Overview of vehicle fuel efficiency and electrification policies in Indonesia

This brief reviews strategic documents and policies in Indonesia that are intended to promote fuel-efficient vehicles and electric vehicles (EVs). It evaluates their effectiveness and suggests areas where additional government intervention might accelerate emission reductions and decarbonization of the vehicle fleet, which is currently at an early stage. This overview examines two- and three-wheelers, and four-wheelers, and reviews critical policy features including aspirational targets, fiscal policies, national-level labeling policies, and sub-national actions.

Indonesia’s existing vehicle fleet is carbon-intensive: the fleet-average fuel efficiency of light-duty vehicles in Indonesia is lower than in most larger markets, including those of Japan, Europe, China, and India. Fuel consumption of light-duty vehicles in Indonesia is higher than in Thailand, Malaysia, and China even though its fleet is lighter than the fleets of those countries. But these deficits highlight the enormous potential for Indonesia to improve the efficiency of its vehicle fleet by using proven technologies, vehicle designs, and regulatory methods to push those technologies and designs into its domestic market.

Indonesia has several assets that can help raise its performance regarding light-duty vehicles. It is an emerging and fast-growing market for motor vehicles–the 11th largest vehicle market globally, and the largest in the Association of Southeast Asian Nations (ASEAN) region, which has prompted several automotive manufacturers to set up manufacturing plants in the country. It also has important natural resources such as lithium, nickel and cobalt, key inputs to batteries used in electric cars.

The country has also established a set of policies with the potential to steer light vehicle production in a cleaner direction. By the end of 2020, several strategic documents had been issued that included, or could help generate, policies to accelerate the uptake of more efficient vehicles and EVs in Indonesia. These policies are found at all levels of government, and involve a range of tools, from regulations to fiscal incentives.

Missing is a clear GHG reduction policy framework for the transportation sector. The government of Indonesia has issued several strategic documents and guidance on climate change mitigation, energy efficiency improvement, and sustainable and low carbon development, which provide aspirational targets and measures. However, there is a need for enforceable GHG reduction targets and policy frameworks to drive the decarbonization of the transportation sector.

Developing targeted and effective policies are key to promotion of advanced efficiency and low-emission technologies on vehicles. Given that Indonesia still lags on vehicle efficiency improvement and electrification compared with leading markets, the government should introduce efficient and low- emission vehicles aggressively, and push for accelerated uptake of EVs.