoption in society?”
It All Begins with Pollution
The automotive industry started its recovery in 2018 after a global economic slowdown in developing countries since 2015. Sales and distribution of motorcycles and cars showed consistent growth. However, the vehicle industry suffered a global slowdown once again due to the COVID-19 pandemic, with sales dropping by as much as 38 percent.
Figure 1: Car and Motorcycle Sales in Indonesia
Source: GAIKINDO and AISI Statistics
The pandemic led the government to implement economic relaxations, including deferred loan interests, eased installment terms, and a one-year sales tax on luxury goods (PPnBm) exemption for new cars. As a result, the sales of motor vehicles gradually rebounded to pre-pandemic levels.
The increased number of privately owned motor vehicles has in turn worsened traffic congestion in urban areas. The Tomtom Traffic Index 2022 ranks Jakarta the 29th most congested city in the world. According to data from the Central Statistics Agency, as of February 2023, 93.19 percent of 7.18 million urban commuters rely on private vehicles as their primary mode of transportation. Increased traffic congestion in urban areas is greatly attributed to the high rate of commute by personal vehicles.
Soaring vehicle sales and an increasing number of Indonesia’s working-age population preferring private over public transportation have caused the demand for fossil fuels. Over the past three years, subsidies, and energy compensation in Indonesia’s State Budget (APBN) have quadrupled. The World Bank notes that urban traffic congestion could cost the country approximately 0.5 percent of its GDP.
Figure 2: Trends in Subsidy and Energy Compensation Values in Indonesia’s APBN
Source: Ministry of Finance RI
Worsening traffic congestion, increasing fuel demand, and rising pollution aggregate social and environmental issues over time. Indonesia’s capital city of Jakarta (before the capital moves to IKN) ranks as the 5th most polluted city in the world. At a national level, Indonesia remains heavily dependent on fossil fuels for its energy needs. In 2022, approximately 90 percent of its national power generation is sourced from hydrocarbon fossil fuels.
Figure 3: Number of Power Plants in Indonesia by Fuel Type
Source: PLN 2022 Statistics
Government Initiatives
The government is attempting to mitigate pollution by transitioning to more renewable energy sources by encouraging the public to shift from using fossil fuel-based vehicles to electric vehicles. Thus, the government has implemented several strategic policies.
The Jakarta Provincial Government has made it easier for electric vehicle users by allowing unrestricted road access. Governor Regulation (Pergub) No. 88/2019 have exempted electric motor-driven vehicles from the odd-even license plate road access restrictions, allowing electric cars more freedom during peak hours in Jakarta.
Moreover, the government offers incentives to individuals transitioning to electric vehicles. They have waived the PPnBm for electric vehicles through Government Regulation No. 74/2021. Government Regulation No. 6/ 2023 also exempts new Motor Vehicle Tax (PKB) and Ownership Transfer Fees (BBN) for electric vehicles. Value-added tax for non-conversion vehicle purchases is planned to be reduced to 1 percent. The government provides incentives of IDR 7,000,000 for individuals converting their gasoline-fueled vehicles into electric vehicles, per the Minister of Energy and Mineral Resources’ Regulation (Permen ESDM) No. 3/2023.
Next Steps
The Indonesian government is actively promoting the use of EVs through various incentives, including tax exemptions and facilitating road access for electric vehicle users. Nevertheless, many challenges remain to be addressed, particularly the country’s dependence on fossil fuels for energy and the need for an effective and efficient transition.
Electric vehicles are a promising solution to address crucial socio-environmental challenges in Indonesia. With full government support through policies and incentives, such as tax exemptions, the transition to EVs can significantly reduce pollution, alleviate traffic congestion, and decrease the nation’s reliance on fossil fuels. However, the success of this transition will heavily rely on collaboration between the public and private sectors, emphasizing the importance of sustainable energy sources and robust infrastructure development. As Indonesia moves towards a cleaner and more efficient transportation system, adopting electric vehicles becomes vital to a greener and more sustainable future.
Author: Nicku Perdana, Senior Analyst