Fiscal policies to address air pollution from

road transport in cities and improve health:

Insights from country experiences and lessons for Indonesia

Working Paper

December 2019
r 2019
Cover photo credits: Arran Smith as published on Unsplash
________________________________________
Copyright © United Nations Environment Programme, 2019

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Acknowledgements
This study was undertaken in the context of a United Nations Environment Programme (UNEP)
project on Environment, Health and Pollution as well as a project on Enhancing Knowledge and
Capacity for Inclusive Green Economies. This study was prepared by a team of researchers. Kai
Schlegelmilch of Green Budget Germany was the overall lead for the study. Jacqueline Cottrell of
Green Budget Germany led the development of policy recommendations and coordinated inputs
of all authors. Anja Rosenberg of the Energy Community Secretariat was responsible for
estimating the impacts of measures. Verena Streitferdt and Maya Virdayanti Anggraini of Pertiwi-
Consulting, Aditya Mahalana an independent consultant in Indonesia, Budi Haryanto of the
University of Indonesia, and Ahmad Safrudin of KPBB were responsible for analyzing data,
delivering policy analysis, conducting interviews and stakeholder consultations. The study was led
and carried out by Joy Kim, Senior Economic Affairs Officer at the Economy Division of UNEP,
under the overall supervision of Steven Stone, Chief of the Resources and Markets Branch of the
Economy Division of UNEP. Administrative support was provided by Rahila Somra, Fatma Pandey
and Desiree Leon.

The authors gratefully acknowledge the insightful comments and contribution of experts and
participants at a stakeholder workshop including: Dr Adi Budiarso, Eka Hendra Permana and
Angustin Samosir from the Fiscal Policy Office, Ministry of Finance of Indonesia (BKF); Ms Fitri, Mr
Agung, Ms Ambar and Sri Mulyati from the Environmental Protection Agency of DKI Jakarta
Province; Barlev Nico Marhehe from UNEP; Ririn Kusuma from the Vital Strategies Programme;
Mega Kunue from the International Council on Clean transportation (ICCT); Stkvura Azurar and Dr
Ir. Sylvira Ananda Azwar from the Indonesian Environmental Scientists Association; and Mr Yuniar
from the Transport Agency of Jakarta Special Region. In addition, the authors would like to thank
KPBB for providing their facilities for meetings and the stakeholder workshop.

The authors gratefully acknowledge the contribution of UNEP reviewers for their invaluable
comments and support to the development of the study including Sirini Withana, Bert Fabian,
Barlev Nico Marhehe, Maria Katherina Patdu, Teodora Cakarmis and Himanshu Sharma. The
layout and design of the report and the bibliography was prepared by Rouven Stubbe of Green
Budget Germany.

The study was undertaken in the context of a UNEP-led project on Environment, Health and
Pollution which seeks to provide the needed understanding, capacities and tools to help countries
and stakeholders take effective action to address pollution. As part of this project, a series of
studies have been carried out which explore the effective use of fiscal policies for pollution
reduction. These fiscal studies contribute to the Implementation Plan ‘Towards a pollution-free
planet’ adopted at the Third UN Environment Assembly (UNEA-3) which identifies stimulating
good practices through fiscal policy as an accelerator for implementation.

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Table of Contents

List of figures ................................................................................................................................... 8

List of tables..................................................................................................................................... 9
List of Abbreviations ...................................................................................................................... 10
Executive Summary ....................................................................................................................... 13
1. Introduction ........................................................................................................................... 20
1.1. Background ......................................................................................................................... 20
1.2. The role of green fiscal policy in achieving emissions reductions from the transport sector
................................................................................................................................................... 23
1.3. Indonesia and DKI Jakarta as a case study to investigate opportunities for fiscal policy
measures to curb air pollution .................................................................................................. 24
1.3.1. Regulatory framework for air pollution ................................................................... 24
1.3.2. Fiscal situation ......................................................................................................... 25
1.3.3. Growing public awareness....................................................................................... 25
1.4. Objectives of the study .................................................................................................. 26
1.5. Methodology ................................................................................................................. 27
1.6. Structure ........................................................................................................................ 27
2. Key Trends, Costs and Challenges of Air Pollution ................................................................ 29
2.1 Introduction ......................................................................................................................... 29
2.1.1. Air pollution ................................................................................................................. 29
2.1.2. Air pollutant monitoring in Indonesia ......................................................................... 30
Air pollutant monitoring stations in Indonesia .............................................................. 30
2.1.3. Publicly available data ................................................................................................. 30
2.1.4. Overview of data used for the review ......................................................................... 32
The GAINS Model ................................................................................................................... 32
Monitoring Stations in DKI Jakarta ........................................................................................ 33
2.2. Air pollutants in Indonesia.................................................................................................. 35
2.3. Overview of air pollution in DKI Jakarta ............................................................................. 37
2.4. Costs of air pollution .......................................................................................................... 41
2.4.1. Explanation of health impacts attributable to the pollutants ..................................... 41
2.4.2. Bottom up health cost assessment in Jakarta ............................................................. 43
2.4.3 Sources of air pollution and hotspots .......................................................................... 47
2.5. Conclusions ......................................................................................................................... 50

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3. Analysis of policy framework for air pollution ...................................................................... 52
3.1. Existing and planned policies to address air pollution from transport in Indonesia and
Jakarta ....................................................................................................................................... 52
3.1.1. Regulations in Indonesia ............................................................................................. 52
3.1.2. Regulations in DKI Jakarta ....................................................................................... 60
3.1.3. Summary of the regulatory overview.......................................................................... 63
3.2. Recommendations and reflections on the existing policy framework............................... 64
3.2.1. Updating standards across different government agencies ....................................... 64
3.2.2. Limited enforcement of emission standards from transport ...................................... 64
3.3. Jakarta’s budget: revenues and expenditure related to transport and air pollution......... 65
3.4. Analysis of existing policy measures for road transport and their impact on air pollution 68
3.4.1. Traffic restriction measures......................................................................................... 68
3.4.2. Odd-Even policy ........................................................................................................... 69
3.4.3. Fiscal policies to encourage greater use of public transport ...................................... 71
3.4.4. Fuel Tax ........................................................................................................................ 71
3.4.5. Fuel pricing policies and fossil fuel subsidy reform from 2015 ................................... 72
3.4.6. Support for Electric vehicles ........................................................................................ 73
3.4.7. Green car rebate scheme (Low Cost Green Car/ LCGC Programme) .......................... 75
3.5. Challenges and recommendations for specific measures to reduce air pollution in Jakarta
................................................................................................................................................... 76
3.6. Conclusions ......................................................................................................................... 78
4. International best practice: Potential fiscal policy reform options ........................................... 79
4.1. Introduction: fiscal policy design and complementary measures...................................... 79
4.2. Fuel taxes ............................................................................................................................ 79
4.2.1. Excise duties on transport fuels .................................................................................. 79
4.2.2. Carbon taxes on transport fuels .................................................................................. 81
4.2.3. Differentiated taxes to encourage take-up of cleaner fuels ....................................... 83
4.3. Differentiated vehicle registration charges and feebates in Europe and South East Asia,
including measures targeting motorcycles ............................................................................... 84
4.3.1. Two European models: French feebate and Norwegian vehicle registration charges 84
4.3.2. Vehicle registration taxes in South East Asia, including measures targeting
motorcycles ........................................................................................................................... 86
4.4. Different forms of congestion charging, including electronic road pricing........................ 88
4.4.1. Congestion charging in Stockholm and London .......................................................... 88
4.4.2. Low-emissions zones in Germany: an honour system with enforcement penalties... 89

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 4.5. Subsidising cleaner transport ............................................................................................. 90
4.5.1. Subsidies for public transport: examples from India and the UK ................................ 90
4.5.2. Demand-side policies subsidizing a transit-oriented city in Seoul .............................. 91
4.5.3. Grants and subsidies to promote cleaner motorcycles and three-wheelers .............. 92
4.5.4. Subsidies to promote alternative fuels ....................................................................... 92
4.5.5. Scrappage schemes: China and Beijing ....................................................................... 93
4.5.6. Scrappage schemes for trucks in Mexico .................................................................... 94
4.6. Road tolls to incentivise modal shift from road to rail and shipping ................................. 94
4.7. Lessons for Jakarta ............................................................................................................. 95
5. Policy reform options to reduce emissions harmful to human health in Jakarta ................. 97
5.1. Proposals at the national level ...................................................................................... 98
5.1.1. Differentiated excise duties on oil imports and domestically produced fuels on the
basis of sulphur content ........................................................................................................ 98
5.1.2. Removal of price regulations and other fossil fuel subsidy mechanisms .............. 101
5.1.3. Carbon taxation of transport fuels ........................................................................ 102
5.1.4 HDV tolls to raise revenue to fund measures to incentivize shift from road freight . 105
5.2. Proposals at the national and/or municipal level ....................................................... 107
5.2.1. Vehicle ownership tax differentiated by vehicle emissions .................................. 107
5.2.2. Scrappage schemes for heavy duty freight vehicles.............................................. 111
5.3. Proposals at the municipal level.................................................................................. 112
5.3.1. Electronic road pricing ........................................................................................... 113
5.3.2. Low-tech congestion charging scheme for road vehicles in DKI Jakarta ............... 113
5.3.3. Increase Motorized Vehicle Fuel Tax differentiated by fuel type under Act 28/2009
116
5.3.4. Allocation of free public transport tickets for poor households ........................... 120
5.3.5. Reform annual motorized vehicle tax in Jakarta (PKB) to differentiate on the basis
of harmful emissions ........................................................................................................... 121
5.3.6. Subsidies for the installation of CNG conversion kits and particulate filters for
diesel freight vehicles and diesel......................................................................................... 122
5.3.7. Subsidies for electrification of public transport .................................................... 122
6. Conclusions: Policy options and the way forward............................................................... 124
6.1. Summary of key findings and proposed policy reform package ................................. 124
6.2. Challenges to the reform package and how they can be overcome ........................... 130
6.2.1. Lack of robust data on air pollution in Jakarta ...................................................... 130
6.2.3. Addressing the trade-off between air quality and fiscal policy goals.................... 131

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 6.2.4. Revenue allocation between national and provincial government ...................... 132
6.2.5. Earmarking of revenue .......................................................................................... 133
6.2.6. Overlapping and outdated regulations result in poor enforcement ..................... 133
6.2.7. Politicization of fuel prices..................................................................................... 134
6.3. Policy synergies from a national and international perspective ................................. 135
6.4. Further work and follow-up activities ......................................................................... 136
Annexes ....................................................................................................................................... 138
Annex I. Methodology for calculation of policy impacts ..................................................... 138
Annex II. Tables ..................................................................................................................... 145
Annex III. Strategic Regional Activity (KSD) Jakarta (as of July 2019) .................................... 152
Annex IV. Legal instruments hierarchy .................................................................................. 153
ANNEX V. List of roundtable participants 06.09.2019 ........................................................... 154
7. Bibliography ......................................................................................................................... 155

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List of figures

Figure 1: Ambient Level of PM2.5 in Asia in 2015 .......................................................................................... 20

Figure 2: The SDGs and their relevance to air pollution ............................................................................... 22
Figure 3: Environmental gains from removing fossil fuel subsidies ............................................................. 22
Figure 4: MoEF website display on the Air Pollutant Standard Index (ISPU) Information ........................... 30
Figure 5: AQM stations in DKI Jakarta maintained by the BPLHD and MoEF ............................................... 33
Figure 6: PM2.5 concentration in Indonesia compared to the WHO Standards ............................................ 35
Figure 7: National Trend development of PM10 emissions from road transport ......................................... 36
Figure 8: National Trend analysis form CO2 emissions from Road Transport .............................................. 36
Figure 9: Regional Haze Situation on 23 September 2019 ........................................................................... 37
Figure 10: Real-time status of Indonesia air quality index (AQI) and PM2.5 air pollution ............................. 37
Figure 11: Comparison of Pollutant Concentrations in Jakarta recording in 2013 Data with WHO guidelines
and NAAQS Standards (annual emissions) .......................................................................................... 38
Figure 12: Air pollutant trends in DKI Jakarta (Breathe Easy Jakarta, p. 131) .............................................. 39
Figure 13: Trend analysis of PM 2.5 pollutant in DKI Jakarta 2015-2017 ..................................................... 40
Figure 14: Trend analysis of SO2 pollutant in DKI Jakarta 2015-2017 .......................................................... 41
Figure 15: Air quality index Jakarta trend 2012-2017 .................................................................................. 41
Figure 16: Mortality, morbidity and welfare cost from exposure to ambient particulate matter in Indonesia
............................................................................................................................................................. 43
Figure 17: Estimated costs of illness on diseases related to air pollution in Jakarta 2010 (in IDR) .............. 45
Figure 18: Growth of PM2.5 emissions in Jakarta over the same time period using GAINS model ............. 47
Figure 19: PM10 total emissions Jakarta, likely trend of PM10 until 2030 based on estimation .................... 47
Figure 20: Trends in the motor vehicle fleet in Indonesia (KPBB 2019) ....................................................... 48
Figure 21: SO2 total emissions and percentage shares for the Greater Jakarta region ................................ 48
Figure 22: PM10 emissions form road transport in DKI Jakarta .................................................................... 49
Figure 23: CO2 emissions from road transport ............................................................................................. 49
Figure 24: Total Gridded PM10 emissions over the Greater Jakarta Region ................................................. 50
Figure 25: The odd-even road segments (ASEAN games recommendation)................................................ 70
Figure 26: Total car sales and total sales of Low-Cost Green Cars in Indonesia 2013-2019......................... 76
Figure 27: Sales of petroleum fuels subject to the carbon tax ..................................................................... 82
Figure 28: PM 2.5 emissions in most polluted Norwegian cities .................................................................. 85
Figure 29: Air pollution levels in Seoul 1989-2012 ....................................................................................... 92
Figure 30: Potential retail price increase and consumption decrease under Sulphur Excise Duty .............. 99
Figure 31: Impact of proposed Carbon Tax scheme on fuel prices and energy consumption ................... 104
Figure 32: Vehicle taxation in Indonesia up to the point of purchase........................................................ 107
Figure 33: Development of total gasoline and diesel consumption and retail prices under BAU and
proposed Motorized Vehicle Fuel Tax Scheme 2008-2022 ............................................................... 117
Figure 34: Impact of proposed Motorized Fuel Duty on fuel prices and energy consumption .................. 118
Figure 35: Realised and targeted government revenues from the existing Motorized Vehicle Fuel Duty
scheme/ PBB-KB in relation to gasoline and diesel retail prices between 2013-2019 ...................... 119
Figure 36: Realised and estimated local tax revenues from the fuel duty between 2019-2022 (in billion
IDR) .................................................................................................................................................... 119
Figure 37: Share of transport related local tax revenues of total local tax revenues between 2013-2019
(billion IDR) ........................................................................................................................................ 120
Figure 38: Crude oil price, gasoline retail price and energy subsidy in Indonesia 2008-2018 ................... 138

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List of tables

Table 1: Summary of fiscal policy measures proposed including timeline for implementation .................. 15
Table 2: Overview of sources of air pollutants ............................................................................................. 29
Table 3: Air Quality Monitoring Stations in Indonesia .................................................................................. 30
Table 4: Overview of available data on air pollutants in Indonesia and DKI Jakarta .................................... 31
Table 5: Programs related to Air Pollution in Jakarta ................................................................................... 32
Table 6: Air Quality Monitoring Sites in DKI Jakarta ..................................................................................... 34
Table 7: Impacts on human health from major air pollutants ..................................................................... 42
Table 8: Incidence of diseases related to air pollution ................................................................................. 44
Table 9: Overview of studies that estimate the costs of diseases related to air pollution in Jakarta (in
million IDR) for the years 1990, 2001, 2010 and 2015 ........................................................................ 46
Table 10: List of Existing National Laws, Regulations, and Plans .................................................................. 53
Table 11: List of municipal regulations relevant to air pollution .................................................................. 60
Table 12: DKI Jakarta’s revenue and expenditure related to air pollution ................................................... 66
Table 13: Actual (2010) and projected (2010) travel demand in Jabodetabek ............................................ 69
Table 14: Projected Share of Conventional ICE, LCGC and Low Carbon Emission Vehicles (LCEV) Cars,
Motorcycle and Electric Motorcycles .................................................................................................. 75
Table 155: Registration taxes on vehicles in Norway ................................................................................... 85
Table 166: Incentives by vehicle type ........................................................................................................... 94
Table 17: Most used road transport fuels used in Indonesia and their sulphur content 2018 .................... 99
Table 18: Proposed carbon tax rates 2020-2030 ........................................................................................ 103
Table 190: Vehicle ownership tax differentiated by emissions: possible structure and rates ................... 109
Table 20: Proposed fee structure for the congestion charging scheme ..................................................... 114
Table 21: Proposed fuel tax escalator 2020-2022 ...................................................................................... 116
Table 22: Minimum and maximum estimated local tax revenues from the fuel duty in DKI Jakarta between
2020-2022 .......................................................................................................................................... 119
Table 23: Number of MRT or LRT tickets that could be subsidized from the increase in government
revenues from the proposed Motorized Vehicle Fuel Duty scheme 2020-2022 ............................... 121
Table 24: Fiscal policy recommendations ................................................................................................... 126
Table 25: Detailed Transport Sector Fuel Retail Prices per Fuel Type in 2018 ........................................... 139
Table 26: Emission and conversion factors ................................................................................................ 140
Table 27: Development of transport sector fuel consumption (thousands of litres) in Indonesia 2019-2031
(BAU scenario) ................................................................................................................................... 141
Table 28: Comparison of WHO and National Air Quality Standards .......................................................... 145
Table 29: Types of legislation in Indonesia referred to in this study .......................................................... 146
Table 30: KSD for Environment and Transport ........................................................................................... 147
Table 31: Potential retail price increase and consumption decrease under Sulphur Excise Duty ............. 149
Table 32: Impact of proposed Carbon Tax scheme on fuel prices and energy consumption..................... 150
Table 33: Impact of proposed Motorized Fuel Duty on fuel prices and energy consumption ................... 151
Table 34: The fleet in Jakarta 2012-2016 ................................................................................................... 151

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List of Abbreviations

ADB Asian Development Bank

APBD Anggaran Pendapatan, dan Belanja Daerah (Regional Government

Budget- Revenues and Expenditures)

APBN Anggaran Pendapatan dan Belanja Negara (National Government

Budget- Revenues and Expenditures)

APEC Asia-Pacific Economic Cooperation

ASEAN Association of South East Asian Nations

AQMS Air Quality Monitoring Stations

BAU Business As Usual

BPTJ Badan Pengelola Transportasi Jabodetabek

(Greater Jakarta Board)
BKF Badan Kebijakan Fiscal (Fiscal Policy Office)

BLHD Badan Lingkungan Hidup Daerah (Local Environment Agency)

BMKG Badan Meteorologi, Klimatologi, dan Geofisika (Meteorology, Climate

and Geophysics Agency)

BPLH Environmental Management Board of Jakarta

BPPT Indonesian Agency for the Assessment and Application of Technology

BRT Bus Rapid Transit

CLS Citizen’s Lawsuit

CO Carbon Monoxide

CO2 Carbon Dioxide

COI Cost of Illness

Dishub Dinas Hubungan (Transport agency)

DKI Daerah Khusus Ibu Kota (Special capital city – Jakarta)

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DLH Dinas LIngkungan Hidup (Environment Agency)

EPA Environmental Protection and Management

ERP Electronic Road Pricing

ESCO Energy Service Company

EU European Union

EV Electric Vehicle

GAIKINDO Gabungan Industri Kendaraan Bermotor Indonesia / The Association of

Indonesia Automotive Industries

GFP Green Fiscal Policy

GHG Greenhouse Gas

GIZ German International Development Cooperation

IIASA International Institute for Applied Systems Analysis (IIASA)

ICE Internal Combustion Engine

IDR Indonesian Rupiah

ITB Institute Technology Bandung

JORR Jakarta Outer Ring Road

JUTPI Jabodetabek Urban Transport Policy Integration

KPBB Komite Panghapusan Bensin Bertimbel – Clean Air Indonesia (NGO

campaigning to tackle air pollution)

KSD Kegiatan Strategis Daerah - Regional Strategic Activity

LCGC Low Cost Green Car

LCEV Low Carbon Emission Vehicles

LRT Light Rail Transport System

MEMR Ministry of Energy and Mineral Resources

MoEF Ministry of Environment and Forestry

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MoT Ministry of Transport

MRT Mass Rapid Transport System

NAAQS National Ambient Air Quality Standard of Indonesia

NDC Nationally Determined Contribution

NMHC Non-Methane Hydrocarbons

NOx Nitrogen Oxides

Pergub Peraturan Gubernur (Governeur Regulation)

PMDA Pemerintah Daerah – Local Government

PM Particulate Matter

PP Peraturan Pemerintah (Government Regulation)

RCCCC -UI Research Center for Climate Change at the University of Indonesia

RUEN Rencana Umum Energi Nasional (National Energy Plan)

SO2 Sulphur Dioxide

SPM Suspended Particulate Matter

SDGs Sustainable Development Goals

THC Total Hydrocarbons

TSP Total Suspended Particulate

UNICEF United Nations International Children's Emergency Fund

UNIDO United Nations Industrial Development Organisation

USA United States of America

USAID United States Agency for Development

USD United States Dollars

UU Undang-Undang (Act, Law)

WHO World Health Organisation

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Executive Summary
Context
There is growing awareness of the negative health impacts of air pollution caused by road transport in
many emerging economies such as Indonesia. Governments face increasing pressure to limit harmful
pollution and improve air quality in line with their commitments including under the Sustainable
Development Goals (SDGs). For example, in Jakarta, a 2018 citizen’s lawsuit against the provincial and
national government contended that policymakers were denying citizens the right to breathe healthy air
in line with air quality standards. These developments create a window of opportunity for policy action to
reduce harmful emissions.

In response, many countries and cities have taken steps to mitigate the negative impacts of transport
emissions on human health using various complementary measures including fiscal policy instruments.
Policymakers are also exploring ways to exploit synergies between measures to mitigate greenhouse gas
emissions and reduce emissions harmful to human health. In Jakarta, some steps have been taken to
reduce harmful emissions from transport, but success has been limited to date. The potential for a
comprehensive and far-reaching package of measures—including fiscal policies—to bring about tangible
health benefits remains untapped.

Against this background, this study aims to support recent efforts of the Indonesian and DKI Jakarta
government to reduce air pollution. It analyses the impact of harmful pollution from the transport sector
on human health in Jakarta. Reflecting on the current policy framework and challenges faced by
policymakers in DKI Jakarta and drawing on international best practice, it proposes a package of green
fiscal policy measures with the potential to reduce harmful emissions in the city and deliver human health
benefits. Most of the proposed measures also have the potential to bring about commensurate reductions
in greenhouse gas emissions as they set out to reduce private vehicle use, encourage modal shift to public
transport, enhance fuel efficiency and the uptake of low-emissions vehicles. Given the similarity of the air
pollution challenges faced by many cities, especially in emerging economies, the findings of the study have
a wider application and many of the proposed fiscal policy measures have the potential to deliver health
benefits in similar cities in South East Asia and beyond.

Current framework conditions and policy landscape in Indonesia and Jakarta

Since the 1990s, emissions harmful to human health in Jakarta have been rising rapidly (RCCC UI 2019).
This trend is predicted to continue in the future. In 2017, Jakarta’s citizens were exposed to polluted air,
expected to have severe health impacts for 69 days in total. They were also exposed to polluted air
expected to have moderate health impacts for 194 days (KPBB 2018). The primary source of these
pollutants is the transport sector, followed by dust from roads and industrial emissions. The rising
pollution from the transport sector is a major cause of escalating health costs in the city, which increased
by 250 percent between 1990 and 2010. In 2010, 58 percent of Jakarta’s citizens were suffering from air
pollution-related diseases, with health costs amounting to IDR 38.5 trillion/US$ 54 billion in that year
(World Bank and Institute for Health Metrics and Evaluation 2016).

Although data measuring continuous pollutant emissions is difficult to access, levels of Particulate Matter
(PM) damaging to human health are on the rise, especially due to increases in transport emissions. In
Indonesia, PM2.5 emissions continuously exceed WHO guidelines and National Air Ambient Quality
Standards (OECD 2019d) while PM10 and CO2 emissions from transport have been rapidly increasing since
1990 (RCCC_UI 2019). Measurements from five air pollution stations indicate that on an annual basis, O3

13
exceeds national and WHO guideline standards (Breathe Easy Jakarta 2017). Seasonal pollution spikes
from open burning practices are also common.

In Indonesia, the framework for the control and management of air pollution is provided by the
Environment Management Act 41/1999 which mandates the Ministry of Environment and Forestry
(MoEF) to issue air pollution standards and monitor whether these standards are met. However, so far,
the enforcement of stringent standards and effective monitoring remain challenging due to overlaps of
authority and a lack of resources. Several regulations overlap, are inconsistent, or require updating to
reflect international standards and guidelines, while others are poorly enforced.

A range of green fiscal policies could also be introduced under Law 32/2009, including motor vehicle taxes
(including the luxury tax on vehicle purchase, fees for transfer of ownership, and the progressive vehicle
tax) and taxes on transport fuels. Some fiscal policies have already been implemented such as the Low-
Cost Green Car programme. However, to date, these have not achieved the magnitude of emission
reductions required to bring about improvements to human health.

Insights from international best practices

Several countries, provinces and cities are already using fiscal policy instruments as part of their approach
to tackling air pollution from the transport sector. These experiences provide some useful insights and
lessons for Jakarta and Indonesia. This study discusses the following international examples:
▪ Fuel taxes including fuel excises (UK and Germany), carbon tax (British Columbia) and
differentiated excise on cleaner fuels (Thailand) (section 4.2)
▪ Vehicle registration charges in France, Norway and Thailand, including motorcycles (section 4.3)
▪ Congestion charging (Stockholm and London) and low-emission zones based on honour systems
(Germany) (section 4.4)
▪ Subsidies for cleaner transport (Seoul) and electric buses (India and London), grants for cleaner
motorcycles and three-wheelers (Philippines), subsidies to promote alternative fuels (Thailand)
and scrappage subsidy schemes (Beijing, China and Mexico) (section 4.5), and
▪ Road tolls to incentivise modal shift in the freight sector (Germany) (section 4.6).

Insights from these international best practices suggest that a complementary package of measures
containing both revenue-raising instruments and spending / subsidy policies, alongside soft instruments
such as labelling and information, and regulations including vehicle standards, is the most effective
approach to address harmful emissions from the transport sector.

Main findings and recommendations on fiscal policy measures to address pollution in Indonesia and
Jakarta
Based on international best practice experiences and lessons learned, the study sets out several policy
measures with the potential to reduce harmful emissions in the short-, medium- and long-term, some at
the national level, and some at the provincial level. First, this study proposes various ways in which Law
32/2009 can be better used to improve existing fiscal incentives for the reduction of harmful emissions.
Reviewing Law 32/2009 alongside Government Regulation 46/2017 could also enable the development
of specific new green fiscal policy measures to reduce air pollution at national and provincial level.
Greening the system of budget transfers from national to provincial government is yet another way to

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 incentivise pollution reductions in all the provinces of Indonesia. Second, the study proposes a package of
fiscal policy options, at both national and provincial level, as summarised in Table 1 below.1

Table 1: Summary of fiscal policy measures proposed including timeline for implementation
Measure Level Priority Timeline Predicted revenue Potential emissions impact
raised/cost of
scheme2
Reduced fuel consumption:
CN48 -4%
Bio gasoil -1%
2018: IDR 22,078
Differentiated excise duty on Other fuels <1%
N Highest 2020 bn /
sulphur content in fuels
US$ 1.6 bn (2018)
1.4% decrease in air
pollution

Estimates for 2018 not

available but international
2018: IDR 24 tr /
Reform of diesel subsidies and experience shows that a
US$ 1.7 bn
removal of pricing regulations on N Highest 2020 reduction in harmful
2019: IDR 104 tr /
transport fuels emissions and CO2 is to be
USD 7 bn
expected (see e.g. IMF
2019)
Congestion charging
reduces traffic volumes on
Congestion charging (low-tech Estimates not
average by
sticker system for travel within P High 2020 possible due to lack
9-12%. Study authors
Jakarta Outer Ring Road) of fleet data
assume roughly linear
emissions reductions
Reduced fuel consumption:
1% by 2022 and 2% by 2027.
Increased rates of motor vehicle 2020-22:
fuel tax on transport fuels P High 2020 IDR 344-793 bn /
Fuel cost savings IDR 88
differentiated by fuel type US$ 24-56 mn
billion / USD 6 million in first
year
Subsidies for public transport Tbd based on scope and
Tbd based on
tickets in DKI Jakarta targeting P High 2020 complementary investment
revenues available
poorer households to improve service
Estimates not possible due
IDR 89-1,458 tr / to lack of fleet data
Differentiated vehicle ownership US$ 6.2-10 bn (N)
2021-
taxes levied on the purchase of N/P Highest or LCSP model (2015) reduced
2023
new vehicles US$ 1 bn / IDR 14 tr CO2 emissions by 37% = tax
(P) of 5%-40% on new cars in
line with CO2 emissions
2020: IDR 1,447 bn Decreased consumption:
Carbon tax on transport fuels at 2021-
N High / US$ 102 mn Gasoline: 3%
national level 2023
(for DKI Jakarta) Diesel: 4%

1
For a detailed explanation of fiscal policy measures proposed see Table 24: Fiscal policy recommendations.
2
Predicted revenues are based on costings for 2018 unless otherwise stated.

15
 2020: IDR 23,550 CNG: 4% (compared to BAU
bn / by 2031). Longer term
US$ 1,663 mn (N) impacts up to 7% less than
BAU.
1% take up would Estimate not possible given
Subsidies for CNG conversion kits 2021-
P High cost IDR 268 bn / lack of data on freight
and particulate filters in HDVs 2023
US$ 19 mn vehicles
Dependent on 30% increase in electric
Subsidies for electric buses and 2021-
P Medium revenue available buses would reduce harmful
charging infrastructure 2025
(medium priority) pollution by 30%
Emissions reductions per
Annual uptake 1%: HDV scrapped:
Scrappage scheme for heavy duty 2021-
P Medium IDR 149 bn / US$ NOx 78%
vehicles 2025
10.5 mn CO 88%
PM 95%

The immediate implementation of differentiated sulphur excise duty at national level is proposed as a
measure of the highest priority. Differentiated fuel duty tends to be extremely effective in bringing about
changes in behaviour and supporting the phase-out of harmful fuels. The lack of availability of diesel fuel
of a sufficiently high quality for Euro IV vehicles is undermining potential human health improvements
resulting from the introduction of the Euro IV standard – an issue that can easily be addressed by speeding
up the transition to low-sulphur fuel. The impact of emissions from high-sulphur diesel on human health
are very significant. In its first year, the measure is predicted to bring about health cost savings of at least
IDR 258 million / US$ 19 million. In the first year of the measure being implemented, it would raise IDR
22,078 billion / US$ 1.6 billion – more than enough revenue to fund the upgrading of all domestic
refineries, estimated in 2016 to amount to roughly US$ 0.6 billion (CCAC 2016). This would enable low-
sulphur diesel to be produced domestically and high-sulphur diesel to be phased out, with sufficient
revenue remaining for compensating poorer households. To maximise the impact of this measure and
free up additional revenue, the diesel price subsidy should also be discontinued in 2020. The potentially
negative social impacts of both measures can be addressed by drawing on positive experiences since 2015
with the redistribution of subsidy revenue, which can be reallocated for sustainable public investment in
health, education and public transport infrastructure among others.

In Jakarta, as an intermediate step on the way to electronic road pricing, it is proposed that a low-tech
congestion charging scheme be implemented as soon as possible. This would entail differentiated charges
for all vehicles entering the centre of Jakarta based on harmful emissions volumes – with electric vehicles
exempt – based on an honour system, requiring that all vehicles display an appropriate and non-
transferable sticker. The scheme proposed is low-tech and could be implemented in a relatively short
timeframe. It would encourage modal shift to public transport and has the potential to reduce traffic
volumes and congestion in the city centre, and thus harmful emissions. Once electronic road pricing,
which is more targeted and responsive to actual traffic flows, is running effectively, the congestion
charging scheme should be phased out. It is proposed that revenue from the scheme should be used to
subsidise public transport tickets to compensate poorer households and support public transport
improvements in the city.

The study proposes that the provincial government takes steps to gradually increase fuel prices over
upcoming years. Act 28/2009 permits provinces to tax transport fuels by up to 10 percent of the sales
price. This would be easy to implement administratively and would tie in with an existing revenue
collection mechanism. The only necessary change, to enable the tax increase, is to lift the current 5

16
percent cap on the tax rate set by the 2014 Presidential Decree. The study also proposes that this measure
be complemented by a national carbon tax on transport fuels introduced at a rate of US$ 10/tCO2e and
increased to a rate of USD 20/tCO2e within 10 years. Potential negative social and distributional impacts,
resulting from fuel price increases, are expected to be limited as the transport fuel tax has a progressive
character—taxing more those that use greater amounts of transport fuel, which tend to be populations
in higher income brackets. Household income of vulnerable groups can be insulated from direct and
indirect price effects of the fuel tax increase by drawing on the Indonesian experience of fossil fuel subsidy
reform in 2015, where saved revenues were used for pro-poor investment in health, education and
infrastructure.

The study proposes differentiated vehicle ownership taxes levied on the purchase of new vehicles. One
component of the tax could be based on emissions harmful to human health, and a further component
on CO2 emissions, with high-emitting vehicles subject to a higher rate. This approach could be
implemented at either national or provincial level, although at national level, the potential to raise
revenue would be considerably higher. A differentiated tax has the potential to transform the vehicle fleet
within a few years. This measure should be implemented as soon as possible, although due to its complex
nature and the need to better understand the current vehicle fleet in Indonesia and Jakarta, this measure
is probably only feasible in the medium term. Given the differentiated tax rates proposed between
motorcycles and cars, whether implemented at national or provincial level, these measures are expected
to be broadly progressive. Proposals to step up the distribution of free public transport tickets and to
increase investment in public transport networks using revenues raised by additional green fiscal policies
in the transport sector will ensure that negative social impacts are kept to a minimum.

Electric vehicles (EVs) would also be incentivised through the differentiated vehicle ownership tax, as they
would be immune to both tax components. It should be noted that subsidies or tax exemptions for EV
ownership cater to wealthier income deciles with the resources to purchase expensive EVs. In addition,
for the widespread deployment of electric vehicles to bring about substantial reductions in harmful
emissions nationally, it is essential that renewable energy deployment be accelerated. To avoid exporting
pollution outside the city boundaries of Jakarta, it is essential that the country shifts away from its current
high dependence on coal in the energy mix, which results in harmful pollutant emissions and proven
negative health impacts (Greenpeace 2015).

The subsidies proposed alongside these revenue-raising measures have been designed to mitigate equity
concerns arising from the proposed green fiscal measures and to continue to drive reductions in harmful
emissions. In the first instance, additional revenues raised should be used to subsidise the transition to
cleaner fuels, and invested in education, health and infrastructure – like the approach adopted when fossil
fuel subsidies were reformed in Indonesia in 2015. Equity concerns should also be addressed by
distributing free or subsidised public transport tickets. Subsidy measures proposed in the medium terms
set out to prevent job losses or bankruptcies of SMEs in the freight sector in the face of tighter emissions
requirements and to subsidise the conversion of heavy-duty freight vehicles to CNG or retrofitting to
install particulate filters. Subsidies for e-buses and scrappage fees for freight vehicles to reduce harmful
emissions from heavy duty vehicles are also proposed.

Implementation challenges and possible solutions

Implementing these proposals would face several challenges. In particular, the lack of continuous and
transparent monitoring and reporting of air pollution data remains a major challenge. In addition, data
and research available in the public domain on transport policies tends to refer to GHG emissions
reductions, rather than emissions harmful to human health. As a result, understanding and estimating the

17
human health impacts of fiscal policies in the transport sector can be challenging for policymakers. A
detailed, publicly available, consolidated regular reporting system for pollution concentrations would help
to inform evidence-based policymaking. This study aims to take steps towards addressing these
shortcomings by collating the positive health impacts of fiscal policy measures in the transport sector. A
robust pollution reporting system would facilitate a review of fiscal policies’ effectiveness in protecting
Jakarta’s citizens from negative health impacts. It could also incorporate warning mechanisms if
concentrations exceeded guideline values.

A further challenge is posed by the potential conflict between fiscal and human-health related policy
goals. The primary sources of revenue for the Jakarta government are taxes, fees and charges on
motorised transport. If fiscal policies foster a preference for fuel-efficient vehicles liable for lower rates of
registration and ownership tax, this will result – in the medium term at least – in reduced revenues. There
are several ways in which this conflict can be addressed. For example, fiscal policy design can incorporate
gradual tax rate increases to stabilise revenues, including regular reviews to keep policymakers in the loop
on policy impacts and revenue streams and inform subsequent revisions as necessary.

Revenue allocation between national and provincial government can also act as an obstacle to green
taxation at a provincial level. Whether or not provincial governments will receive additional revenue from
the central government, even if they increase green taxation, remains unclear. This could discourage
policymakers at the provincial level from risking political criticism for the implementation of fiscal
measures, particularly if they are unable to use revenues to mitigate social impacts or compensate private
stakeholders. Efforts should be made to ensure that this problem is addressed when the
intergovernmental system of fiscal transfers under Act No. 32/ 2009 and Government Regulation No. 46/
2017 is amended to reflect ecological considerations in 2020.

Political will is likely to prove the single most significant obstacle to implementation of the green fiscal
policies set out in this study. Many of the measures will result in higher prices for transport fuels and for
individual mobility. Tackling the root cause of this politicisation is the only way to address this challenge.
Fossil fuel subsidy reform and increases in fuel prices should be planned carefully and accompanied by
structural changes to ensure that higher spending on welfare continues but is more accurately targeted
to those in need. Prices should be adjusted gradually or timed to coincide with falling global oil prices to
alleviate the impact of price increases. In the medium term, the goal of policymakers should be to abolish
price regulation mechanisms, so that fuel prices fluctuate in line with the global oil price and are no longer
a function of political decision-making. As in 2015, consensus building within ministries and amongst the
general public will be vital to lock in sustainable fiscal reform. As proposed in this study, revenues from
fiscal policy instruments can be used to invest in public transport and transport infrastructure to facilitate
modal shift to public transport and freight rail and shipping. Earmarking revenues for such uses can
mitigate potential negative social impacts, reduce opposition and build public support for the reform.

A concerted effort to communicate the rationale underlying fiscal policy measures is also vital in this
context to build support among the wider public. The co-benefits are numerous—reductions in health-
related costs; better health outcomes; better air quality in Jakarta; reduced congestion; shorter journey
times; and availability of additional revenues for continuous improvement to the transport system.
Communication strategies should emphasise these benefits and educate the public on the costs
associated with poor ambient air quality and its impacts on human health. Such a strategy would feed into
the current wave of increasing awareness of the negative impacts of air pollution on health amongst
Jakarta’s population and help build the case for using fiscal policy instruments to address air pollution.

18
The way forward
Given current awareness and pressure from civil society to address the negative health impacts of air
pollution, there is a window of opportunity for decisive policy action to reduce harmful emissions from
the transport sector. Fiscal policy instruments provide a cost-effective and efficient tool to reduce harmful
emissions and deliver human health benefits. Priority fiscal policy options which could be considered by
policymakers in DKI Jakarta and Indonesia include the introduction of differentiated sulphur duties,
vehicle registration taxes and the introduction of a congestion charging scheme in Jakarta. Capacity
building could support the implementation of these proposed measures.

At the same time, to create momentum for implementing such fiscal policies, stakeholder engagement
processes could be supported by the creation of two inter-ministerial working groups: one at a high level,
to bring together decision-makers to foster the exchange of policy perspectives and the exploration of
possible approaches to air pollution from the transport sector (and beyond), as well as a working level
group to support the high-level group by conducting background research and developing concrete
proposals upon request. This could be complemented by an establishment of a green fiscal and public
health commission, at the national or provincial level in DKI Jakarta, working across ministries and
stakeholders to create the necessary momentum to implement the policy measures recommended in this
study and consequently bring about economic and health benefits for the citizens of DKI Jakarta and
Indonesia.

19
1. Introduction

1.1. Background

Urban power generation and rapid growth in private motor vehicle ownership are driving air pollution
levels in low- and middle-income cities to critical levels. According to the WHO air quality database, 97%
of cities in low- and middle- income countries do not meet WHO air quality guidelines (WHO 2018a). As a
result, air pollution is having a serious and growing impact on human health. Exposure to fine particles in
air, polluted by vehicle emissions and other sources, is causing a range of respiratory and cardiovascular
diseases including stroke, heart disease, lung cancer, chronic obstructive pulmonary disease and
respiratory infections, including pneumonia (WHO 2018b; UNEP and WHO 2009). In 2016, indoor and
outdoor air pollution combined were responsible for an estimated 7 million deaths worldwide – a very
significant increase from the estimated 800,000 deaths caused by exposure to air pollution in the year
2000, nearly two-thirds of which were in Asian developing countries (WHO 2018c; WHO 2002). Today, it
is estimated that global health costs related to air pollution amount to US$ 98 billion or 3.5 percent of
global GDP (OECD 2019). Air pollution also has additional economic impacts, such as labour productivity
losses, crop yield losses, and ecosystem damages; already in 2013, global welfare costs associated with
air pollution were estimated at US$5.11 trillion (World Bank 2016).

As can be seen in Figure 1, air pollution in Asia is reaching critical levels. The figure shows average
concentrations of fine particulate matter PM2.5 as the index of measurement. PM2.5 has been recognized
as one of the most health damaging air pollutants to which populations are exposed, and accounts for
large health burdens (CCAC and UNEP 2019).

Figure 1: Ambient Level of PM2.5 in Asia in 2015

Source: CCAC and UNEP 2019

Indonesia has one of the highest pollution concentrations in Southeast Asia, with varying levels in rural
and urban areas due to seasonal burning of biomass, power generation emissions and transportation
(IQAIR 2018; OECD 2019). Transport emissions in Indonesia are rising due to the rapid growth of the

20
vehicle fleet. Between 2005 and 2016 vehicle emissions increased by an average of 10 percent each year,
while the motorcycle fleet grew by an average of 12 percent. Together with inadequate road
infrastructure in the city, this rapid growth has resulted in severe congestion in Jakarta, which is
detrimental to both human health and the economy (OECD 2019a).

Indonesian cities are amongst those with the worst air quality in South East Asia, which has had a
corresponding impact on the health of people living in and around them. Jakarta has been ranked the
tenth most polluted capital city in the world and the most polluted city in the South East Asia region. It
has the annual average PM2.5 concentrations of 45,3 µg/m³ that far exceeds the WHO guideline value of
10 µg/m³ (IQAir 2018). The monetary impact of such high levels of air pollution have been estimated to
be USD 16 billion / IDR 227 trillion in Jakarta in 2015, triple the national health budget in the same year
(World Bank 2015).

At the same time, air pollution monitoring is a politically sensitive issue and it is difficult to access robust
and reliable real-time data. Municipal governments of polluted cities tend to be criticised by their citizens.
In DKI Jakarta at the end of 2018, a group of individuals and organisations filed a Citizen’s Lawsuit against
the governor of Jakarta and the Indonesian President, Joko Widodo, accusing them of failing to protect
Jakarta’s citizens from the negative impacts of air pollution—for more details see section 1.3.3.
(Tomonews 2019).

The nexus between urban air pollution, health, environment and climate is becoming more and more
apparent, as are their detrimental impacts of pollution on urban economies (Haines 2009). Air pollution
is addressed in several Sustainable Development Goals (SDGs). One of the targets of SDG 3 (ensure
healthy lives and promote well-being for all at all ages) aims to substantially reduce the number of deaths
and illnesses due to air pollution by 2030, using the mortality rate attributed to household and ambient
air pollution as the indicator. This is in line with the targets and indicators of SDG 11 (make cities and
human settlements inclusive, safe, resilient and sustainable) that aims to reduce the adverse
environmental impact of cities, including by paying special attention to air quality by measuring annual
mean levels of fine particulate matter (e.g. PM2.5 and PM10) in cities. Air pollution attributable to the
combustion of fossil fuels as an energy source will be reduced by shifting to clean energy (SDG 7),
significantly reducing contaminant release to the atmosphere through sustainable production (SDG 12)
and improving transportation infrastructures and systems (SDG 9 and SDG 11). Fossil-fuel subsidies that
encourage wasteful consumption are also targeted and should be rationalized (SDG 12).

Reducing air pollution will also have a positive impact on the climate agenda (SDG 13) and support
implementation of Indonesia’s Nationally Determined Contribution (NDC) to the Paris Agreement by
integrating greenhouse gas (GHG) mitigation measures into development policies, such as in
transportation, energy, industry, and the forestry sector. Relevant SDGs and indicators are shown in
Figure 2.

21
Figure 2: The SDGs and their relevance to air pollution

deaths & affordable clean sustainable accessible public clean production low GHG
illnesses from fuels transportation transport (T 12.4) development
air pollution (T 7.1; I 7.1.2) infrastructure (T 11.2; I 11.2.1) (T 13.2; I
(T 3.9; I 3.9.1) (T 9,1; I 9.1.2) 13.2.1)
early warning air quality, fine inefficient fossil-
health risks particulate fuel subsidies
(T.3.d) matter level rationalization
(T 11.6; I 11.6.2) (T 12.c; I 12.c.1)
Source: United Nations Sustainable Development Knowledge Platform

Figure 3 shows the global impact of a total phase out of post-tax fossil fuel subsidies3 on CO2 emissions
(left) and on human health (right). In the figure, different bars show reductions in CO2 emissions and air
pollution deaths attributable to removing subsidies for different fossil fuel types: the black section refers
to coal, the orange to petroleum (gasoline and diesel) and the yellow to natural gas. The figure clearly
illustrates the strong links between fossil fuel subsidies, CO2 emissions and air-pollution related deaths.
Although, discrepancies also demonstrate that the relationship between CO2 emissions and air pollutant
emissions is not necessarily linear.

Figure 3: Environmental gains from removing fossil fuel subsidies

Percentage reduction of CO2 emissions Percentage reduction of air pollution deaths

Source: Coady et al. 2019

In emerging and developing countries in Asia (marked E.D. Asia on Figure 3), coal combustion is the most
important source of CO2 emissions and harmful air pollution, and that subsidy reform has the potential to
reduce these emissions substantially.

ASEAN member states have discussed and announced further support for member countries to address
the issues of air pollution and GHG emissions. Recent research illustrates the linkages between air

3The IMF calculation of post-tax subsidies includes the measurement for both explicit and implicit subsidies for fossil fuels (including untaxed
externalities).

22
pollution and health impacts, as well as their climate implications. About 4 billion people in the Asia Pacific
region (92 percent of the region’s population) are exposed to levels of air pollution which go beyond the
World Health Organization (WHO) guidelines. If current levels of economic growth are maintained and
policies are not implemented to curb air pollution, harmful PM2.5 concentrations are predicted to increase
by more than 50 percent by 2030. Moreover, fossil fuel combustion emits GHGs such as carbon dioxide
CO2 and nitrous oxides (NOx), as well as supporting the atmospheric formation of ozone (O3) and
secondary aerosol particles. Such particles can have negative impacts on the climate; deposits of
particulate matter on glaciers, for example, lead to more absorption of heat and faster melting rates
(Climate and Clean Air Coalition (CCAP) and UNEP 2019).

The CCAP and UNEP (2019) Air Pollution in Asia Pacific: Science-Based Solutions report was presented to
ASEAN member states in July 2019 in Manila, at which time twenty-five possible policy and technology
actions for six sectors to curb air pollution were discussed. The report included the following options for
the transport sector: strengthen emissions standards for road vehicles; strengthen enforcement;
mainstream electric vehicles; provide alternative transport modes; control dust; and reduce emissions
from shipping (CCAC n.d.). For all policy options, this study identifies fiscal policies which may contribute
to their achievement.

1.2. The role of green fiscal policy in achieving emissions reductions from the transport sector

Reducing air pollutant emissions from road transport can be done by reducing vehicles on the road, modal
shift to cleaner transport modes for both passengers and freight, increasing the efficiency and emissions
performance of vehicles, and systematically shifting towards cleaner energy sources for the
transportation sector.

Green fiscal policies (GFP) can play an important role in driving the behavioural changes necessary to
achieve a cleaner transport sector, particularly when implemented as a suite of policies to reduce
emissions. A combination of GFPs, including revenue-raising instruments and spending and subsidy
policies, soft instruments such as labelling and information, and regulations including vehicle standards,
is the most effective and efficient way of ensuring that all the changes that are necessary to reduce
emissions from the sector take place (Sims et al. 2014).

For the purposes of this study and the fiscal policy recommendations developed therein, a relatively wide
definition of fiscal policy is used, which includes measures which raise revenue – taxes, fees and charges
at national and provincial level – and measures associated with expenditure, whether at national or
provincial level. Hybrid instruments, such as regulations combined with subsidies, taxes, fees or charges,
e.g. vehicle standards implemented alongside scrappage subsidies, are thus included under the umbrella
of GFPs for the purposes of this report.

There are several arguments in favour of implementing GFP in the transport sector. First, GFPs are
particularly well-suited to policy objectives which target diffuse and diverse populations, such as
individual drivers and commuters (Sims et al. 2014). A second powerful argument in favour of GFP is its
potential to raise revenue. Indonesia has relatively limited fiscal space, with a tax-to-GDP ratio of around
12 percent (OECD 2018a). Thus, there is an ongoing need for the national government, and the
government of DKI Jakarta, to mobilise domestic revenue and make the investments necessary to reduce
pollution harmful to human health from road transport.

23
Internationally, it is recognised that vehicle taxes can have a big impact to limit air pollution from the
transport sector (van Dender 2019). The effectiveness of fiscal policies in reducing transport emissions
harmful to health is dependent on several factors, such as:
1) The monetary value of incentives and/or green taxes, fees and charges.
2) Their placement in the vehicle lifecycle – i.e. on vehicle acquisition/registration, vehicle ownership
(e.g. annual circulation taxes), or vehicle use (e.g. fuel taxes or congestion charges).
3) The types of vehicles they favour, e.g. efficient conventional engines, hybrids or electric vehicles
(EEA 2018).
These factors are taken into account in the recommendations proposed in this study.

1.3. Indonesia and DKI Jakarta as a case study to investigate opportunities for fiscal policy
measures to curb air pollution

Indonesia has one of the highest pollution rankings in the world, as does the city of Jakarta. OECD statistics
indicate that since 1990 Indonesia has continuously exceeded the WHO guidelines for PM2.5
concentrations of 10 μg/m3, as well as the Indonesian government’s National Ambient Air Quality
Standard (NAAQS) of 15 μg/m3 (OECD 2019d). Further data from the University of Indonesia shows that
there have been rapid increases from PM10 pollution and CO2 emissions as a result of road transport. From
1990 to 2030, PM10 is predicted to increase from just under 2.5 kt PM to 15kt PM (RCCC UI 2019). These
air-pollution increases are in line with a trend of a burgeoning transport sector that can be observed since
the 1980s: between 1989 and 2015, the number of road vehicles in Indonesia increased from 16.6 million
to 242.8 million (Statistics Indonesia 2017).

Although individual annual air pollutant measurements do not exceed national standards, except for O3,
the data analysis demonstrates that Jakarta’s population is exposed to levels of air pollution potentially
damaging to human health several times a year. The Air Pollution Index shows that on 194 days each year,
moderate health impacts can be expected, and on 69 days a year, severe health impacts can be expected
(KPBB 2018). In 2010, a study in Jakarta found that 57.8 percent of Jakarta’s citizens suffer from various
air pollution-related diseases, with health costs amounting to IDR 38.5 trillion/US$ 54 billion: a 250
percent cost increase over just 20 years (World Bank and Institute for Health Metrics and Evaluation
2016). A recent lawsuit has increased awareness amongst civil society of the scale of the problem. Thus,
reducing emissions harmful to human health is a high priority and a matter of urgency in the country.

Furthermore, in Jakarta, awareness of the impact of high air pollutant concentrations on human health is
high and political pressure to address it is increasing. Current national measures, however, have not
proven sufficient to control air pollution and congestion in the city. Therefore, there is a need to move
beyond national efforts to address the problem of air pollution effectively (ICCT 2014). Policymakers at
provincial level have clearly expressed their intention to address the issue. Therefore, in the current
political climate there is a window of opportunity to consider the potential that fiscal policy instruments
have in reducing harmful air pollution. For this reason, fiscal policy proposals specifically tailored to the
city of Jakarta were developed for this study.

1.3.1. Regulatory framework for air pollution

In Indonesia, the environmental and transport ministries are responsible for the management of air
pollution. The Ministry of Environment and Forestry (MoEF) draws up regulations on air pollution control
and emissions limits, as well as fuel standards. The Ministry of Transport (MoT) provides guidance on
traffic management and new technologies such as electric vehicles (EVs). National Ambient Air Quality

24
Standards do exist and are monitored by the respective agencies. However, public data on air quality is
hardly available. This seems to be a response to political pressure from national and civil society (see
further elaboration in section 2.1.2).

In parallel to this, DKI Jakarta has developed environmental management standards and identified specific
air pollution emissions standards. Five stationary Air Quality Monitoring Stations (AQMS) regularly
measure air quality in Jakarta. The Traffic and Transport division (Dishub) has been mandated to
implement periodic vehicle tests and manage the traffic flow (BEJ 2013). The DKI Jakarta government has
a range of responsibilities, including for the implementation and administration of fiscal policies (see
chapter 3 for details).

1.3.2. Fiscal situation

Tax revenue volumes and administrative efficiency have recently improved in Indonesia. However, the
government ratios of revenue-GDP and tax-GDP, at 14 and 12 percent respectively as measure in 2016,
remain low in comparison to countries at a similar income level. Even though between 2012 and 2016 the
number of registered taxpayers rose by almost 12 million and E-filing registration rates increased by 82
percent in 2017, the overall tax registration in 2016 was still low ranging between 17.8 and 35.7 percent
(OECD 2018a)4. Provinces and municipalities raise only about 10 percent of total tax revenue directly,
relying substantially on central government transfers to fund public services (OECD 2018a). Tax revenues
derived from environmental taxation remain low (0.8 percent of GDP), with vehicle taxation providing a
large proportion of the total (OECD 2019a). Challenges faced by the government when attempting to
increase revenues include the country’s large informal sector, low tax compliance levels, a narrow tax
base, and wide tax exemptions.

Both national and provincial governments have some experience with GFPs. At the national level, tax
incentives for Low Cost Green Cars (LCGC) and the reduction of fossil fuel subsidies since 2015
demonstrate the willingness of the Indonesian government to enact pricing and subsidy policies. DKI
Jakarta has been aiming for some time to implement Electronic Road Pricing (ERP) to reduce air pollution,
although the process has been hindered for several reasons (see section 3.5). Several non-fiscal measures
aimed at reducing air pollution have also been implemented, including fuel quality and vehicle standards
and expansion of the public transport sector.

1.3.3. Growing public awareness

In November 2018, a group of individuals and organizations who call themselves the Coalition to Improve
Air Quality officially placed a Citizen’s Lawsuit against the Governor of Jakarta Anies Baswedan and the
Indonesian President Joko Widodo (Tomonews 2019). The group argued that the government had failed
to fulfil the right of Jakarta’s citizens to breathe healthy air, in line with air quality standards. The group
also contended that they had data to prove that the citizens of Jakarta would have paid at least 51.2
trillion IDR / US$ 3.9 billion (Jakarta case 2016) to cover the health costs associated with disease related
to air pollution in 2019 alone (KPBB 2019).

4Calculated from data provided by the Directorate General of Taxes. Registered taxpayers are at end 2016. Note that married individuals typically
pay tax at the household level; the lower bound is calculated by adjusting the number of taxpayers for the share that file tax jointly and the upper
bound assumes that every taxpayer represents a two-taxpayer household.

25
The lawsuit was submitted as a response to the deteriorating air quality in Jakarta in July 2019 and the
City Governor has since issued some guidance for strategic activities on addressing pollution, which
includes the expansion of public transport and electronic road pricing (OECD 2019a).
Nonetheless, several challenges remain:
1) Expansion of air pollution monitoring stations
2) Transparency in reporting of air pollution levels
3) Setting of Ambient Air Quality Standards and indicators at city level
4) Monitoring and implementation of vehicle emission standards and fuel quality standards
5) Price regulations for transport fuels which distort fuel markets
6) Regulatory overlap of institutional responsibilities on air quality monitoring
7) The need to focus on reducing poverty and economic development
Fiscal instruments such as congestion charging systems, differentiated vehicle registration charges and
other measures to encourage low-emissions vehicles, road taxes and taxes on transport fuels, and
subsidies to support emissions reductions in the freight sector and drive modal shift from road to rail
freight all have potential to reduce harmful air pollution. This study will look at successful international
examples of these and other measures and consider how best they can be designed and implemented in
the context of DKI Jakarta.

1.4. Objectives of the study

The objective of this study is to support the Indonesian and Jakarta governments in their efforts to address
air pollution and GHG emissions by proposing a possible package of green fiscal policies in the transport
sector. The negative health impacts of air pollution in Indonesia are concentrated in the very densely
populated Special Capital City Region (DKI) Jakarta. Successful policy interventions in the city could
potentially have a significant impact on human health and well-being of many Indonesian citizens. Thus,
DKI Jakarta has been chosen as the focus of this study to maximise the impact of the measures proposed.
This study analyses existing regulatory and fiscal instruments to reduce the health impacts from pollution
related to road transport in DKI Jakarta and proposes ways in which these instruments could be improved.
It also draws on international best practice to propose a package of GFPs with the potential to reduce
harmful emissions in DKI Jakarta.

Many of the lessons learned and recommendations made are broadly applicable. Thus, the instruments
here-proposed have the potential to reduce harmful emissions in other large and rapidly urbanising cities
facing similar problems in Southeast Asia and further afield.
More specifically, the study will:
1) Contribute to an improved understanding of the use and effectiveness of fiscal policy instruments
in reducing air pollution and negative health impacts from road transport in Jakarta
2) Raise awareness of the economic, environmental and health costs of air pollution from the road
transport sector in Jakarta and other cities in South East Asia
3) Contribute to bridging knowledge gaps in country experiences of optimizing the use of green fiscal
policies to mitigate negative health impacts and address air pollution from road transport
alongside other policy instruments, and
4) Identify synergies with climate mitigation policies.

The primary target audience for the study are policymakers in DKI Jakarta and Indonesia. However, the
study is also intended to serve policymakers in cities in developing and emerging countries facing similar
challenges—associated with designing effective policies to curb rapidly rising transport emissions harmful
to human health.

26
To ensure that this study adds value to the policy debate and given the existing extensive research on
fossil fuel subsidies and their reform, the proposals in chapters 5 and 6 focus on: green taxes, charges and
fees, green subsidies, and hybrid fiscal policy instruments in the transport sector. This does not imply that
fossil fuel subsidy reform is not an important fiscal policy measure with substantial potential to reduce
harmful emissions (as shown in Figure 3), but is rather a reflection of the fact that this issue has already
been given significant attention by international organisations such as the G20, IEA, OECD, ADB, and IMF.

The study is part of a wider UNEP project on Environment, Pollution and Health, which aims to help
countries step up action on pollution by building understanding, capacity and tools on the nexus between
environment and health issues. The study is coordinated in line with UNEP activities to support a
registration tax on the basis of CO2 vehicle emissions as well as cleaner and more efficient fuels and
vehicles in Indonesia (in particular, the implementation of Euro 4 vehicle emission standards and
equivalent fuel quality, and the upscaling of the electric mobility in Jakarta and the whole country).

1.5. Methodology

The analysis, conducted over a six-month period, focused on existing literature on air pollution globally,
in Southeast Asia, in Indonesia, and in DKI Jakarta. Due to the limited availability of government data,
much of the data used was taken from the reports of international agencies. Identification of international
best practices took the form of a literature review, focusing on those measures where significant impacts
on emissions harmful to human health have been identified.

On the back of these preliminary findings, several interviews with key stakeholders were conducted.5
Following the interviews, several proposals for fiscal policies to reduce harmful emissions from the
transport sector in Jakarta were developed. To discuss these proposals and verify the findings of the study
relating to existing policies and human health impacts, a roundtable with key stakeholders was held in DKI
Jakarta at the beginning of September.6

Estimations of the policy implementation status and challenges were developed in close collaboration
with the key experts involved in the writing of this study from KPBB and the University of Indonesia (UI).

1.6. Structure

The first chapter of the study introduces the thematic focus of the report and the report methodology.
Chapter 2 outlines air pollution trends in Indonesia and more specifically, DKI Jakarta, and provides the
latest research on health costs associated with the air pollution in the city. The chapter also outlines
sources of air pollution and discusses the interlinkages between population growth, increased commuter
numbers, congestion, transportation and energy consumption.

Chapter 3 assesses past, current and planned policies to address air pollution from the transport sector in
DKI Jakarta. After examining existing regulations, specific fiscal and non-fiscal measures are analysed, with
reference to their potential impact on air pollution. Data on revenue and expenditure of the DKI Jakarta

5 Interviews were held with MoEF, BKF at MoF; DLH DKI Jakarta and CLS group (see Annex V)
6 The roundtable was attended by 13 representatives from DKI Jakarta, BKF and research organizations
(see Annex 5).

27
government highlights current tax revenues available and their sources. The main challenges to fiscal and
non-fiscal policies for reducing air pollution are discussed from a political economy perspective.

Chapter 4 looks at several successful examples of GFPs which have achieved reductions in air pollution,
stemming from road transport in cities, and consequent benefits to human health. The chapter also
evaluates their applicability to DKI Jakarta.

Chapter 5 proposes a range of possible fiscal policies which could be implemented in the short- and
medium term at the national and provincial level to mitigate emissions harmful to human health. Their
applicability and feasibility are considered, as well as their potential impacts on revenue, social equity,
human health and the economy.

Chapter 6 synthesizes the key messages of the study. It is forward-looking and focuses on proposed policy
reform packages and complementary measures. The final chapter also discusses the challenges that the
implementation of these measures might face and how they can be addressed. The chapter ends by
identifying knowledge gaps and lays out possible questions for further research.

28
2. Key Trends, Costs and Challenges of Air Pollution

2.1 Introduction
Monitoring air quality is challenging. Data on air pollution is a highly politicized topic in many
countries, and the data necessary to estimate costs related to pollution accurately tend to be difficult
to access. For evidence-based policymaking, however, it is essential that this data is robust, accurate,
transparent, and available in the public domain. Such data is needed to raise awareness about the
extent of the negative impacts of the status quo and create momentum for change, both within and
outside government. Awareness of the costs of inaction on air pollution can provide leverage in favour
of change and embolden governments to act. At the same time, air pollution data is essential for the
accurate evaluation of policy impacts.

Therefore, this chapter will outline the availability of data on air pollutants in Indonesia and specifically
DKI Jakarta and provide an overview of the current status of air pollutant levels and their economic
and associated health impacts on the population of DKI Jakarta. Finally, sources of air pollution and
the contribution of the transport sector are analysed.

2.1.1. Air pollution

Air pollution is commonly measured in relation to the following pollutants: particulate matter (PM)
(PM2.5 and PM10), sulphur dioxide (SO2), nitrogen dioxide (NO2), carbon monoxide (CO), ozone (O3). All
are emitted as a result of fossil-fuel combustion processes, as summarized in Table 2 below. PM2.5 is
widely used as a representative measure of air pollution, as the small size of the particulates of PM2.5
poses the greatest risks to human health. Particulate matter (PM) is commonly emitted from
combustion engines (both diesel and petrol), solid-fuel (coal, lignite, heavy oil and biomass)
combustion for energy production in households and industry, and other industrial activities (building,
mining, manufacture of cement, ceramic and bricks, and smelting) (WHO, n.d. a).

Table 2: Overview of sources of air pollutants

Pollutant Sources of the pollutant in the city
PM2.5 Combustion engines (both diesel and petrol)
Solid fuel (coal, lignite, heavy oil and biomass)
PM10 Combustion for energy production in households and industry, as well as other industrial
activities (building, mining, manufacture of cement, ceramic and bricks, and smelting)
Secondary particulates are derived from sulphates and nitrates formed in reactions involving
SO2 and NOx
SO2 Burning of fossil fuels (coal and oil)
Smelting of mineral ores that contain sulphur
NO2 Mainly emitted by power generation, industrial process and transport (esp. diesel engines)
CO Motor vehicle exhausts and machinery that burns fossil fuels
O3 Produced when carbon monoxide (CO), methane, or other volatile organic compounds (VOCs)
are oxidized in the presence of NOx and sunlight.
NOx and VOCs Emissions from motor vehicle exhaust, industrial facilities, and chemical solvents
Methane Waste and the fossil fuel and agricultural industry
Source: Summarized from WHO (n.d. a)

29
2.1.2. Air pollutant monitoring in Indonesia
Air pollutant monitoring stations in Indonesia
The Ministry of Environment and Forestry (MoEF) shows 129 continuous monitoring stations spread
across the country on its website (as shown in Table 3). Given their respective mandates and
responsibilities as specified in law, these stations are managed by the MoEF (for national monitoring
of air quality), the Meteorology, Climatology and Geophysical Agency (BMKG) (for weather
forecasting), local environmental agencies (DLH) (for local monitoring), or other institutions, such as
the US Embassy (for verification of official data), etc.

Table 3: Air Quality Monitoring Stations in Indonesia

Location Labelled as Labelled as Total
Active Stations Non-Active Stations Stations
Indonesia (all) 74 55 129
Java 34 28 62
Sumatera & surrounds 23 16 39
Borneo 11 5 16
Eastern Indonesia 6 6 12
Source: Summarized from KLHK 2019c (accessed 19 November 2019)

2.1.3. Publicly available data

The monitoring of air pollutants in Indonesia is currently relatively inconsistent and given the recent
lawsuit, highly politicized. Official data from government agencies such as MoEF, BMKG and the local
environmental agency all provide a certain amount of information on their websites (see Figure 4).

However, accurate overviews of air pollutant emissions over time are not available on their databases
(see Table 4 for an overview).

Figure 4: MoEF website display on the Air Pollutant Standard Index (ISPU) Information

Source: KHLK 2019c (Accessed on 26 November 2019).

30
Table 4: Overview of available data on air pollutants in Indonesia and DKI Jakarta
National Government DKI Jakarta
Agency MoEF BMKG BPLH Jakarta Jakarta Open Data
(Diskominfotik DKI
Jakarta)
Period Real time data Latest month -Real time data 2011, 2012, 2014
(but inconsistent) -Daily database
Data/ Online: Online: Online: Online:
publication -Map of Air Quality Graph of SO2, NO2, O3 -Air pollutant index NO2, SO2, TSP, Pb;
Monitoring stations and air PM10, PM2.5, SPM, & on the day data in csv format.
pollutant index on that TSP concentrations. -Pollutant
day; displays one indicator measurements of
for air pollution the day (in ug/m3).
-Graph of air pollutant
index of PM10, CO, SO2,
NO2, O3 on that day
-Map of PM2.5 station
location & hourly pollutant
concentration on that day
Description The map shows data from Provides information Five continuous Pollutant
41 stations run by MoEF, on SO2, NO2, O3 monitoring measurement most
BMKG, and local PM10, PM2.5, SPM, & stations, nine likely originates
environmental agencies. TSP. manual sampling from the manual
On its website, it lists 129 stations, and two station, not the
stations but only 74 as mobile monitoring fixed DK1-DK5
active. 12 stations measure vans. stations.
PM2.5
Publicly Air Quality Index https://www.bmkg.g Online Database http://data.jakarta.
Available http://iku.menlhk.go.id/aq o.id/?lang=ID https://llhd.jakarta. go.id/dataset/data-
ms/ Only provides one go.id/#; kualitas-dan-baku-
PM2.5 Monitoring overview for each https://llhd.jakarta. mutu-udara-
http://iku.menlhk.go.id/aq pollutant. go.id/pages/sensor menurut-lokasi-
ms/pm25 Not consistent /konsentrasi.php?i pengukuran-dki-
Online database (but data regarding dates. d=DKI1 jakarta
is incomplete) No historic data is (Only available on
http://iku.menlhk.go.id/aq available online. hourly rate and
ms/arsip data seems
incomplete)
Source. Authors

Other programs, which have collaborated with the MoEF and the DLH, and have filled some of the
gaps in publicly available data from national or provincial government agencies responsible for
monitoring are shown in Table 5. In this study, due to the lack of available government data, national
data on air pollution was taken from the World Health Organization (WHO) and the emissions
evaluations of the Toyota Clean Air Project. For DKI Jakarta, data from five DKI Jakarta monitoring
stations and analysis conducted in the Toyota Clean Air Project were used.

31
Table 5: Programs related to Air Pollution in Jakarta
Program Urban Air Quality GIZ Clean Air for Toyota Clean Air Breathe Easy Jakarta
Improvement Smaller Cities Project Project
Donor agency Asian Development BMZ – implemented US Environmental US- EPA, BPLHD and
Bank (ADB) with via GIZ Protection Agency MoEF
MoEF (EPA) with MoEF
Period 1997 - 2010 Real time data 2013-2016 2011 - 2016
Data/ KLHK in ug/m3 Emission inventories RCCUI- Data in ug/m3 of 5 monitoring
publication for 10 cities. ktons stations, 2014 analysis
on causes.
Description Pollutant GIZ supported GAINS model for 2014 full air pollution
monitoring in 10 Palembang and human activity and dispersion model.
cities. Funded Surakarta for emission esp. traffic related Focus on monitoring of
monitoring stations inventory in 2012; emissions. In-depth DKI Jakarta monitoring
and started KLHK replicated this to insights to the stations and support in
monitoring 10 cities in 2014. impact of its reporting. Support
systems. transport-related to DKI Jakarta to set up
air pollution. monitoring system.
Publicly Not accessible Accessible via former Research Centre for Available from the KBB
Available GIZ colleagues. Climate Change at office.
the University of
Indonesia (RCCC-UI)
Has been published
in (Haryanto 2017)
Source. Authors

2.1.4. Overview of data used for the review

The GAINS Model
From 2010 to 2014 a program was conducted in Indonesia in which the Austrian government was
supported by experts from the International Institute for Applied Systems Analysis (IIASA) to draw up
pollutant and emissions inventories for modelling and prediction purposes. Based on 2010 data from
KLHK (program above), the Research Centre for Climate Change at the University of Indonesia (RCCC-
UI) developed modelling predictions based on the 2013-2016 period and projected trends in air
pollution and greenhouse gas emissions through the year 2030 using the GAINS model.7

GAINS models describe the pathways between human activities, such as transport and power
generation, and air pollution (Amann et al. 2004). To create a robust system for the development of
national emission scenarios in the GAINS model consistent with Indonesia’s official emission
inventories and projections, some parameters had to be adjusted to the Indonesian context. 8 The
underlying data was from emission measurements covering the 1997-2010 period.

7 Further information about the GAINS model is available on the following web page:
https://www.iiasa.ac.at/web/home/research/researchPrograms/air/GAINS.html
8
This publication resulted in the creation of an inventory of exhaust emissions in Indonesia and the DKI Jakarta Region, including ozone
precursors (CO, NOX, acidic substances (SO2), and particulate matter (PM2.5 and PM10) during the period from 1990 to 2010 using the GAINS
model based on the country-specific activity data together with the emission factors from the GAINS-Asia database. The unit of evaluation
was kilotonnes. The activity data consisted of vehicle data (motorcycles, diesel and gasoline light duty vehicles, diesel heavy duty vehicles
and other road transport vehicles). Thus, in addition to the emissions inventories, bottom up activity data was fed into the model. All vehicles
sold in Indonesia by type, engine volume and type of fuel between 1990 to 2013 were noted. The fuels were also divided: Middle distillate
(MD), Gasoline (GSL), liquified petroleum gas (LPG) and natural gas for vehicles (NGV). In addition, biofuels in the fuel mix were considered.
Furthermore, the cumulative number of vehicles registered in DKI Jakarta was classified by vehicle and fuel type and monitored. For the
vehicles, amounts travelled were also drawn from the GAINS-Asia database indexes. The sources of the data were the official emission
inventory and emission projections from: Ministry of Environment; National Agency for Meteorology, Climatology, and Geophysics; National
Bureau for Statistics; Ministry of Industry; Ministry of Agriculture; Ministry of Health; Ministry of Energy and Natural Resources; Indonesia
Institute of Science; universities; and other potential environmental monitoring stations. The emission factors for the transportation sector
vary according to vehicle, fuel, engine type and engine standard. Emission factors utilized were from the GAINS-Asia database as a default
value.

32
Monitoring Stations in DKI Jakarta
The five stationary monitoring stations are spread across DKI Jakarta, namely Central, North, South,
East, and West Jakarta (see Figure 5). The air quality index, pollutant monitoring results and
information about the effects of pollution on human health and the environment are available online.9
The five stations monitor the critical pollutants PM10, SO2, NO2, CO, O3, as well as NOx, NMHC, and CH4.
However, PM2.5 has only been measured since 2019 at the MoEF’s station (KLHK-GBK-Jakarta). The
measurement unit is concentration (u/m3). BPLHD also operates a laboratory and data centre.
International technical guidelines on ambient air quality monitoring stations recommend that DKI
Jakarta install 11 monitoring stations in view of Jakarta’s total population and land area. Even though
that number is achieved with mobile stations in the city, experts have recommended that the number
of stationary monitoring stations be increased (Breathe Easy Jakarta 2017). Furthermore, in
stakeholder discussions it was mentioned that the reliability of the continuous monitoring at the
stations is sometimes compromised, as monitoring stations that break down can be out of service for
2-3 before they are repaired (Breathe Easy Jakarta 2017).

Figure 5: AQM stations in DKI Jakarta maintained by the BPLHD and MoEF

KLHK-GBK-Jakarta

Source: Breath Easy Jakarta, 2017, p.113; and KHLK 2019b

9Index and pollution effects https://llhd.jakarta.go.id/pages/sensor/sensor.php; Pollutant concentration monitoring data

https://llhd.jakarta.go.id/pages/sensor/konsentrasi.php?id=DKI1

33
Table 6: Air Quality Monitoring Sites in DKI Jakarta

Source: Breath Easy Jakarta, 2017, p.112

34
2.2. Air pollutants in Indonesia

Indonesia ranks 11 in the world for air pollution, with an annual mean concentration of PM2.5 of 42
μg/m3 in 2018 – more than four times the WHO guideline value of 10 μg/m3 (IQAir Air Visual 2018;
OECD 2019d). Even though Indonesia has 129 monitoring stations, PM2.5 has only been monitored
since 2019. According to the OECD Environment Statistics Database, the level of exposure to PM2.5 in
Indonesia in the last decades has always been above the 10 μg/m3 WHO guideline value (OECD 2019d),
as well as above the 15 μg/m3 National Ambient Air Quality Standards (NAAQS) (see Figure 6).

Figure 6: PM2.5 concentration in Indonesia compared to the WHO Standards

Source: OECD 2019d, authors

Projections for the increase in transport emissions in Indonesia are alarming, with rapid increases
in harmful air pollutants such as PM10 (see Figure 7) and greenhouse gas emissions such as CO2 (see
Figure 8) expected (RCCC UI 2019). Such a rapid increase in emissions is in part related to the low
quality of transport fuels currently used in Indonesia (Safrudin 2018). Thus, the increase could be
mitigated to some extent by raising and enforcing fuel standards. Also, it is interesting to note that in
a BAU scenario, motorcycles are and will remain the main contributors to emissions. The sharp
increase in motorcycles has been already noted by the WHO as a common phenomenon in middle-
income cities, where cars are still unaffordable for most citizens (UNEP and WHO 2009).

However, both CO2 and PM10 emissions from light duty vehicles (LDVs) are also predicted to increase
substantially between 2015 and 2030, with emissions from motorcycles rising less rapidly, reflecting
the trend towards higher levels of car ownership in Indonesia. In common with many other middle-
income economies, improving living standards in the country are an important driver of rising car
ownership (Sims et al. 2014).

The figures from the GAINS model also highlight the relationship between GHG emissions and harmful
emissions, such as PM10. There are often synergies between GHG mitigation and reduction of ambient
air pollution harmful to human health, although this is not always true – particularly in the case of
diesel vehicles (these synergies are explored further in the study e.g. in section 6.3).

35
Figure 7: National Trend development of PM10 emissions from road transport10

Source: RCCC_UI 2019

Figure 8: National Trend analysis form CO2 emissions from Road Transport11

Source: RCCC_UI 2019

High pollution spikes in Indonesia are often related to the seasonal agricultural practice of open
burning for clearing land for future crops (IQAir Air Visual 2018). Thick smoke from the fires blanketed
several areas in Sumatra and Borneo island from July 2019 for a considerable length of time, as shown
in the Regional Haze Situation map by the ASEAN Specialised Meteorological Centre (Figure 9). This
figure also shows pollution hotspots, which represent locations with possible fires derived from the
NOAA satellite imagery. These fires resulted in very poor air quality expected to have negative health

10 GAINS database accessed by B. Haryanto – University of Indonesia: Inventory data for the estimation of vehicles was derived from the
number every single type of vehicles sold in Indonesia, its volume of engine, & type of fuel used from 1990 to 2013 accessed by
10.9.2019.
11 GAINS database accessed by B. Haryanto – University of Indonesian accessed by 10.9.2019.

36
impacts, as demonstrated via a real-time status aerial view shown below in Figure 10 (view taken on
23 September 2019) (IQ Air Visual 2018).

Figure 9: Regional Haze Situation on 23 September 2019

Source: ASEAN Specialised Meteorological Centre (ASMC) 2019

Figure 10: Real-time status of Indonesia air quality index (AQI) and PM2.5 air pollution

Source: Air Visual 2019

2.3. Overview of air pollution in DKI Jakarta

DKI Jakarta has a significant air pollution problem with key pollutants continuously exceeding
international and national guidelines several times a year (Breathe Easy Jakarta 2017). However, only
O3 annual measurements continuously exceed WHO and the NAAQS guideline, highlighting both the
discrepancies between WHO guideline and NAAAQS, and the limitations of annual measurements.
Data shown in Figure 11 and recorded by the five monitoring stations in Jakarta shows that the
measured annual average concentration of PM10 exceeds WHO guidelines but not the NAAQS, while
the secondary pollutant O3 exceeds the national standard as well. Comparing WHO guidelines and
NAAQS is difficult as the time taken to calculate average emissions varies between some of the

37
pollutants, e.g. ozone (see Annex I). On the other hand, according to MoEF, air quality in DKI Jakarta
is good and healthy (CNN 2019). This statement is based on NAAQS, which are generally lower than
the WHO guidelines (see Annex I).

Many cities, particularly in emerging economies, continuously fail to meet WHO Air Quality guidelines.
The 2018 World Air Quality Report indicates that 64 percent of over 3,000 cities monitored exceeded
WHO guidelines, while in Southeast Asia, 95 percent of cities monitored exceeded the guidelines
(IQAir Air Visual 2018). Indeed, the WHO states that 91 percent of the world population is living in
places where WHO air quality guidelines levels are not met (WHO 2019).

Figure 11: Comparison of Pollutant Concentrations in Jakarta recording in 2013 Data with WHO
guidelines and NAAQS Standards (annual emissions)
Breath easy Jakarta WHO NAAQS

120.0

100.0

80.0
ug/m3

60.0

40.0

20.0

0.0
PM10 NO2 O3
Breath easy Jakarta 63.0 16.6 79.2
WHO 20 40
NAAQS 100 50

pollutant concentration data & standards

Source: Breathe Easy Jakarta 2017

38
Figure 12: Air pollutant trends in DKI Jakarta (Breathe Easy Jakarta, p. 131)
Jakarta Yearly Average Pollutant's Concentration 2011-2014
100 90.6
90 79.2
71.8 72.4 74.0
80
70 62.8 63.0
56.8
60
ug/m3

PM10
50
40 NO2
30 16.4 16.6 18.5 CO
14.6
20
10 1.2 1.2 1.6 1.5 O3
0
2011 2012 2013 2014
Year

Source: Breathe Easy Jakarta 2017, p.131

39
Figure 12 above shows that when an annual average is used to measure air pollution, average
concentrations of PM10 and O3 decreased overall between 2011 and 2014, while NO2 and CO increased
slightly in Jakarta. However, the degree to which annual average concentrations are relevant in
relation to human health impacts is unclear, as health experts report that what is most detrimental to
human health is not the annual average, but spikes in the concentration of air pollutants. Current
ongoing research in the UK has reported that in total across nine major cities, higher air pollution days
trigger an average additional 124 out-of-hospital cardiac arrests, 231 hospitalizations for stroke and
193 children and adults hospitalized as a result of severe asthma attacks (King’s College London 2019).

When it comes to PM2.5, for which only US Embassy measurement data is available, it Is evident that
concentrations at the monitoring station continuously exceed the NAAQS. For SO2 measurements
from the five continuous monitoring stations of the DKI Jakarta government, it is also observable that,
with very few exceptions, the NAAQS is continuously exceeded, as shown in figures 13 and 14.

Figure 13: Trend analysis of PM 2.5 pollutant in DKI Jakarta 2015-2017

Source: KPBB 2018

40
Figure 14: Trend analysis of SO2 pollutant in DKI Jakarta 2015-2017

Source: KPBB 2018

The evidence shows that the Jakarta population is exposed to air pollutant concentrations higher than
the national standard several times a year. Especially PM10, PM2.5, SO2, and secondary O3
concentrations often exceed WHO guidelines and national standards. The Air Pollution Index (see
Figure 15) shows that Jakarta’s citizens breathe air that can be expected to have severe health impacts
69 days of the year, and air which can be expected to have moderate health impacts for 194 days
(KPBB 2018).

Figure 15: Air quality index Jakarta trend 2012-2017

Source: KPBB 2018

As the next section explains, this level of air pollution has significant impacts on human health and
results in significant costs for the citizens of Jakarta.

2.4. Costs of air pollution

2.4.1. Explanation of health impacts attributable to the pollutants

Ambient air pollution, mainly caused by the combustion of fossil fuels for electricity generation,
transport, and industry, has been worsening over the past five decades all over the world (Rowshand
et al. 2009; Ying et al. 2015). Many epidemiological studies have indicated that air pollutants such as
particulate matter (PM), nitrogen dioxide (NO2), sulfur dioxide (SO2), and ozone (O3) are responsible
for global increases in mortality and morbidity, especially from respiratory and cardiovascular diseases
(CVD) (Rowshand et al. 2009; Samet and Krewski 2007; Tsangari et al. 2016).

41
Table 7: Impacts on human health from major air pollutants
Pollutant Short-term effects Long-term effects
PM Increase in mortality Increase in lower respiratory symptoms
Increase in hospital admissions Reduction in long function in children and adults
Exacerbation of symptoms and Increase in chronic obstructive pulmonary disease
increased use of therapy in asthma Increase in cardiopulmonary mortality and lung cancer
Cardiovascular effects Diabetes effects
Long inflammatory reactions Increased risk for myocardial infarction
Endothelial and vascular dysfunction
Development of atherosclerosis
O3 Increase in mortality Reduce lung function
Increase in hospital admission Development of atherosclerosis
Effects on pulmonary function Development of asthma
Lung inflammatory reaction Reduction in life expectancy
Respiratory symptoms
Cardiovascular system effects
NO2 Effects on pulmonary structure and Reduction in lung function
function (asthmatics) Increased probability of respiratory symptoms
Increase in allergic inflammatory Reproductive effects
reactions
Increase in hospital admissions
Increase in mortality
CO* High levels can be harmful to humans by impairing the amount of oxygen transported in the
bloodstream to critical organs;
Long-term exposure to low concentrations is also associated with a wide range of health effects
SO2* affects the respiratory system and the function of the lungs, and causes irritation of the eyes;
aggravate asthma and chronic bronchitis, as well as increases the risk of infection
Source: Adapted from WHO (2004b, 2006) and summarized from WHO (n.d. a)

Air pollution has been ranked as number six on risk factors that influence death and disability in
Indonesia (IHME 2019). Haryanto and Franklin (2011) have estimated that 50% of morbidity in the
country is caused by air pollution (Haryanto and Franklin 2011). The cost of mortality, morbidity, and
loss of welfare from exposure to ambient particulate matter in Indonesia has been estimated to have
doubled from 1% GDP equivalent in 1990 to 2,1% GDP equivalent in 2017, or around 8.6 billion USD
PPP in 1990 to 62.2 billion USD PPP in 2017. The trend of the cost burden has been rising since the
1990s, as seen in Figure 16.12

12Own analysis based on data from the OECD Environment Statistics Database (OECD 2019d), Air quality and health, Mortality, morbidity,
and welfare cost from exposure to environment-related risks, Risk: Ambient Particulate Matter
https://stats.oecd.org/viewhtml.aspx?datasetcode=EXP_MORSC&lang=en (Accessed September 2019).

42
Figure 16: Mortality, morbidity and welfare cost from exposure to ambient particulate matter in
Indonesia
70000
60000
Cost (mio USD PPP)

50000
40000
30000
20000
10000
0
1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Year

Source: Authors, based on OECD 2019d (OECD Environment Statistics Database)

Another study of Indonesia estimated that the total costs attributable to air pollution – including direct
damage to crops, forests, and infrastructure and the indirect costs of responding to wildfires and
losses in other economic sectors – exceed USD 16 billion annually (IDR 221 trillion). This is more than
double the cost of the 2004 tsunami and three times the national health budget in 2015 (World Bank
2015). This figure is greater than the estimates of economic losses from the 1997 forest fires, amongst
the largest forest fires recorded in the last two centuries.

Air pollution is an important cause of respiratory disease and death in Indonesia. Pneumonia, which
has severe effects on pulmonary functions and can be caused by air pollution, is the primary cause of
death for infants (22.3 percent) and children under 5 years of age (23.6 percent) in Indonesia and is
among the ten most common disease-related causes of death amongst adults. The WHO has
estimated that deaths caused by acute lower respiratory infection (ALRI) and deaths attributable to
solid fuel use in Indonesia in 2002 amounted to 3,130 (for children under 5 years) (WHO 2002). Deaths
caused by chronic obstructive pulmonary disease (COPD), also attributable to solid fuel use, amounted
to 12,160 in adults of 30 years old and upwards (Haryanto 2017).

2.4.2. Bottom up health cost assessment in Jakarta

The Ministry of Environment conducted a study in 2012 which included a bottom up assessment of
the health costs caused by air pollution in DKI Jakarta (Kementrian Lingkungan Hidup 2012). In the
study, health costs resulting from ambient air pollution were estimated by using the Cost of Illness
(COI) approach. This approach is also used here. In this case, COI are assessed using the following
three criteria:
1. There is epidemiological evidence that the disease is linked to air pollution;
2. The disease has been defined as one of the ICD13 codes;
3. The health impacts can be expressed in monetary terms.

Hospital medical records of in-patient and out-patient departments in two hospitals14 were used to
measure the value of morbidity. The two hospitals are located within the Jakarta metropolitan area
and focus on infectious and respiratory tract diseases. Treatment costs for the treatment of asthma,
bronchopneumonia, cancer nasopharyngeal, acute respiratory infection (ARI), chronic lung
obstructive disease, pneumonia, and coronary artery diseases were recorded. The medical records

13International Classification of Diseases.

14 Sulianti Saroso Hospital and Persahabatan Hospital

43
were then analysed by incidence per 100,000 of the population, and the results extrapolated to the
Jakarta population (in 2010: 9,607,787 people). Several studies have used this approach and by
illustrating the costs, have resulted in policy changes (Small and Kazimi, 1995; Meduri et al. 1994).
Two similar studies were carried out in Indonesia in 1994 (Ostro et al., 1994) and 1998 (Resosudarmo
et al. 1998).

In Jakarta in 2010, the data show that there were: 1,210,581 people who suffered from bronchial
asthma (compared with 500,000 of the population identified by Ostro et al. in 1994); 153,724 people
with bronchopneumonia; 2,449,986 with ARI; 336,273 people with pneumonia; 153,724 people with
Chronic Obstructive Pulmonary Disease (COPD); and 1,246,129 people with coronary artery diseases.
Thus, in 2010, 57,8 percent of the population in Jakarta was reported to have suffered from different
air pollution-related illnesses—see Table 8 (Kementerial Lingkungan Hidup [KLH] 2012).

In 2016, KPBB updated this data and found that incidences increased by 17.6 percent on average,
indicating that health costs for Jakarta citizens are increasing steadily (KPBB 2018).

Table 8: Incidence of diseases related to air pollution

Health impacts Incidence 2010 for Jakarta 2016 for Jakarta Increase
Per 100.000 population 15 Population
Asthmatic bronchiole 12,600 1,210,581 1,489,014 19%
Bronchopneumonia 1,600 153,724 214,265 28%
ARI 25,500 2,449,985 2,731,734 10%
Pneumonia 3,500 336,272 373,935 10%
COPD 1,600 153,724 172,632 11%
Coronary artery diseases 12,970 1,246,129 1,386,319 10%
TOTAL 57,770 5,550,415 6,367,899 17.6% (av.)
Source: KLH 2012; KPBB 2018

Associated costs were estimated to range between a minimum of IDR 697,935 million/US$ 76 million
and a maximum cost of IDR 38.5 trillion/US$ 4.2 billion, with average costs amounting to 5,675,366
million / USD 618 million (see Figure 17 below). Lower costs are based on estimates using the lower
payments for disease treatment extrapolated across the Jakarta population, while the higher costs
use the highest payments for disease treatment as the extrapolation factor.

This implies that citizens of Jakarta suffering from diseases related to air pollution in 2010 may have
paid up to IDR 38.5 trillion/US$ 4.2 billion for their treatment. This upper value is almost twice as much
as the national budget of the Ministry of Health in the same year, which amounted to about IDR 21
trillion/US$ 2.3 billion (KLH 2012).

15. Extrapolated to Jakarta population (x 96.07787).

44
Figure 17: Estimated costs of illness on diseases related to air pollution in Jakarta 2010 (in IDR)

Source: Author, based on KLH 2012

45
Table 9: Overview of studies that estimate the costs of diseases related to air pollution in Jakarta
(in million IDR) for the years 1990, 2001, 2010 and 2015

Year of cost 1990 1998 2015 2010 2010

estimate average maximum
References (WB (URBAIR (Resosudarmo and (KLH 2012)
1990) 1990) Napitupulu 2004)
Health Impacts
Asthmatic 5,263 11,165 5,000 3,158,993 1,749,380 5,349,096
bronchiole
Bronchopneumonia 33,680 22,330 17,500 71,883 50,812 561,221
ARI 842 4,466 850 26,809,908 597,150 11,698,297
Pneumonia - - - 676,420 1,834,490
COPD - - - 335,271 811,176
Coronary artery - - - 2,266,334 18,253,187
diseases
Hospital 547,085 346,096 1,515,000 290,588 - -
Admissions
TOTAL 587,085 384,096 1,538,350 30,331,372 5,675,366 38,507,467
(in million IDR)
TOTAL - - 147 2,278 618,5 4,196
(in million USD)
Sources: Authors; World Bank 1990; Resosudarmo and Napitupulu 2004; KLH 201216.

Comparing earlier COI analysis with the 2010 study indicates that the cost of air pollution in DKI Jakarta
is on the rise (see Table 8). The COI estimation from 1990 to 1998 shows that COI doubled and that
the increase is even more pronounced from 1998 to 2010 and 2015.

Resosudarmo and Napitupulu’s (2004) estimates for 2015 were lower than the maximum possible
estimates for 2010, according to the KLH (2012) study (see Table 8). Their estimates for COI amount
to just IDR 30,331,372/US$ 2.3 billion in 2015, whereas the maximum costs estimated by KLH (2012)
for as far back as 2010 were IDR 38,507,467/US$ 4.2 billion. However, KLH’s estimate of average costs
for 2010 of IDR 5,675,366 million or USD 618.5 million lie more in line with Resosudarmo and
Napitupulu’s (2004) estimates. Differences in these assessments may be attributable to different
approaches to generating the data, sampling sizes and the objectives of the institution conducting the
study.

Figures 18 and 19 suggest a correlation between growth in emissions, rising pollution levels, and
rapidly increasing health costs related to air pollution. Irrespective of the question on the use of high
or low estimates, the analysis above shows that health care costs linked to air pollution are significant
and that spending could be avoided if appropriate policies were put in place.

16World Bank report no.12083-IND (World Bank, 1994); URBAIR (Indonesia) numbers are estimated by Indonesian consultants during the
URBAIR project; Resosudarmo used data from three hospitals: UKI Hospital, Universitas Kristen Indonesia Hospital and Cipto Hospital. The
data was adapted to make it comparable. For example, the diseases were summarized given their different names. USD exchange rate for
2010= 9176.6 and 2015= 13314.4.

46
Figure 18: Growth of PM2.5 emissions in Jakarta over the same time period using GAINS model17

Source: GAINS database

2.4.3 Sources of air pollution and hotspots

Breathe Easy Jakarta 2017 predicted an increase in air pollutants PM10, PM2.5, SO2, and CO between
2012 and 2030, with the transport sector the largest source of emissions. Figure 19 shows that
transport is the single most important source of PM10 emissions and that these are predicted to
increase substantially between 2019 and 2030.

Figure 19: PM10 total emissions Jakarta, likely trend of PM10 until 2030 based on estimation

Source: (Breathe Easy Jakarta 2017, p. 235). Legend: TR; Transport; IND; Industry; RD: Road Dust; DOM: Domestic; OWB: Open
Waste Burning; CON: Construction

17 GAINS database accessed by B. Haryanto – University of Indonesia accessed by 10.9.2019

47
Figure 20: Trends in the motor vehicle fleet in Indonesia (KPBB 2019)

Source: KPBB 2019

It is also of note that sulphur emissions are very high compared to those observed in other Asian
cities such as Delhi and Beijing, due to the higher sulphur content in diesel in Indonesia ranging
between 1000 ppm and 2000ppm (see figure 21). It is predicted that improvements will be seen
once high fuel standards are introduced and more importantly, enforced (Breathe Easy Jakarta
2017).

Figure 21: SO2 total emissions and percentage shares for the Greater Jakarta region

Source: Breathe Easy Jakarta 2017, p. 236. Legend: TR; Transport; IND; Industry; RD: Road Dust; DOM: Domestic; OWB: Open
Waste Burning; CON: Construction

The GAINS model also projected the development of PM10 emissions and sources to 2030 and predicts
that light-duty vehicles will grow in their dominance as the main emitters. Interesting to note is that
CO2 emissions are mainly caused by motorbikes (see figure 23). Finally, the GAINS model also
predicted that with no policy changes, CO2 emissions from the transport sector could double by 2030.

48
Figure 22: PM10 emissions form road transport in DKI Jakarta18

Source: RCCC_UI 2019

Figure 23: CO2 emissions from road transport19

Source: RCCC_UI 2019

For 2015, hotspots for PM10 emissions were mapped as shown in Figure 24, with the main
concentrations in the city centre around congested ring roads (shown as black lines) (Breathe Easy
Jakarta 2017). 20 The main sources of PM10 concentrations are vehicle exhausts and industrial
emissions. During stakeholder consultations for the study, it was mentioned that the DKI Jakarta
government has identified two hotspots in the city centre—Jenderal Sudirman Street and Thamrin
Street—as priorities for pollution reduction. When these locations are compared to the map, these

18 GAINS database accessed by B. Haryanto – University of Indonesia: Inventory data for the number and type of vehicles was derived from
an inventory of every single type of vehicle sold in Indonesia from 1990 to 2013, its volume of engine, & type of fuel used accessed by
10.9.2019.
19
GAINS database accessed by B. Haryanto – University of Indonesia accessed by 10.9.2019
20 Atmospheric Transport Modeling System (ATMoS) dispersion model was used, using local specific meteorological data. Application

reports for other Asian cities are available at http://www.urbanemissions.info The model allows for multi-pollutant analysis. The data is
cross-checked with the 5 DKI Jakarta measuring stations.

49
hotspots seem to have been chosen for political reasons, as they are the main streets with principal
Jakarta landmarks, rather than because they are genuine hotspots for ambient air pollution.

Figure 24: Total Gridded PM10 emissions over the Greater Jakarta Region

Source: (Breathe Easy Jakarta 2017)

2.5. Conclusions

Despite the limited availability of official data, this chapter demonstrated using secondary literature
that air pollutant concentrations in Indonesia and DKI Jakarta continuously exceed both national
standards and international WHO guidelines. The growth in transport sector emissions (driven by
rapid urbanization and an increase in living standards), along with the emissions attributable to
seasonal forest fires, waste burning, and coal fired power stations, is exposing Indonesian citizens to
ever rising concentrations of harmful pollutants (OECD 2019a).

Based on available data, although air pollutant emissions from official data are not necessarily
increasing in terms of the annual average, specific pollutants such as PM10 and O3 still spike several
times a year—exceeding acceptable national standards and WHO guidelines.

In the past, Indonesia and Jakarta have been dependent on international cooperation for reliable and
robust air pollution data. In this analysis, it became clear that although MoEF reports on 129
monitoring stations, only 74 are active. Further, these stations are owned by MoEF, BMKG and local
environmental agencies, which makes data sharing difficult. No evidence of joint publicly available air
pollutant monitoring was found during the research. Therefore, the study had to rely on the
publications of past projects.

A need that surfaced during meetings with key stakeholders and KPBB experts was the one for more
detailed, transparent and regular reporting of pollution concentrations. Instead of annual average
pollutant concentrations, data collected daily over long periods of time should be made available to
enable the analysis of trends and to inform an understanding of pollution spikes, high emissions
concentrations, and hotspots. Such information can feed into the development of targeted proposals
to prevent these spikes and thus protect Jakarta’s citizens from the negative health impacts.

50
Transparent and regular reporting could incorporate warning mechanisms if concentrations exceed
NAAQS or are consistently higher than WHO guideline values.

The governor of Jakarta has launched a new air monitoring app and has announced several strategic
actions to address air pollution, described in chapter 3 below. Hence, interviewed experts were
hopeful that government might provide further resources to improve the data monitoring situation.
Air pollution has a significant economic impact on the citizens of DKI Jakarta. The research has shown
that in 2016, 57.8 percent of the population in Jakarta was suffering from different air pollution-
related diseases (Safrudin 2018). In 2010, estimated health costs associated with air/pollution reached
on average USD 618 million but may have been as high as USD 4.2 billion. The mean value estimated
was IDR 5.7 trillion/USD 618 million (KLH 2012; Safrudin 2018).

The transport sector contributes between 30 and 40 percent of total PM emissions in DKI Jakarta.
Thus, reducing emissions from the transport sector will go a long way towards improving air quality in
the city. The next chapter reviews existing initiatives and policies that set out to address air pollution
in Indonesia and DKI Jakarta and their impacts, both positive and negative, planned and unplanned.

51
3. Analysis of policy framework for air pollution

3.1. Existing and planned policies to address air pollution from transport in Indonesia and
Jakarta

3.1.1. Regulations in Indonesia

In principle, a country’s commitment to the reduction of air pollution through implementation of
various policies can be gauged by a combination of the following:
(i) The extent to which a policy and its implementation details are reflected in the country’s
laws, regulations, strategies and plans;
(ii) Whether or not sufficient financial and human resources are allocated to implementation and
enforcement;
(iii) Enforcement/capacity for enforcement of these laws and regulations, and
(iv) Efforts to monitor the extent to which these commitments are successfully realised and if not,
to review and amend them as appropriate.
In view of this, Table 10 below discusses the main laws, regulations, policies, and plans relating to air
quality management in Indonesia and their implementation status as of October 2019. Where
possible, an evaluation of the extent to which these laws are effective and enforced has also been
included.21

21Qualitative data relating to the implementation status of various policies and regulations and information on challenges associated with
implementation and enforcement were derived from the team’s discussions and roundtable meeting with key stakeholders (for more
information please see section 1.5, the methodology section in Chapter 1).

52
Table 10: List of Existing National Laws, Regulations, and Plans22
Fiscal/
Responsible
Regulation non Objective or Targets Implementation Status and Challenges 23
agency
fiscal
Fiscal
Law 28/2009 Fiscal Ministry of The law on provincial and local taxes (28/2009) was adopted The law has already been implemented and so far no major
Finance and the tax bases determined in 2009. For provinces possible issues have been raised by the public.
relevant taxes include: 1) Motor Vehicle Taxes; 2) Excise/Taxes There are already several initiatives that supported
for Transfer of Ownership of Motor vehicles; 3) Taxes on Fuel BAPPENAS and MoF in developing carbon tax/emission
for Motor Vehicle. trading scheme. However, there is no political commitment
City governments are entitled to collect relevant taxes on: from the national government yet to really implement ETS
1) Parking Taxes; 2) Rural and Urban Land and Building Taxes. nationwide. Under Law 28/2009, in 2017, Indonesia passed
the ‘Government Regulation on Environmental Economic
Instruments’ that provides a basis for ETS implementation;
this regulation sets a mandate for an emissions and/or
waste permit trading system to be implemented by 2024
(within seven years from its passage). If implemented, the
ETS would apply to the power and industry sectors, not
transport (ICAP 2020).

Environment
Act No. 21/ Non Ministry of Environmental Management Act In general, still relevant, as it outlines the principal
1997 fiscal Environment Relevance to air pollution: The right for each individual to have condition for environmental management – including air
and Forestry a healthy living environment and access information related to pollution. However, this act has been superseded by Act
environment; obligation of every individual to contribute to No. 32/2009.
environmental protection and restrictions of activities that
exceed environmental quality standards; environmental
management has to be carried out in an integral way by
government agencies in accordance with their duties &
responsibilities.

22
For an overview of regulation types in Indonesia please see the annex.
23Qualitative analysis in this column on implementation status and challenges was derived from one-to-one meetings and the roundtable with key stakeholders, as well as from an analysis by the authors of the
policy environment in Jakarta (for more information please see section 1.5, the methodology section in Chapter 1).

53
 Fiscal/
Responsible
Regulation non Objective or Targets Implementation Status and Challenges 23
agency
fiscal
Government Non Ministry of This is an implementing regulation to Act No. 23/ 1997 which Some technical aspects of this regulation should be
Regulation (PP) fiscal Environment relates to air quality management. The Act mandates the updated in line with international best practice in
No. 41/ 1999 and Forestry Ministry of Environment and Forestry (MoEF) to set National preventing negative health impacts from air pollution:
Ambient Air Quality Standards (NAAQS) and periodically e.g. PM2.5 daily threshold should be reduced from 65 ug/m3
monitor air quality from its AQMS and analyse the results. It to below 30 ug/m3.
also provides room for local government to set up regional Other decrees related to air pollution standards for oil, gas
vehicle emission standards, industrial emission standards and & stationary sources should also be reviewed.
ambient air quality standards that are more stringent or at The Meteorological and Climate Agency (BMKG) also
least equivalent to the national standards. conducts its own air quality monitoring.
Guidelines/ technical instructions resulted from this PP as So far, only some provinces have issued bylaws to prevent,
listed in the table below: control, monitor and mitigate air pollution: DKI Jakarta,
Yogyakarta, and Surabaya. A lack of coordination between
these agencies has caused inconsistencies in their
monitoring results.
MoEF Regulation No. 21/ 2008 on Emission Standard for Considered weak by some observers, as it offers two
Thermal Power Generation Activities different standards for new & old power plants (before &
after 2008) with noticeable differences in NOx & PM
thresholds. This regulation should be reviewed and
updated.
MoEF regulation no 7/2007 on Stationery Emission Standard This aims to control emissions from boilers, which are
for Boilers mainly used by industry, covering all fuel sources (biomass,
coal and oil fuels).
MoEF regulation no 5/2006 on Emission Standard Limits for in- This regulation should be reviewed. However, it does
use Motor Vehicles mention that (provincial) Governors could set more
stringent emission thresholds for in-use motor vehicles.
MoEF Decree No. 20/ 2017 on Emission Standard Limits for Superseded Decree No 141/2003 on the Euro II emission
New Type of Motor Vehicles & Motor Vehicles in current standard. The auto industries were given 18 months to
production implement the policy; new and current production should
comply with the Euro IV standard by October 2018, except
for diesel-powered vehicles, which have until March 2021.
MoEF Decree No. 129/ 2003 on Emission Standard for Oil & This only affects the upstream production of fuels (oil &
Gas activities (superseded by MoEF Regulation No. 13/ 2009) gas).

54
 Fiscal/
Responsible
Regulation non Objective or Targets Implementation Status and Challenges 23
agency
fiscal
MoEF Decree No. 45/ 1997 on Air Pollutant Standard Index The Pollution Standard Index (PSI) of PM10, CO, SO2, NO2, &
O3; needs to be updated & include PM2.5.
MoEF Decree No. 13/ 1995 on Emission Standards for Covers emission standards for steel, pulp & paper, coal-
Stationary Sources fired power plants, cement, & other industries. For
Jakarta’s case, DLH is using the threshold to monitor
emissions from the stationary sources.
Act No. 32/ Non- Ministry of Act constitutes the basic law for managing & protecting the Quite effective legal basis to process cases related to haze
2009 fiscal Environment environment; it mentions sanctions for individuals/ pollution (of land open burning); some individuals/
and Forestry organizations that contribute to the deterioration of air quality; companies were convicted & had to go to prison. However,
defines the role of the MoEF in setting up air quality thresholds not very effective against emissions from road transport as
and their responsibility to measure ambient air quality in they cannot be pinpointed. In general, implementation &
Indonesia. enforcement remain weak, with efforts focused on high
profile cases.
Ministry of Non- Ministry of Issued in response to air pollution problems related to vehicle Relatively new policy. Implementation of the Euro IV
Environment Fiscal Environment emissions. Calls on the oil industry to produce fuel of a quality standard started at the end of 2018. The standard is being
and Forestry and Forestry that is compliant with the Euro IV emission standard. imposed in order to lower emissions from internal
Decree No. 20/ Constitutes the basis for the MoEF to carry out its function to combustion engines. Euro IV requires fuels (both diesel and
2017 manage and protect the environment and ecosystems. gasoline) to have a sulphur content of less than 50 ppm to
Specifically, for air pollution, this law mentions sanctions realize air pollutant emissions reductions effectively.
individuals/organizations that contribute to the deterioration The policy of bringing fuel quality into line with the Euro IV
of air quality. It also defines the role of the MoEF in setting up standard will only be effective if policymakers are fully
the air quality thresholds &and its responsibility to measure aware of the relationship between engine technology and
and monitor ambient air quality throughout Indonesia. fuel quality. The monitoring task for this regulation has
been moved from the Ministry of Environment and
Forestry (MoEF) to Ministry of Energy and Mineral
Resources (MEMR), which is the responsible authority
overseeing fuel production and distribution. However,
results of their quality monitoring activities are not widely
published.
Government Fiscal Ministry of An implementing regulation to Act No. 32/ 2009, this This policy worked on certain issues, for example
Regulation No. and Environment legislation refers to environmental economic instruments: sustainable procurement. Currently MoEF selects pilot
46/ 2017 non- and Forestry a. To integrate environment into the development and agencies who would like to implement environmental
fiscal economic activities planning; economic instruments. But BAPPENAS and KLHK do not

55
 Fiscal/
Responsible
Regulation non Objective or Targets Implementation Status and Challenges 23
agency
fiscal
b. Environmental funds available/under development; provide financial support. It is expected that local
Guarantee fund, Rehabilitation Fund and conservation fund; government will adopt these measures into their local
c. Incentives and/or disincentives (including ecolabel, regulation (Perda) system.
sustainable procurement, tax, etc.) This regulation provides a basis for the implementation of
The instruments used for guaranteeing accountability and legal emissions trading, and several initiatives have already
compliance in the implementation of environmental protection supported BAPPENAS and MoF in the development of
and management, changing stakeholders’ mind-sets, managing carbon pricing (carbon tax or emissions trading). However,
Environment Funds, and public trust building on the fund there is not yet political commitment from the national
management. government to implement ETS nationwide.
Transport
Government Fiscal Ministry of The policy levies a zero rate of tax on the purchase The latest study conducted by Institute of Transport and
Regulation No. Industry environmentally friendly and efficient vehicles, the so-called Logistic Trisakti and supported by MoT pointed out that
41/ 2013 Low Cost Green Cars (LCGC). The zero rate applies to cars with that LCGC policy is likely to lead to increased GHG
an engine capacity up to 1,200 cc for gasoline and 1,500 cc for emissions (see forthcoming publication by Sinaga et al.)
diesel vehicles that achieve a fuel economy of at least 20 km and that it can be assumed that air pollution has increased
per litre. as well, since the relationship between GHG & local air
pollutants from road transport is roughly linear (as
demonstrated in chapter 2). The team found that LCGCs
are mainly used in cities, rather than between cities, thus
limiting the overall benefits of an increased proportion of
LCGCs in the fleet (for a detailed analysis of the LCGC policy
see section 3.4.7 below).24
Act No. 22/ Non- Ministry of The act manages road transport and traffic activities to make The act could contribute to air pollution reductions, as it
2009 fiscal Transport them more transparent, accountable and sustainable. The act requires road vehicles to operate within certain limits and
stipulates that a vehicle emissions test is an integral part of the emphasizes their efficient and safe operation. However,
roadworthiness test, which should be measured every year for only public vehicles must undergo periodic emission checks
public transport. in order to extend their license, there is currently no
equivalent requirement for private vehicles. The Transport
Agency is mandated to measure vehicle emissions. Some

24 Summarized from the Association of Indonesian Automotive Industry (GAIKINDO) Wholesale data.

56
 Fiscal/
Responsible
Regulation non Objective or Targets Implementation Status and Challenges 23
agency
fiscal
cities have discussed implementing mandatory emission
standards for private vehicles as well.
Presidential Non Ministry of This aims to accelerate the electric vehicle (EV) program in Relatively new policy introduced towards the end of 2019.
Decree No. 55/ fiscal Industry Indonesia. According to the Ministry of Finance, this Decree Alongside roll-out of EVs, the government needs to
2019 will be accompanied by a Government Regulation that will improve the share of clean or renewable energy in the
include fiscal incentives for EVs. energy mix, to reduce well-to-tank emissions.
Presidential Fiscal Ministry of To develop national connectivity, the National Mid Term Plan An umbrella plan for mid-term development. The
Decree No. 2/ and Planning or RPJMN 2015-2019 aims to improve transport infrastructure infrastructure development targets were mostly
2015 non- (BAPPENAS) and the integration of multimodal-intermodal transport, achieved (construction of more road, rail, port, airport
fiscal including increasing the rail freight volumes. infrastructure) but significant improvements in the
environmental conditions are still missing.
Ministry of Fiscal Ministry of Strategic planning document endorsed in September 2015. Same as above.
Transport and Transport Maps out how to establish better national connectivity and
Decree No. 189/ non- improved access to transport, including distribution of goods.
2015 fiscal RENSTRA (Strategic Planning) identifies a need to accelerate
multimodal transport and enhance transport services to foster
development of Indonesia’s industry & logistics sector.
Energy
Act No. 28/ Fiscal Ministry of Legal basis for the implementation of cleaner fuel specification There is currently no earmarking system within the
2009 Energy and Finance Local set by the Directorate General of Oil and Gas. Covers Indonesian budgetary process. Therefore, it is difficult at
Ministry of non- Government operational requirements for opening of downstream markets. this moment to assess whether the tax income from fuel is
Transport fiscal Known as Pajak Bahan Bakar Kendaraan Bermotor (PBBKB), effectively used to address the issue of air pollution.
Decree No. 189/ this tax is levied on all types of liquid & gas fuels used by In relation to behavioural change resulting from the tax,
2015 motorized vehicles. The mechanism for this fuel tax is increases to tax rates on diesel and gasoline are proposed
regulated under Act No. 34/ 2000, which was then revised into and potential revenues and impacts on air pollution
Act No. 28/ 2009 regarding Local Tax & Local Retribution (also estimated in chapter 4.
known as Pajak Daerah dan Retribusi Daerah or PDRD).

Act No. 22/ Non- MEMR This is the legal basis for the implementation of cleaner fuel Following its enactment, several private companies (mainly
2001 fiscal specifications set by the Directorate General of Oil and Gas. It international) opened their businesses in the downstream
covers the operational requirement for the opening of the markets.
downstream market.

57
 Fiscal/
Responsible
Regulation non Objective or Targets Implementation Status and Challenges 23
agency
fiscal
Presidential Fiscal MEMR The National Energy Plan (RUEN) includes a projection of GHG RUEN covers the timeline until 2050 and focuses on
Decree No. 22/ and emissions up to 2050 for all sectors, with a BAU and a highly energy efficiency.
2017 non- efficient scenario that aims for a 58% reduction in GHG Assuming the relationship between GHG emission
fiscal emissions. reductions and reductions in air pollution is roughly
The RUEN does not include a breakdown of projected GHG linear: if the RUEN targets are met by 2050, this should
emissions reduction by sector. However, there is detailed lead to a reduction in emissions of harmful air pollutants
information for the set of policy measures relevant to this of a similar magnitude to GHG emissions reductions.
study, as listed below: Several of the strategic goals have been achieved so far:
1. Mass development of compressed natural gas (CNG) fuel acceleration for EVs, increasing share of biofuels (830)
stations; and mass urban transport (MRT, LRT, BRT).
2. Mass penetration of electric (& hybrid-electric) powered cars
and motorbikes. Assumption: by 2025, 2.200 electric (&
hybrid-electric) cars & 2.1 million electric motorbikes in
Indonesia;
3. Preparation and implementation of policies that allow for
penetration of flexi-fuel engines, i.e. flexible gasoline & E85
(ethanol) fuel vehicles;
4. Preparation and implementation of fiscal incentive policies
to allow electric & hybrid-electric powered vehicles;
5. Preparation and implementation of a biofuel mix roadmap in
land, maritime, air and rail transport to 2025;
6. Preparation and implementation of a carbon tax policy on
fossil fuels;
7. Development of mass urban transportation systems,
including rail networks linking cities to airports, bus
terminals and other transport hubs; so that public transport
will meet the demand of 30% of the total passenger
transport by 2025;
8. Development of MRT, LRT and tramways in 13 urban areas
and rail connection to airports;
9. Development of Intelligent Transport Systems (ITS) in 24
cities and area traffic control systems (ATCS) in 50 locations,

58
 Fiscal/
Responsible
Regulation non Objective or Targets Implementation Status and Challenges 23
agency
fiscal
together with urban access limitations on freight transport
vehicles;
10.Preparation and implementation of road rehabilitation
funding through a government revenue mechanism;
11.Establishment of fuel economy standards for motorized
vehicles, especially private vehicles, before 2020;
12.Development of a sea toll road system (regular maritime
freight service) by providing 150 ships.
Climate Change
First Nationally Fiscal All relevant In September 2015, Indonesia officially submitted its INDC to A comprehensive MRV system is still under development.
Determined and ministries, UNFCCC. This included a GHG emission reduction target of 29% Support from various development agencies are ongoing,
Contribution non- coordinated by below BAU by 2030. The INDC was converted into an NDC and e.g. GIZ is supporting the Ministry of Planning and other
(NDC) fiscal MOEF registered with the UNFCCC in November 2016. It includes no line ministries to develop MRV methodologies, including
specific transport goal or action. supporting MoT to develop MRV for the transport sector
with the Centre for Sustainable Transport (PPTB).
Presidential Fiscal All relevant The RAN-GRK (national action plan to reduce GHG emissions) is Progress of the RAN-GRK can be tracked to MER online,
Decree No. 61/ and Ministries implemented by various line ministries. In relation to air which is run by the Secretariat of RAN-GRK. This process is
2011 non- pollution from road transport, the plan has a strong passenger coordinated by the Ministry of Planning.
fiscal transport and proposes two freight-specific activities—creating
a modern logistic system in 12 cities and a replacement
program for heavy trucks— that have not been implemented
yet. Measures relevant to road transport are being coordinated
by MoT.

59
Table 11: List of municipal regulations relevant to air pollution
Fiscal/
Responsible
Regulation non- Objective or Targets Implementation Status and Challenges25
agency
fiscal
Local Non Environment Prevent, control, monitor and mitigate air Implementation is difficult due to limited resources & a lack of
Government fiscal Agency pollution in DKI Jakarta. This Perda provides the coordination.
Regulation legal basis for Jakarta to set up its local
(Perda) No. 2/ thresholds for air pollution, with reference to the
2005 Government Regulation No. 41/ 1999; it also
regulates emissions from motorized vehicles, but
not industrial emissions.
Local Non Transport Sets out to improve the transportation system This regulation enables the extension of BRT corridors and increased
Government fiscal Agency and covers both safety and environmental passenger numbers and contributes to the successful construction
Regulation protection and regulates better transportation of the MRT and LRT systems for Jakarta.
(Perda) No. 5/ management for road, rail, waterway and air However, it has not yet been able to contribute significantly to the
2014 transport in Jakarta. reduction of private vehicle trips, which are currently dominated by
motorcycles.

Governor Non Multi Aims to better accelerate air pollution control Requires the local transportation agency (DISHUB) to ensure that all
Instruction No. fiscal agencies through a multi sectoral approach among related public transport fleets are no older than 10 years, and that all
66/ 2019 agencies. It is addressed to the heads of relevant vehicles have passed the emissions check. It also aims to put more
agencies, who are required to come up with effort into increasing modal shift from private vehicles to public
more focused efforts to reduce the air pollution transport and calls on the local environment agency (DHL) to
problem in Jakarta. improve the control of private vehicle emissions through various
emission testing campaigns and to better monitor stationary sources
of air pollution within Jakarta, e.g., industrial activities, power
plants.
Governor Non Transport Traffic restrictions implemented by means of the This measure does contribute to better traffic flows in six of
Regulation No. fiscal Agency “odd-even” policy aim to improve traffic flows in Jakarta’s main arteries and has resulted in lower air pollution levels.
155/ 2018 Jakarta’s main arteries and encourage modal Policy can be regarded as an intermediate measure to address both
shift from private vehicles to public transport. traffic congestion and air pollution problems. However, as

25As above, qualitative analysis in this column on implementation status and challenges was derived from one-to-one meetings and the roundtable with key stakeholders, as well as from an analysis by
the authors of the policy environment in Jakarta (for more information please see section 1.5, the methodology section in Chapter 1).

60
 Fiscal/
Responsible
Regulation non- Objective or Targets Implementation Status and Challenges25
agency
fiscal
motorcycles are still excluded it might not be as effective as an
alternative, more inclusive policy would be (see Chapter 4).
In the long-term, Jakarta needs to accelerate the implementation of
Electronic Road Pricing for a more effective traffic volumes &
balanced restriction of vehicles.
Various decrees Fiscal MoF This policy sets out to encourage modal shift There are already indications that the effort to encourage modal
on public from private motor vehicles to public transport. shift is having a positive impact. Average daily passenger for
transportation The new Mass Rapid Transit (MRT) corridor 1 Transjakarta BRT is currently between 800,000-900,000 (Republika
that connects South and Central Jakarta could 2019) and MRT Jakarta recorded 125,000 passengers on 30.
potentially contribute to a high modal shift, as September 2019 (Detik 2019). Combined with the upcoming LRT
could the extension of Bus Rapid Transit (BRT) that will become operational by the end of 2019, and improvement
which now covers 13 corridors across north, to commuter lines, the government expects to increase modal shift
south, central, west and east Jakarta, and lastly towards public transport still further.
the Light Rapid Transit (LRT) that is scheduled to
be operational by end of 2019 to connect the
suburban area of Bekasi and Cibubur with the
central business district in Jakarta.
For examples of BRT integration see:
(https://jdih.jakarta.go.id/uploads/default/produ
khukum/No_96_Tahun_2018.pdf), public
transport subsidy
(https://jdih.jakarta.go.id/uploads/default/produ
khukum/PERGUB_62_TAHUN_2016.pdf)
Governor Decree Non Multi The legal basis for setting up the strategic The new KSD was updated in July 2019, so there is not enough time
No. 1107/ 2019 fiscal Agencies activities (Kegiatan Strategis Daerah or KSD) for to see effectiveness at this moment. However, KSD is also a basis for
each agency & technical unit. E.g. DLH has the review of key performance indicators (KPIs) of the various head
prioritized a more coordinated air pollution of agencies.
control system, which includes setting up the
locations for air quality monitoring stations as
well as the plan to procure two new PM2.5
monitoring instruments. Includes measures
relevant to transport such as parking
management (park and ride), inspection, and
maintenance, as well as traffic engineering. In
Annex I the activities under KSD No 71 are listed.

61
 Fiscal/
Responsible
Regulation non- Objective or Targets Implementation Status and Challenges25
agency
fiscal
Note that the table only lists the most relevant
activities with the most significant impact.

KSD no.32 on ERP Non- Multi Preparatory steps to establish the ERP, such as At this moment the KSD does not have clarity on when ERP will be
fiscal agency re-tendering of the necessary infrastructure for implemented. The targets mentioned mainly focused on re-
ERP, as well as to set up the legal basis for ERP tendering the ERP infrastructure.
implementation.

KSD no. 35 on Non- Transport Provides targets to set up parking hubs in several At this moment, Dishub is still piloting a park and ride scheme at 2
Park and Ride fiscal Agency main bus terminals in Jakarta and to design a stations/terminals in Jakarta, in Kalideres (West Jakarta) and
progressive parking fee system in the city centre. Kampung Rambutan (South Jakarta), although Jakarta already
Also, conduct studies on the business model provided 5 park and ride locations (the two locations mentioned
between ride schemes with public transport above plus Ragunan, Pulogebang and M.H. Thamrin street).
integration.

62
3.1.3. Summary of the regulatory overview
As shown above, the Indonesian and DKI Jakarta governments have put in place several
regulations to limit air pollution. Implementation tends to be weak, however, and regulations
need to be better aligned and regularly updated to be effective in reducing negative health
impacts. The Environmental Management Act 41/1999 provides a framework for the MoEF to
issue air pollution standards for industry and other sectors. Yet existing air pollution standards fall
below WHO guidelines, and experts on the ground argue that these standards need to be regularly
revised and should also include PM2.5.

As shown, vehicle emissions standards and fuel quality standards do exist (Act No. 22/ 2009; MoEF
Decree No. 20/ 2017), but their implementation, enforcement and monitoring are limited.
Emission standards are mandatory for the public transport fleet and are monitored by the
Transport Agency in several cities. Mandatory emission standards for private vehicles have also
been considered. Improving fuel quality is a complex issue in Indonesia. In 2001, Act No. 22/2001
shifted the fuel quality monitoring mandate from the Ministry of Environment and Forestry
(MoEF) to Ministry of Energy and Mineral Resources (MEMR) and opened the market to private
companies. Thus far, however, monitoring results have not been widely published and fuel quality
was noted as an issue by the experts consulted for this report.

The Low-Cost Green Car (LCGC) policy levies a zero rate of tax on the purchase of LCGCs, which
would otherwise be subject to the luxury tax. In many cases, LCGCs were purchased by motorcycle
owners able to shift to private car ownership for the first time as a result of the subsidy and LCGC
car sales increased significantly as a proportion of total car sales. Some research seems to indicate
that instead of reducing overall GHG emissions and emissions harmful to human health, the LCGC
policy has resulted in increased emissions due to higher volumes of inner-city traffic (Sinaga et al.,
forthcoming).

Since the Reformasi reform in 1998, which led to the resignation of President Suharto and the
introduction of decentralisation by his successor, local governments in Indonesia have been given
greater authority to manage their own internal issues, including air pollution. In the context of
DKI Jakarta, the government of Jakarta is in control of land use planning, urban transport planning
and other city development plans. Given law 28/2009, DKI Jakarta also has the authority to grant
licenses to public transport operators and raise several taxes related to car registrations.

Jakarta has issued numerous bylaws that cover various policy interventions to improve air quality,
mainly through Governor’s Decrees and Instructions. DLH is mandated to conduct air quality
monitoring, but so far has only provided limited public information. The government of Jakarta
has reacted to the citizen’s lawsuit with two Governor Instructions (GIs) relating to air pollution
control: first through DLH and the implementation of vehicle emissions, and second by enforcing
an upper age limit for all public vehicles – in effect, a ban on public buses and other public vehicles
that are 10 years old or more through the Transport Agency. Some existing traffic-reducing
measures, such as the odd-even policy, will be retained, and new measures introduced, e.g. the
Electronic Road Pricing system (ERP).

Regarding e-mobility, at the time of writing, Jakarta was testing the operation of e-buses along
TransJakarta Busway corridors. The large-scale deployment of e-buses and their integration in
public transport networks had not yet taken place. Other options for e-mobility include

63
“Grabwheels”, a small electric scooter that can be rented by using the Grab app. However,
Grabwheels is controversial and similar systems have been banned in several countries due to
safety and reliability issues.

At the time of writing, a Grand Design on Air Pollution for DKI Jakarta was being developed with
support from external partners. This is expected to be able to lay the foundations for a more
coordinated approach against worsening air pollution.

3.2. Recommendations and reflections on the existing policy framework

3.2.1. Updating standards across different government agencies

Given that standards have fallen behind international best practice in the measurement and
monitoring of air pollution, national legislation on emission standards should be updated,
especially government regulation (PP) No. 41/1999. Besides cross-referencing current WHO
guidelines, the update should also adjust the current threshold for daily values of PM2.5. MoEF
Decree no. 45/1997 also needs to be updated to include PM2.5 in the Air Pollution Index (API).

To enforce these standards and maximise the benefits of air pollution policies, improved inter-
ministerial coordination is desirable. For instance, realising the benefits from the Euro IV vehicle
emissions standard issued under MoEF-issued Decree No. P.20/2017 – which has required
automotive industries in Indonesia to produce vehicles compliant with Euro IV emission standards
since October 2018 – requires inter-ministerial coordination with the MEMR to ensure that the
production of fuels in Indonesia is sufficiently clean to enable vehicles to meet Euro IV emissions
standards on the road. Unfortunately, neither Euro IV nor fuel standards have been met, and even
Euro IV vehicles continue to emit high levels of pollutants harmful to human health.

3.2.2. Limited enforcement of emission standards from transport

The implementation of spot testing of vehicle emissions in accordance with the Air Pollution Act
No. 32/ 2009 and Act No. 22/ 2009 on road transport and traffic activity is poor. DKI Jakarta has
issued Perda No. 2/2005 on air pollution control and Decree No. 1041 to develop inspection and
maintenance systems of private passenger vehicles, but these are not enforced.

Perda No. 2/2005 requires public and official vehicles to use Compressed Natural Gas (CNG), LPG,
or LNG. In practice, this has a limited impact because only 14,000 vehicles are obliged to use gas
out of 100,000 vehicles which could potentially be affected. 26 The Perda applies mainly to
rickshaws or three-wheelers, taxis, and buses, but not to operational vehicles of the government
or private vehicles.

The different agencies involved and difficulties in cross-departmental coordination pose many
challenges and prevent effective policy implementation of emissions standards. For example, DLH
has the power to monitor and sanction standards violations, but must collaborate with the Police
and Traffic Department to ensure that regular monitoring of vehicles is carried out. The traffic
police are responsible by law for the enforcement of emission checks (razias) and the sanctioning
of vehicle owners if a vehicle does not pass certain emission levels. Thus far, only public vehicles

26
Information from an input to a stakeholder forum hosted by KPBB on 9 September 2019.

64
are undergoing periodic emission checks in order to extend their license as part of the
roadworthiness test.

As demonstrated above, the national government and DKI Jakarta have enacted very few green
fiscal policies and those implemented have had limited success, such as the fiscal incentive
scheme for LCGCs. A range of green fiscal policies are possible under Law 32/2009, such as parking
fees, motor vehicle taxes (including the luxury tax on vehicle purchase, fees for transfer of
ownership and the progressive vehicle tax), as well as taxes on transport fuels, which are currently
frozen at provincial level at a rate of just 5 percent.

Going forward, in terms of green fiscal policies, it might be advisable to:

1) Review Law 28/2009 regarding possible environmentally related taxes and explore how
it can be better used to incentivise environmental improvement;
2) Review Law 32/2009 alongside Law 47/2017 to develop specific environmental taxes that
could further reduce air pollution at national and provincial level, and
3) Consider the extent to which budget transfers from national government to local
government should be made dependent on environmental performance, including air
pollution.
Chapters 5 and 6 make some preliminary proposals based on the approaches listed above and
develop a range of fiscal policies to reduce harmful emissions from the transport sector, including
where possible, calculations of the revenues raised and health and environmental benefits.

3.3. Jakarta’s budget: revenues and expenditure related to transport and air pollution
The section below analyses revenue and expenditure in Jakarta in relation to transport and air
pollution using both national data and data relating to Jakarta’s provincial budget.

Revenue in Jakarta is largely generated by (i) direct revenue (tax and retribution, wealth
management and other income), (ii) revenue sharing (balanced fund generated from revenue
sharing between national and local/regional governments), and (iii) other revenues. A detailed
breakdown of the processes underlying revenue sharing and general allocation funds are not
available in the public domain and revenues are not earmarked. Therefore, for this study it has
not been possible to ascertain whether revenues derived from the transport sector (for example,
fuel tax, parking fees, etc.) are allocated for activities that improve air quality.

Revenue and expenditure in DKI Jakarta related to transport and air pollution are shown in Table
12. Revenues include related taxes and other service or license levies, incomes from facility
operations (BRT, forest parks, cemeteries) and grants. Expenditures are allocated for financing
transportation improvement programs or subsidies, air quality management and development of
green spaces. An analysis of the local budget in 2019 27 shows that expenditure related to air
pollution control is around 39 percent of the revenue earned from the related sectors.

27Analysis using the online database of (APBD Jakarta 2019). http://apbd.jakarta.go.id/ main/pub/2019/8/1 (accessed September
2019). Note: only related activities are counted, the supporting activities such as building maintenance, administrational purchases,
safety equipment etc. are not included in the calculation analysis.

65
Table 12: DKI Jakarta’s revenue and expenditure related to air pollution28

In relation to air pollution in Jakarta, revenues are mostly raised through transportation taxes, i.e.
motorized vehicle tax, owner name transfer fees, fuel tax, and parking tax. 29 For motorized
vehicles, there is a progressive tax in place, meaning that an individual with more than one car,
pays a higher tax for the registration of each additional car. The biggest expenditure items aim to
improve public transport development in Jakarta by subsidising BRT, MRT and LRT operators. The
public transportation system is also being improved through land procurement for MRT phase 2,
school bus services, ‘Mudik Gratis’ – an annual mass pilgrimage journey (the annual movement of

28
Source: Authors’ own calculations based on the online database of Amendment APBD 2019 DKI Jakarta (APBD Jakarta 2019).
Revenue: http://apbd.jakarta.go.id/main/pub/2019/8/1/pendapatan; Expenditure:
http://apbd.jakarta.go.id/main/pub/2019/8/1/giat/list; http://apbd.jakarta.go.id/main/pub/2019/8/1/btl/subsidi (accessed
September 2019). Exchange rate used: USD 1 = IDR 14.165, exchange rate October 2019 taken from InforEUro
https://ec.europa.eu/budget/graphs/inforeuro.html.
Note: A dot has been used as a thousand separator. To simplify the table, numbers have been rounded ((rounded up for > 0,5;
rounded down for < 0,4; some figures appear zero due to very small numbers).
29 DKI Jakarta Government Regulation No. 2 Year 2015;

http://peraturan.go.id/common/dokumen/perda/2015/PERDA_NO_2_TAHUN_2015.pdf (Accessed September 2019).

66
urban dwellers to go to their hometown by end of Ramadan to celebrate the Islamic Eid al-Fitr
celebration) – operation and maintenance of bus stations, public transportation surveys, and the
transportation forum. The provincial government also runs special units for testing motorized
vehicle emissions.

Additional expenditures aim to improve traffic control. Using the provincial budget, the DKI
Jakarta government enhances traffic management by installing traffic control infrastructure,
controlling traffic, building parking areas in terminals, and procuring manpower, vehicles and
related equipment.

Therefore, reducing transport emissions through modal shift and improved traffic management
are the main strategies currently employed by DKI Jakarta to reduce air pollution from the
transport sector.

At the same time, transport in Jakarta also benefits from national expenditure. In March 2019,
the President of Indonesia inaugurated the country’s first Mass Rapid Transit (MRT) to address
the acute problem of transportation in Jakarta. Improvements to transport infrastructure aim to
encourage and accelerate economic growth in Jakarta by creating a more efficient transportation
system and so improving the urban environment by reducing the negative impacts of motor
vehicle pollution.30

The national government gave a loan of IDR 1.8 trillion/US$ 129.1 million31 for the DKI Jakarta
government to finance the MRT construction, and a further grant for IDR 100 million/US$ 7
thousand as preparation for the continuation of an MRT grant programme from JICA. 3233 From
2012 to 2017, the national government invested IDR 3.6 trillion/US$ 604.3 million through the
foreign lending scheme loan agreement in DKI Jakarta for MRT development.

Other transportation infrastructure projects supported by the national government are the
construction of Light Rail Transit (LRT) and highway development. The national government
guarantees payment obligations related to bank loans and / or bonds for the LRT project, Jakarta-
Cikampek II highway, and Jakarta-Cikampek II Selatan highway. This provision of support and
guarantees carries fiscal consequences for the national government in the form of increased
demands for the government’s contingency obligations, which have the potential to be an
additional burden on the APBN in the event of default. This is a concern, as the overall debt-to-
GDP ratio in Indonesia (not only for transportation sector) is predicted to remain at around 30
percent from 2019 to 2022.

DKI Jakarta also has a program to control pollution and environmental damage, which aims to
improve the environmental quality index by 2022. Revenues for pollution control are allocated
for procurement of laboratory equipment; monitoring station parts and maintenance; monitoring

30 See:
http://www.anggaran.kemenkue.go.id/content/publikasi/NK%20APBN/2018%20Buku%2011%2020Nota%20Keuangan%20Beserta%
20APBN%20TA%202019.pdf
31 The exchange rate used throughout the text is USD 1 = IDR 14.165, the exchange rate October 2019 taken from InforEuro, see:

https://ec.europa.eu/budget/graphs/inforeuro.html.
32 Nota Keuangan APBN 2019 (source idem footnote 34)
33
Rate used: JPY 1 = IDR 134.021.

67
air quality and noise levels; monitoring air quality during ‘car-free days’; management of air
pollution from immovable sources of emissions; and evaluation of urban air quality. The national
government has also allocated a budget for overall environmental function improvement
(including pollution handling, research and development on environmental protection) in DKI
Jakarta of IDR 3.7 trillion/US$ 260.4 million34 in 2019.

DKI Jakarta is also trying to improve the micro-climate of the city by creating green spaces. Most
of the budget goes to park development: land and plant procurement; maintenance of park and
green belt areas; and development of plant nursery areas. Besides parks, DKI Jakarta also manages
city forests and cemeteries. Total green space in DKI Jakarta amounted to 27,488,095 m2 in 2014,
including city parks, interactive gardens, public gardens, recreational parks, street green belt,
riverbanks, and cemeteries35 (or around 4 percent of DKI Jakarta total land area)36. Existing health
programs aim to improve health services in general, rather than focusing on respiratory diseases
or other illnesses caused by air pollution.

3.4. Analysis of existing policy measures for road transport and their impact on air
pollution37

The section below provides a more in-depth analysis of existing policies based on a series of
interviews with policymakers and key stakeholders. These sections capture the most relevant
points for the development of recommendations in subsequent chapters.

3.4.1. Traffic restriction measures

Over time, a variety of traffic restriction measures in Jakarta have been implemented. The first
was the three-in-one policy introduced in the late 1990s until 2016, which aimed to reduce vehicle
volumes on Jakarta’s main arteries by allowing only vehicles carrying three or more passengers
(DPPL and IWA 2018). This policy was replaced by the “odd-even” policy (details below). The
transport agency (Dishub) adjusted the three-in-one policy several times, mainly due to the
introduction of the BRT in 2004, indicating that the responsible authority was aware of the
relationship between traffic restrictions and modal shift. Interviews with key stakeholders
conducted during research indicated that traffic restrictions have only recently been closely
evaluated and deliberately related to the objective of improving environmental quality and
reducing air pollution. The odd-even policy reduced the number of cars passing certain arteries
by half. However, because motorcycles are excluded, the overall impact of the policy on
congestion has been limited.

Although the main responsibility for regulating traffic activities in Jakarta lies with Dishub, the
national government tasked the MoT in 2014 with the establishment of the Greater Jakarta
Transport Management Board, the BPTJ (Badan Pengelola Transportasi Jabodetabek) to further
improve transport management in Greater Jakarta (Jakarta, Bogor, Tangerang, Depok and Bekasi).

34 Data obtained from: https://www.peta.data-apbn.kemenkeu.go.id/?i=337&v=3&t=2010,2019&s=8&r=ci (accessed August 2019).

35 DKI Jakarta Dalam Angka 2019, page 477-479,
https://jakarta.bps.go.id/publication/2019/08/16/eea4f4b387c3024bb4a3a7fc/provinsi-dki-jakarta-dalam-angka-2019.html
(accessed September 2019).
36 Own calculation based on data of total land area, DKI Jakarta Dalam Angka 2019, page: 3.
37 Estimations regarding policy implementation and challenges were provided by the core study team, namely experts from KPPB

and FKM UI.

68
The focus of the BPTJ’s work is macro-level planning. At meetings with representatives of BPTJ, it
became clear that data on passenger-km or passenger trips across Indonesia are not available,
although annual statistical data on the modal share of passengers are available for certain areas,
particularly the Greater Jakarta region. The JICA-supported Jabodetabek Urban Transport Policy
Integration (JUTPI) project has estimated journeys made by transport mode (car, motorcycle,
public transport) in 2010 and 2020, as shown in Table 13 (JICA and ALMEC 2012).

Table 13: Actual (2010) and projected (2010) travel demand in Jabodetabek
Type Travel demand (million trips*) Modal share (%)
2010 2020** 2010 2020**
Car 10.5 14.2 19.8 24.1
Motorcycle 28.1 24.6 53.0 41.5
Public Transport 14.4 20.4 27.2 34.4
Total 53.0 59.2 100.0 100.0
Source: JICA and ALMEC 2012; *) demand excludes non-motorized trips, **) modal share is estimated under scenario two
(highway moderate and public transport intensive development)

3.4.2. Odd-Even policy

Initially this policy was a temporary measure to control air pollution during the Asian Games in
2018. It works by restricting road vehicles with 4 or more wheels (i.e. excluding motorcycles)
passing through the main arteries in Jakarta (Figure 25). Access is restricted to odd or even
number license plates on different days of the week, thus reducing the overall number of cars on
main roads. Due to its positive effect on reducing speed, travel times and air pollution and in
response to civil society lobbying, Governor Regulation No.155/2018 was subsequently adopted
and the policy formalised. It is now in place on workdays from 06:00-10:00 and 16:00-20:00 and
concerns the five main arteries in Jakarta.

69
Figure 25: The odd-even road segments (ASEAN games recommendation)

Source: BPTJ 2019

The BPTJ evaluated the impact of the policy during the 2018 ASEAN games. Average speeds were
based on google maps data (every week and every day from 05:00-21:00), while traffic counts
were conducted by BPTJ. Average traffic speeds in observed road segments during the Asian
Games (in August 2018) increased from 25.12 km/hour in June to 36.83 km/hour in August. On
roads in the control group, where the odd-even policy was not implemented, average speeds fell
to 24.12 km/hour in August (Asian Games) and 23.14 km/hour in October (Asian Para Games).

The BPTJ estimated that potential time saved could generate about IDR 136,742 trillion/US$ 9,653
billion in increased productivity.38 A survey conducted by Dishub in 2019 noted that the odd-even
policy has had a positive impact on average speeds, which increased by 9 percent from 25.65
km/hour to 28.03 km/hour on the observed arteries, while trip duration decreased by almost 12
percent from an average of 17 to 15 minutes.39

BPJT also conducted a survey to investigate travel during odd-even hours. Most respondents (37
percent) claimed that they had shifted to motorcycles, 25 percent used public transport, and 17
percent shifted to online taxis or motorcycle taxis. 40

Transjakarta recorded a 5 percent increase in total passengers throughout 12-22 August 2019
after the extension of the odd-even policy in comparison to similar dates in the previous month.
In line with the increase of passengers for Transjakarta, there was a 4 percent reduction in the
morning and a 6 percent reduction in the afternoon of toll road traffic volumes, particularly the
toll road segments located nearby or with toll exits going to/from the odd-even road segments.
These developments had a corresponding positive impact on air pollution: During the games, BPTJ
estimated that CO2 emissions were reduced by 20 percent as a result of the odd-even policy in
August and October 2018 (using June 2018 as a baseline).

Dishub has looked specifically at emissions harmful to human health using data from DLH AQMS
between 12-22 August 2019.41 These recorded some reductions of PM2.5 emissions: Bundaran HI
station recorded a 9.3 percent decrease compared to the previous average, and Kelapa Gading

38
Presentation from BPTJ on the 2nd of August 2019; provided by KPBB.
39 Statistics from a presentation from Dishub, 29th August 2019; provided by KPBB.
40 Presentation form BPJT on the 2nd of August 2019; provided by KPBB.
41 Using data from: Hayam Wuruk-mobile station, Jl Suryopranoto-mobile station, Bundaran HI-stationary station and Kelapa Gading-

stationary station.

70
station a 9.4 percent decrease. However, until continuous data become available, the actual
impact cannot be precisely understood (Dishub 2019).

Due to its positive impact, Dishub has announced that the odd/even policy is being extended
(from the current 32 km) to cover approx. 54 km of roadways. However, the odd-even policy is
unpopular, with only 44 percent of the Jakarta population expressing their support for the
measure (Dishub 2019). More importantly, motorcycles are exempt from the odd-even rule,
although they make up around 80 percent of the total vehicle fleet in Jakarta. The BPTJ has
indicated that the odd-even policy should be considered a temporary strategy to reduce
congestion, to be replaced by more effective and targeted ERP in the longer term.

3.4.3. Fiscal policies to encourage greater use of public transport

In line with the national Pro-Poor Growth Policy stipulated by BAPPENAS, the Jakarta Government
implements a pro-poor program to provide affordable transportation by subsidizing BRT tickets
and train fares for the KRL commuter line (BAPPENAS 2011). The policy is implemented under
Jakarta Government Ordinance No. 5/2014, and through the National Act No. 22/2009. The fare
discount is applied to encourage people to shift from private vehicles to public transport and so
reduce congestion and emissions harmful to human health from the transport sector. The
Transjakarta system applies a flat fare for any trips in the inner Jakarta system network, while the
commuter line uses distance-based tickets. Both are subsidized to keep ticket prices cheap. The
Jakarta Government is also working to establish ticket integration between Transjakarta and the
train (KRL Commuter Line) using an electronic transport card.

Thus far, subsidies for public transport tickets alone have been insufficient to boost modal shift,
because investment is lacking and the level of service in Greater Jakarta requires improvement to
address reliability, coverage and public transport speeds. The BPTJ has stated that even though
the BRT system has an exclusive bus lane, average speed reaches just 13 km/hour due to obstacle
flow in intersections with mixed traffic.42 According to SITRAMP, average commuting times for
road vehicles are around 30 minutes, while commuting times on public transport are above 60
minutes (SITRAMP 2011).

At the time of writing, national and provincial governments were working together to tackle the
problem and incentivise modal shift away from private vehicles to public transport by
implementing a number of strategic infrastructure projects, including the construction of 16km
of the North-South corridor of the MRT in Jakarta; 42 km of elevated LRT tracks; extensions of
commuter rail lines to the east part of Bekasi; and an elevated TransJakarta bus lane.

3.4.4. Fuel Tax

The central government has implemented a fuel tax, known as Pajak Bahan Bakar Kendaraan
Bermotor (PBBKB) in Bahasa Indonesia, on all types of liquid and gas fuels used by motorized road
vehicles (see Table 10). The tax is levied at 5 percent of the pre-tax price per litre of fuel.43 Act
no.28/2009 establishes that the national government has the right to collect the fuel tax, while
article 2A states that at least 70 percent of revenue belongs to the local government.

42 Presentation from BPJT on 2 August 2019; provided by KPBB.

43
http://www.djpk.kemenkeu.go.id/?p=355 (Accessed August 2019).

71
Several interviews with the BKF and the Deputy Governor for Environment and Land Use Planning
of Jakarta revealed that it is challenging to gather precise information about the tax and to
ascertain whether 70 percent of the revenue is allocated to Jakarta. This problem is attributable
to the lack of earmarking of revenue during budget formulation. Thus, even though such
information might be available, it is likely to be scattered across several agencies. Despite all these
limitations in terms of the exact value of revenues from the fuel tax, some local media have
indicated that DKI Jakarta is amongst those provinces that receive the largest amount of revenue
from the fuel tax.

The politicisation of fuel prices in Indonesia is apparent in relation to the PBBKB tax: the Ministry
of Internal Affairs has instructed provincial governments to reduce the tax in order to stabilise
fuel prices in the face of the rising global oil price.44

3.4.5. Fuel pricing policies and fossil fuel subsidy reform from 2015
In Indonesia, the prices of fossil fuels are in theory set by the Ministry of Energy and Mineral
Resources (MEMR) and in practice by Presidential Decree. This process takes place within a
complex political landscape, with the Energy Law promoting consultation in the setting of fuel
prices, most notably the right for parliament to be consulted on each price increase (IEA 2016).
In the past, attempts to reform fossil fuel pricing policies in Indonesia have tended to lead to
policy reversals in the face of strong opposition. In 1998, for example, weeks of unrest following
subsidy reform contributed to President Suharto’s resignation.45 In contrast, the latest round of
fuel pricing reforms in 2015 have been relatively successful. Better and more careful planning of
reform, good timing, awareness raising and use of revenues to increase spending on health,
education and infrastructure have ensured that more recent efforts have been sustained, at least
in relation to gasoline.

A major driver of subsidy reform in 2015 was budgetary pressure. In 2012, subsidy spending was
worth the equivalent of 4.1% of GDP, while expenditure on education amounted to 3.6% and
spending on health to just 1% of GDP (ADB 2015). In the same year, the country received USD 2.3
billion in overseas development aid but spent USD 36.2 billion on fossil fuel subsidies (ADB 2016).
In 2014, combined fuel and electricity subsidies accounted for 24% of total government spending
(IEA 2016). 46

In response, the decision was taken in 2015 to phase out gasoline subsidies and reduce diesel
subsidies. In 2016, diesel subsidies were fixed at IDR 1,000 / 7 US cents per litre and allowed to
fluctuate in line with the global oil price (Detik 2016; OECD 2019b). This resulted in a fall in total
transport fuel subsidies from US$ 19 billion in 2014 to USD 5 billion in 2015 (IEA 2016). As a result,
the budget deficit was reduced by 13 percent points, accounting for 1.9 percent of GDP in 2015—
as compared to 2.2 percent in 2014 (IISD 2016).
In the longer term, however, the continued diesel subsidies have nonetheless proven costly. In
late 2019, subsidy spending increased, because the upper limit for subsidised diesel available to

44
https://www.tribunsnews.com/nasional/2018/03/30/harga-bbm-naik-pemda-diminta-turunkan-pajak-bahan-bakar (Accessed
August 2019).
45 For a chronology of fossil fuel subsidy reform in Indonesia see IEA 2016, p.68.
46 Alongside subsidies for fossil fuels in the transport sector, electricity subsidies were also reformed gradually in 2015 and 2016. The

reform process is not discussed here, as it is beyond the scope of this report.

72
the end of the year increased from 14.5 to 16 million kilolitres, as the initial allocation of
subsidised fuel was insufficient. On top of planned diesel subsidy spending of IDR 101 trillion/USD
7 billion, the increase is expected result in approximately IDR 3 trillion/US$ 70 million of additional
spending (Jakarta Post 2019a).

Several theoretical scenarios have looked at the impact of reform and have predicted positive
impacts on GDP, the energy sector, and poverty rates (e.g. ADB 2015). A 2015 input-output
analysis to investigate the impact of subsidy reform and revenue reallocation predicted a
substantial increase in total economic output in comparison to a business as usual scenario, as
well as positive impacts on employment as a result of greater investment in productive capacity
(IISD 2016). Modelling predicted a 5-7 percent drop in CO2 emissions in 2015, and a further 9
percent reduction by 2030 due to the cumulative impact of subsidy reform in the transport and
electricity sectors (ADB 2015).

In 2015 when reform took place, the government acknowledged that fossil fuel subsidies were
not sufficiently targeted to address poverty or protect the poorest from energy price increases or
fluctuations, even though subsidies were originally implemented for poverty reduction purposes
(Chelminski 2018). Prior to reform, the top third of households in income terms accounted for
70% of household consumption of gasoline, while the poorest third of households consumed
around 5% of the total (IEA 2016). The strongly regressive nature of fossil fuel subsidies in
Indonesia was corroborated by the World Bank, which found in 2012 that nearly 40 percent of
fuel subsidies went to the richest 10 percent of households, while less than 1 percent of fuel
subsidies went to the poorest 10 percent (Diop 2014). While these statistics underline the
regressive impact of fuel subsidies, they do not imply that fuel price increases will not affect the
vulnerable populations. Even a relatively small fuel price increase may have negative direct and
indirect (e.g. as a result of inflation) impacts on the disposable income of poorer households. To
compensate for this, the Indonesian government increased spending on infrastructure, education
and health substantially in parallel to the 2015 reform.

In future, the government intends to develop oil and gas infrastructure to compensate for subsidy
cuts and prevent geographical disparities in fuel prices, to ensure that there is one price for
gasoline and diesel throughout the country.47

3.4.6. Support for Electric vehicles

Electric vehicles have considerable potential to reduce emissions harmful to human health from
the transport sector, particularly if they are used to replace heavy duty vehicles – buses and
freight – which emit high levels of emissions harmful to human health. In Jakarta, commercial
vehicles, including buses, taxies and urban trucks, account for less than 0.5 percent of the 17
million vehicles circulating in the city but 10-20 percent of total emissions (Grütter Consulting
2019).

New policies for electric vehicles (EV) have been expected for some time. However, only in August
2019 did the government officially issue Presidential Regulation No. 55/ 2019 calling for the EV

47Before the regime of President Joko Widodo in 2014, fuel prices in remote areas such as eastern Indonesia could be as much as
double prices in Jakarta, due to lack of fuel stations and higher distribution costs.

73
program to be accelerated. The regulation requires all EV manufacturers to set up production
facilities for EVs in Indonesia. The policy is designed to promote electric two-wheelers, three-
wheelers, cars, trucks and buses. Further, it requires that industry invest in the continued
improvement of EV products and technologies and creates new opportunities for universities,
local government and industry to undertake joint efforts to accelerate the EV program. The auto
industry has responded positively to this policy, according to stakeholders interviewed during this
research.

On the other hand, regulations relating to the creation of a public charging infrastructure and
incentives to promote electric vehicles, including tax breaks expected for EV products and parts,
remain outstanding (Tempo News 2019). Achieving high EV penetration rates in Indonesia will
require massive subsidies for EVs, higher prices for fossil fuels in the transport sector, and a public
fast-charging infrastructure (Grütter Consulting 2019). Some possible fiscal policies to accelerate
EV penetration are proposed in chapters 5 and 6.

Presidential Regulation No. 55/ 2019 commits the country to the gradual phase-out of fossil fuel
vehicle manufacture, and to ceasing production in 2040. The government is currently developing
a roadmap to achieve this target. Since this is a relatively new policy, no data on the impacts and
effectiveness of the policy is available.

Table 14 shows BPPT (the Indonesian Agency for the Assessment and Application of Technology)
projections for future sales of electric cars and motorcycles. The BPPT predicts the decline of
production of vehicles categorised as LCGCs and rising numbers of Low Carbon Emission Vehicles
(LCEVs). KPBB has expressed caution with respect to the ultimate impact of current government
policies, not least because the automobile industry continues to lobby in favour of the
manufacture of ICE vehicles and hybrids.

In the future, it can be expected that further steps are taken to promote EVs in Jakarta. A 2019
study supported by ADB to assess the feasibility of electric buses in Jakarta recommends that
Jakarta should start with a minimum of 100 electric buses to serve the Transjakarta networks
(Grütter Consulting 2019). In the longer term, the national government is preparing a Government
Regulation to further strengthen the Presidential Decree on EV that will introduce additional
policies to promote the use of EVs, mainly fiscal instruments such as tax discounts and incentives.
However, it may take some time before this regulation comes into force. A roadmap for electric
mobility in Indonesia will also be developed, which will include production, manufacturing,
distribution, charging infrastructure, etc.

Indonesia currently has a carbon grid factor of 0.80 kg/CO2/kWh (Grütter Consulting 2019). In
parallel to efforts to boost the proportion of EVs in the vehicle fleet, it will be essential to increase
the share of renewable energy in Indonesia’s energy mix to realise all the potential human health
benefits of electric mobility (for more details see Box 4).

74
Table 14: Projected Share of Conventional ICE, LCGC and Low Carbon Emission Vehicles (LCEV)
Cars, Motorcycle and Electric Motorcycles

ITEM 2020 2025 2030 2035

Production Total(unit) 1,500,000 2,000,000 3,000,000 4,000,000
MOTOR Percentage 10 20 25 30
VEHICLE LCEV (%)
Percentage 25 20 20 20
LCGC (%)
sales Total (unit) 1,250,000 1,690,000 2,100,000 2,500,000
Export Total (unit) 250,000 310,000 900,000 1,500,000
production Total (unit) 8,000,000 10,000,000 12,500,000 15,000,000
MOTORCYCLE Percentage 10 20 25 30
Electric
Motorcycle
(%)
sales Total (unit) 6,750,000 7,700,000 8,400,000 9,000,000
export Total (unit) 750,000 1,100,000 1,400,000 1,750,000
Source: BPPT 2016

3.4.7. Green car rebate scheme (Low Cost Green Car/ LCGC Programme)
The Indonesian Government has implemented the Low Cost Green Car (LCGC) program in 2013.
Government Regulation No. 41/2013 incorporates fiscal incentives, mainly in the form of a zero
rate of luxury tax for fuel efficient cars. The zero rate is applied to cars with an engine capacity up
to 1,200cc for gasoline and 1,500cc for diesel vehicles if they achieve a fuel economy of at least
20km/litre (Clause 3, article 1).

As with similar programmes in other South East Asian countries (see section 4.3.2), the LCGC
program has conflicting objectives: first, to improve fuel efficiency; and second, to help achieve
national economic objectives to boost the automotive industry. As a result, the policy is at risk
of achieving ambiguous outcomes. For example, the scheme has resulted in a significant
increase in the proportion of LCGC sales in total car sales, as shown in Figure 26. By 2019, LCGCs
made up almost 28 percent of total passenger car sales.48

48
Summarized from GAIKINDO Wholesales data.

75
Figure 26: Total car sales and total sales of Low-Cost Green Cars in Indonesia 2013-2019

Source: GAIKINDO Wholesales data

The LCGC policy has been successful in boosting purchases of more fuel-efficient vehicles as a
proportion of total vehicle sales. It is likely to have safeguarded and potentially created new
domestic jobs in the automotive industry. Nonetheless, because it does not target emissions
harmful to human health, purchases under the LCGC rebate scheme may have resulted in higher
overall levels of air pollution. By incentivising passenger car purchases for those previously unable
to afford passenger cars, the scheme may have led to higher traffic volumes and increased
congestion, reduced modal share for public transportation, and rising concerns relating to air and
noise pollution.49

Going forward, the risk of ‘rebound effects’ from promoting so-called ‘green’ vehicles and the
impact of such schemes on emissions harmful to human health and GHG emissions should be
carefully assessed. Following implementation, such policies should be regularly reviewed to
ensure that the policy outcomes are in line with policy objectives. Such considerations will be key
when developing a new tax scheme for Low Carbon Emission Vehicles (LCEVs), as it may face
similar issues.50

3.5. Challenges and recommendations for specific measures to reduce air pollution in
Jakarta

Delays or changes in direction on legislation

ERP has been in the pipeline for several years but has not yet been implemented. Discussions with
key responsible agencies (Dishub, BPTJ) and KPBB indicate that barriers to implementation relate
not only to technical issues, but rather to administrative questions, such as procurement of ERP
infrastructure (Berita Satu 2016). For instance, while the Dishub is the responsible agency for

49 IndonesianStocktaking Report on Sustainable Transport and Climate Change, Ministry of Transport and GIZ, 2018, p.59.
50In chapters 5 and 6, this report proposes a system to promote vehicles with both low carbon emissions and low emissions of
pollutants harmful to human health, see e.g. section 5.2.1. For information on the LCGC and LCEV see:
http://www.kemenperin.go.id/artikel/16994/Habis-LCGC,-Terbitlah-LCEV (Accessed August 2019).

76
running the ERP program, it is not responsible for acquiring expensive hardware and software.
For this reason, although there have been several pushes from the Governor of Jakarta to
accelerate implementation of ERP (mainly through KSD No.32/2019), experts are sceptical that
this policy can be implemented in the short or medium term. This suggestion is corroborated by
the lack of specific timeline in KSD No.32/2019 for the completion of ERP infrastructure
construction, but rather a focus on a new tendering process.

A further technical problem is posed by the lack of standardisation of the font used in number
plates in Indonesia (plates are generally made by independent vendors), making the development
of software for automatic plate recognition impossible (DPPL and IWA 2018). There also appear
to be challenges to using the national database of motor vehicles for the purpose of creating
software for ERP. These problems may take 2-3 years to address (DPPL and IWA 2018).

An example of changes in policy direction are evident in Presidential Decree No. 55/2019 and in
legislation relating to EVs that has been amended in response to lobbying from the automotive
industry. Experts have warned that the Decree on EVs might not be effective, due to the influence
of a strong automotive industry lobby in favour of conventional ICE vehicles (CNN Indonesia 2019).
The auto industry is moving towards selling low carbon emission vehicles (LCEVs) but tends to
promote Plug-in Hybrid Electric Vehicles (PHEVs) rather than Battery Electric Vehicles (BEVs)
(Kompas 2018). The newly introduced fiscal incentive scheme for EVs does not subsidise EVs
enough to boost the market share of EV vehicles substantially, as ICE vehicles remain the cheaper
option.

77
3.6. Conclusions

This chapter described a wide range of regulations put into place as early as 1997 to mitigate air
pollution in Indonesia, covering environmental, energy, industry, and transport related issues. It
has shown that many regulations are in place for proper air quality management at national and
municipal levels, but many challenges exist when it comes to their implementation. Thus, there
are strong arguments in favour of updating and adjusting some of these regulations to establish
a stronger legislative basis for more stringent air pollution control.

At the same time, this chapter also showed that there are gaps existing in current legislation,
which new fiscal or other policy measures could potentially fill, such as a lack of credible incentives
in favour of low-emissions vehicles.

Given the recent momentum behind measures to reduce air pollution due to the citizen’s lawsuit
and rising awareness of the scale of the human health impacts of breathing polluted air, the
national government and especially DKI Jakarta currently enjoy a window of opportunity to
introduce fiscal and other measures to reduce harmful emissions. Chapter 4 looks at international
best practice in fiscal policy, while chapters 5 and 6 go on to develop proposals for fiscal policies
to reduce harmful emissions from transport tailored to the Jakarta context.

78
4. International best practice: Potential fiscal policy reform options

4.1. Introduction: fiscal policy design and complementary measures

Choosing and designing fiscal policies to reduce emissions harmful to human health from the
transport sector is a complex process. Ambient air pollution concentrations are not distributed
uniformly in urban areas but are concentrated in hotspots such as central business districts, traffic
intersections and signalised roadways and thus, fiscal instruments must ideally address these
spatial disparities. Emissions also vary over time depending on traffic volumes and may vary in
severity depending on meteorological conditions, requiring policymakers to develop instruments
to address such temporal considerations as well (Giulia et al. 2015). Furthermore, instruments
must take into account that a range of pollutants are damaging to human health – such as SO2,
NOx, CO and particulate emissions – and that these are attributable to various sources, such as
poor-quality fuels, fuels with high sulphur content, or poorly functioning vehicle engines. As a
result, transport policy must achieve multiple objectives and outcomes to successfully reduce
harmful emissions.

To address these challenges and the multiple market failures associated with them, policy
measures in the transport sector tend to be most effective when implemented as a
complementary package of measures (see e.g. Public Health England 2019; Wappelhorst et al.
2018).

There is a tendency for policy review and impact assessments to focus on GHG emissions
reductions rather than reductions of harmful pollutant emissions. In general, however, there is a
correlation between the two. Measures that result in reduced demand for a product or service,
e.g. by promoting switching to cleaner, more efficient transport modes, tend to bring about a
commensurate percentage reduction in both GHG and air pollutant emissions (Air Quality Expert
Group 2007). Thus, while the cases below focus on examples where positive and measurable
health impacts have been identified, some instruments which have the potential to significantly
reduce demand for e.g. private transport, have also been highlighted as potential fiscal policy
instruments for Jakarta.

The following sections look at successful experiences of applying fiscal policies to reduce
emissions harmful to human health from road transport. Many of these instruments have been
widely applied, and general lessons learned as well as specific country cases are presented.

4.2. Fuel taxes

4.2.1. Excise duties on transport fuels

Transport fuel taxes are the most common fiscal policy instrument relating to transport policy.
For many governments, taxes on transport fuels are primarily regarded as a revenue-raising
instrument, rather than a measure to reduce transport emissions. Indeed, in some countries, fuel
tax revenues account for a substantial proportion of total tax revenues e.g. South Korea (33
percent) and India (15 percent) (Timilsina and Dulal 2015).

79
However, there is a large body of evidence that fuel taxes are also effective in reducing transport
fuel consumption and thus emissions of harmful air pollutants and GHGs, particularly over longer
timescales. In the short-term, fuel taxes increase the price of transport fuels and thus, encourage
consumers to use fuels more efficiently, to change their behaviour e.g. by cutting down on
unnecessary journeys, and to shift to cleaner transport modes, such as public transport. In the
longer term, such measures may also encourage increased consumption of fuel-efficient
vehicles.51 Thomas Sterner (2007) calculated that if all OECD countries had gasoline taxes at the
average level of taxation in EU countries over a relatively long period (of about ten years), then
gasoline consumption would have been reduced by 57 percent in the USA, 36 percent in Canada,
Australia and New Zealand, and 34 percent in Japan. His calculations indicate that CO2 emissions
from transport fuels can be cut by more than half by introducing a long-run policy of high
transport fuel taxes that raise consumer prices by a factor of 3. Given the relationship between
GHG emissions and harmful pollutants delineated in chapter 2, a similar impact on harmful
pollutants would also have been achieved.

Care should be taken when setting transport fuel tax rates on different fuels, to ensure that
distortions do not result in unintended effects on air pollutant emissions. For example, in the last
20 years in the UK, a tax cut on diesel excise in 2001 and vehicle registration and circulation
charges for diesel vehicles have resulted in a 406 (2007) increase in diesel vehicles, and
corresponding unintended increases in air pollutant emissions harmful to human health (UK
Office for National Statistics 2018). When these measures were initially implemented in the early
2000s, they were intended to encourage the uptake of diesel vehicles to reduce GHG emissions
in the transport sector. However, emissions harmful to human health from diesel vehicles were
not taken sufficiently into account at the time. Given the clear evidence available today of the
harmful emissions associated with diesel vehicles, fuel excise must take this into account and the
rate of duty on different fuels be set accordingly. Possible negative social impacts resulting from
fuel price increases are also a concern and are addressed in Box 1.

In relation to the design of fuel excise: Many European countries initially introduced fuel excise
duties at a relatively low rate and increased them gradually and predictably over time. The Ecotax
in Germany, clearly labelled as an environmental tax, was realised in stepwise increases over 5
years from 1999 and remains in place today. Conversely, if price increases are poorly
communicated or perceived to be excessive or prolonged, this can result in protests and policy
reversals, as in the UK in 1999, when the fuel duty escalator was withdrawn in response to
protests.

51Although consumption of cleaner vehicles can be more directly incentivised through vehicle registration fees and circulation taxes,
see section 4.3.

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 Box 1: Impacts of fiscal policies on the poor in the transport sector

Evaluating the impacts of fuel price increases resulting from fiscal policies on specific income groups is
not a simple exercise. Impacts are not uniform, even within individual countries. Regressive impacts may
be a minor concern if household spending on the items subject to new taxes, fees or charges are
relatively low, but a serious concern in cases where spending is much higher.

There is a body of evidence that shows that fuel taxation is generally strongly progressive in African and
large Asian countries, because transport fuel taxes are in many low- and lower-middle-income
economies luxury taxes on goods consumed disproportionately by wealthier income groups (see e.g.
Morris and Sterner 2013; Pizer and Sexton 2017). Such directly progressive impacts may be reduced or
even reversed due to indirect effects on commodity prices and inflation, although these tend to level off
over time (Beaton et al. 2013). Clearly, for poorer households, even a relatively small change in
disposable income can have serious consequences and steps must always be taken to ensure suitable
welfare or compensation mechanisms are in place.

Research focused on road pricing measures and circulation taxes in the OECD has shown that they tend
to be regressive, with poorer income groups spending a greater proportion of their income on the
charges than wealthier groups. However, if the additional benefits of improved air quality, price
correction and resource allocation are taken into account, lower income groups fare better than average
(Leung, Perkins and Wagner 2018). Key to addressing the impact of the higher road prices is to ensure
that reasonable alternatives are available and to ensure that these are affordable (for example, by
distributing low-cost or free public transport tickets). In general, this has also been found to be the case
for registration taxes for vehicles, particularly in those countries where vehicles are a luxury item
(Kosonen 2012).

Fiscal measures can also have indirect impacts due to rising commodity and product prices as a result of
the pass-through effect of price increases. These impacts are hard to predict and vary depending on the
consumption baskets of poor households, their ability to substitute for greener alternatives, and their
direct and indirect sensitivity to changing transport, energy or commodity costs. The urban poor,
generally most dependent for their basic needs on goods transported from elsewhere, can be expected
to be most vulnerable to such effects (Fay et al. 2015). Indirect effects should be monitored carefully and
compensated for where necessary.

4.2.2. Carbon taxes on transport fuels

A concrete example of a carbon tax on transport fuels leading to a rapid decrease in emissions
can be seen in Figure 27.

Figure 27 The carbon tax in British Columbia was introduced in 2008 at a rate of USD 7.5 /tCO2e
and increased by USD 3.8 annually until it reached US$ 22.6/tCO2e in 2012. Following
implementation of the carbon tax, fuel sales in British Columbia fell, while fuel sales in the rest of
Canada increased. This brought about corresponding reductions in CO2 emissions, estimated to
have amounted to about 10 percent between 2008-2011 (Elgie and McClay 2013).

There has not been an analysis of the impact of the carbon tax in British Columbia on harmful
emissions. However, given the correlation between reduced GHG emissions and harmful air
pollutant emissions, it is likely that the reduced consumption of gasoline shown in Figure 27 and
the greater uptake of hybrid vehicles – double the national average – resulting from the carbon
tax brought about commensurate reductions in emissions harmful to human health from the

81
transport sector (Harrison 2013). Data from similar countries indicate that these emissions
reductions are likely to have resulted in improved human health outcomes. Although no figures
are available for British Columbia, estimates for the USA indicate that health benefits offset the
cost of carbon reduction policies by as much as 1050 percent (Cuevas and Haines 2016). In East
Asia, the monetised health benefits of GHG emissions reduction policies have been estimated to
exceed abatement costs by 10-70 times (West et al. 2013).

At the same time, the tax did not have any discernible negative economic impacts and due to the
revenue recycling mechanisms, social impacts were broadly positive. Social compensation
measures were implemented through tax cuts: a reduced income tax rate for the two lowest
income tax bands, and a lump sum payment referred to as “low-income tax credit” for low income
households. Corporate income tax was also reduced from 12 to 10 percent over two years, and
the small business rate from 4.5 to 2 percent over three years. Furthermore, a one-off Climate
Action Dividend of IDR 1 million/ US$ 75 was paid to all citizens in 2008 (Harrison 2013). The equity
impacts of carbon taxes are important in the context of human health, because they affect a wide
range of socioeconomic factors which are important drivers of health (Cuevas and Haines 2016).
Thus, to maximise positive health impacts, it is important to ensure that fiscal policy interventions
act as redistributive, progressive mechanisms—for example, by funding access to public
transportation or universal health coverage (Cuevas and Haines 2016).

Two important design factors have helped to ensure its success. Firstly, a binding legislative
commitment was made to recycle all revenues to individuals and firms via tax cuts – legislation to
enact the tax included a clause for the Finance Minister’s salary to be cut by 15 percent if this rule
was not applied (Harrison 2013). Secondly, over time, policymakers have become dependent on
the tax revenues and are politically vulnerable to their reform: revenues are used to fund tax cuts
and support low-income households, particularly households with lone parents. If the provincial
government reduces or removes the carbon tax, new sources of revenue will be needed to cover
the cost of the tax credits for poorer and more remote households, or these measures too will
need to be withdrawn.

Figure 27: Sales of petroleum fuels subject to the carbon tax

Source: Elgie and McClay 2013

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4.2.3. Differentiated taxes to encourage take-up of cleaner fuels
Even relatively small tax differentiations between leaded and unleaded petrol, or high-sulphur
and low-sulphur diesel, can drive rapid behavioural change in the transport sector.

In Thailand, a tax differentiation was introduced in 1991 to reduce air pollution from lead,
particularly in Bangkok. The tax was one element in a package of measures that also included
awareness raising about the health impacts of leaded petrol, and steps to liberalise fuel markets
and support oil companies in the production of unleaded fuels. Consumers responded rapidly to
the price differential between unleaded petrol, which amounted to 1 Thai baht – a difference per
litre of around IDR 77 (unleaded petrol cost THB 14/litre and leaded petrol THB 15/litre).

Within 30 days of introducing unleaded fuels, their share had already risen to 30 percent of total
fuel sold. Within 2 years, lead concentrations in key monitoring stations had dropped by up to 93
percent, and on average by about 70 percent in comparison with 1990 levels. By 1995, leaded
petrol had been phased out altogether. The Pollution Control Department (PCD) in Thailand has
estimated that health benefits of the measure were worth THB 7 billion / US$ 280 million
annually52 (Cottrell et al. 2016). Following the introduction of unleaded fuel, concentrations of
lead in the blood of schoolchildren were found to have decreased. Considering that elevated lead
concentrations in the late 1980s in Bangkok were estimated to have resulted in 30,000-70,000
children suffering loss of 4 or more IQ points, the reduction of lead concentration can be said to
have carried an improvement in cognitive development of children (see e.g. Ruangkanchanasetr
et al. 1999; Lovei 1998). Globally, the impact of the phase out of lead in transport fuels has been
estimated to result in 1.2 million avoided premature deaths annually and the overall global benefit
to be worth over US$ 2 trillion annually (Tsai and Hatfield 2011).

Many similar examples of differentiated taxes on leaded and unleaded fuels, or high- and low-
sulphur diesel, have successfully contributed to reducing emissions harmful to human health. For
instance, differentiated sulphur taxes levied on diesel imports in Hong Kong in 1995 supported
the transition from 5,000 ppm sulphur diesel to 500 ppm diesel by 1997, and 50 ppm by 2000.
Subsequently, taxes were reintroduced in 2007 to promote the transition to ultra-low-sulphur
diesel of 10 ppm (ICCT 2014). Differentiated taxes were also introduced on leaded and unleaded
petrol. Complementary measures regulated vehicle imports and the sulphur, lead and benzene
content of fuels, subsidised retrofitting and LPG conversion of diesel taxis.

Prior to these reforms to reduce the content of sulphur and other pollutants in transport fuels,
transport sector emissions accounted for 90 percent of all air pollution in the city (Hung 2006).
The Environmental Protection Department of Hong Kong estimated that the cost of illness (COI)
attributable to SO2 emissions amounted to US$ 18 million in 1996, while COI attributable to all air
pollutants amounted to US$ 259 million in the same year (cited in Hung 2006).

While no data is publicly available quantifying the health benefits of differentiated sulphur taxes,
the Poisson regression model53 has projected average gains in life expectancy. It predicts that, in

521995 exchange rate used: https://ec.europa.eu/budget/graphs/inforeuro.html (accessed 23 Jan 2020).

53The model uses data from 1985 to 1995 to compare life expectancy before and after first measures implemented to reduce SO2
concentrations in Hong Kong in 1990. Subsequent actions had a much more significant impact on SO2 concentrations and presumably,
therefore, also a much more significant positive impact on human health.

83
the city, women gain 20 and men 41 days in life expectancy for every year of exposure to lower
ambient air SO2 concentrations (Hedley et al. 2002). Prior to the implementation of differentiated
fuel taxes on lead and sulphur content, a US$ 34 increase in health expenditure days between
1996 and 1999 was predicted: this escalation in health costs was at the very least alleviated as air
quality improved (Hung 2006).

4.3. Differentiated vehicle registration charges and feebates in Europe and South East
Asia, including measures targeting motorcycles

4.3.1. Two European models: French feebate and Norwegian vehicle registration charges
In the European context, creating significant tax advantages for low-emission vehicles at the point
of purchase tends to have a greater impact on consumer choice and thus on the vehicle fleet than
annual tax payments, even if circulation taxes are also differentiated in line with vehicle emissions
(Wappelhorst et al. 2018).

In France, the feebate system introduced in 2008 has been successful in reducing CO2 emissions
per vehicle and emissions harmful to human health. France’s feebate system subsidises the
purchase of low-emissions vehicles, while penalising vehicles with higher CO2 emissions: This
means that consumers purchasing a low-emissions vehicle will be given a rebate for part of the
purchase price, while consumers purchasing a high-emissions vehicle will be required to pay an
additional fee. In its first year, the OECD has estimated that the feebate policy reduced CO 2
emissions by roughly 4.8 million tonnes and delivered welfare benefits of roughly US$1.7 billion
due to reduced air pollution and congestion (OECD 2019c).54

However, in its first three years, the feebate weakened public finances by an average of US$419
million annually, far more than the French government had projected, as purchases of low-
emissions vehicles rose more rapidly than predicted: indeed, following its implementation, the
scheme led to a 3.5 percent increase in car purchases (OECD 2019c; Yang 2018; EEA 2018). 55
Subsequent changes to the design reduced the risk of overspend and rebound effects by making
annual adjustments to maintain a balance between fees collected and rebates paid and by
reducing the size of steps between categories, to reduce the risk of car manufacturers producing
cars which achieved emissions at the top of a specific rebate emissions range (Yang 2018).

One of the most successful examples of differentiated registration taxes has been implemented
in Norway, where there is no feebate but significant differences in one-off taxes at the point of
purchase. EVs are exempt from the 25 percent VAT payable on the list price of a new vehicle and
the registration tax payable on CO2 and NOx emissions. The tax liable is the sum of the three tax
elements shown in Table 15. If the sum of all three taxes for which the purchaser is liable is
negative, the tax is not refunded.

54
The magnitude of these figures is uncertain, as they predict the impact of changes to the fleet in 2008 until vehicles are withdrawn
from use. If policies banning diesel vehicles from city centres were subsequently implemented, this would result in far more
substantial falls in pollution from diesel vehicles.
55 Exchange rate average 2008-2010 taken from the European Central Bank:

https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rates/html/eurofxref-graph-usd.en.html.

84
This system has created strong incentives for the purchase of low- and zero-emissions vehicles.
New passenger cars emit on average about 37g CO2/km less than the average new car in the EU
and the country has the highest concentration of electric vehicles in the world—with 39 percent
of all new car registrations in 2017 being for electric vehicles (Wappelhorst et al. 2018).

As an element in a complementary package of fiscal measures to reduce ambient air pollution,

differentiated registration charges have drastically changed the nature of the vehicle fleet and
brought down PM 2.5 emissions in Norway’s most polluted cities to 2 μg/m3 lower than the WHO
standard of 10 μg/m3 (Norwegian Institute of Public Health 2019). The air quality improvements
resulting from the scheme are shown in Figure 28.

Table 155: Registration taxes on vehicles in Norway56

CO2 emissions Tax payable per Vehicle weight Tax payable per
gram CO2 emitted kilogram (USD)
(USD)
0-39g CO2/km - 128/g 0-500kg 0
40-70g CO2/km - 109/g 501-1,200kg USD 3/kg
71-95g CO2/km 106/g 1,201-1,400kg USD 7/kg
96-125g CO2/km 119/g 1,401-1,500kg USD 22/kg
126-194g CO2/km 313/g > 1,501kg USD 26/kg
>195g CO2/km 402/g
PLUS tax on NOx emissions: USD 8 / milligram NOx emitted / kilometre
Tax levied on a Euro IV diesel passenger vehicle: 250 mg/km x USD 8 = USD
2,000
Tax levied on a Euro IV gasoline passenger vehicle: 80 mg/km x USD 8 = USD 640
Source: Norwegian Ministry of Finance 2019

Under the Norwegian model, no tax refunds are given if the sum of the three components results
in a negative amount. This is an important factor to consider when designing a car registration
tax: while France’s feebate lost US$415 million on average for the first three years it was in
operation, the Norwegian registration tax raised revenues amounting to US$1,859 million in 2017
(Norwegian Ministry of Finance 2019).

Figure 28: PM 2.5 emissions in most polluted Norwegian cities

56
Exchange rate used is the InforEuro rate NOK/USD for October 2019.

85
Source: Central database for air monitoring data, Norwegian Environment Agency 57
*Dotted line represents upper limit values for PM2.5 based on pollution regulations, the solid black line air quality criteria
defined by the Norwegian Institute of Public Health

4.3.2. Vehicle registration taxes in South East Asia, including measures targeting
motorcycles
Such measures are also becoming more common in South East Asia. Many countries in South East
Asia have introduced incentives for low-emissions vehicles, defined on a country-by-country basis,
but in general referring to cars with a relatively small engine. In the past these schemes have been
geared towards stimulating the domestic car industry to manufacture ICE vehicles and subsidising
manufacturing. There is little evidence that such programmes have positive impacts on fossil fuel
vehicle emissions, particularly on emissions harmful to human health. The first-time car buyer
incentive scheme in Thailand, for example, drove a sharp increase in vehicle sales of 1.25 million
new vehicles while the policy was in force between September 2011 and the end of 2012
(Israngkura 2014).

In 2016, Thailand introduced a vehicle registration scheme based on CO2 emissions. The scheme
levies an excise duty of 25 percent on the purchase of vehicles with emissions of <100gCO2/km, a
30 percent duty on vehicles emitting 100-150gCO2/km, a 35 percent duty on vehicles emitting
150-200gCO2/km and a 40 percent duty on higher emitting vehicles. There was no data available
at the time of publication on the impacts of these changes on the vehicle fleet and as a result it is
not possible to estimate impacts on harmful emissions. However, experience elsewhere has
shown that schemes targeting CO2 emissions alone may encourage higher proportions of diesel
vehicles in the fleet, which may result in higher levels of emissions harmful to human health (see
the case of the UK, above, in section 4.2.1).

In the past, Thailand has also tried to encourage the purchase of lower emissions motorcycles
using differentiated vehicle excise duty. In 2011, a 10 percent excise duty was introduced on two-
stroke motorcycles, while four-stroke motorcycles were liable to an excise duty of 3 percent
(Israngkura 2014). Two-stroke motorcycle engines emit 10-40 percent more hydrocarbon and
particulate emissions, and consume more fuel, than four-stroke engines (ICCT 2009). However,

57Sourced from Norwegian Institute of Public Health website: https://www.fhi.no/en/op/hin/environment/air-pollution-in-norway--

-public-he/

86
the scheme was abandoned in 2012 in response to pressure from motorcycle manufacturers in
Thailand. Rates were subsequently levied according to engine size, irrespective of whether the
engines were two- or four-stroke: 3 percent on vehicles under 150cc, 5 percent on vehicles
between 150-500cc and 10 percent on 500-1,000cc motorcycles (PWC customs 2013). The former
measure was in place for a duration of approximately 12 months and thus had at best a very small
impact on harmful emissions. In 2018, proposals were mooted to introduce excise duties on
motorcycles in line with their CO2 emissions, but it has been estimated that these changes will
bring about a 0.05 percent increase in the purchase price of new motorcycles. Thus, the excise
duty is not likely to impact motorcycle purchases nor harmful emissions from motorcycle engines
(Bangkok Post 2018).

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4.4. Different forms of congestion charging, including electronic road pricing

4.4.1. Congestion charging in Stockholm and London

Congestion charges can target hotspots of pollution in cities relatively well by reducing congestion
on main roads into the city centre and by reducing traffic volumes in the central business district.
Ideally, a charge should differentiate between time of day, location and traffic volumes – although
the latter is more challenging to implement (Eskeland 2015).

The congestion charge introduced in Stockholm in 2007 is a successful example. The charge of
USD 0.9-3.70 is levied on vehicles entering the congestion pricing zone on workdays, the price
varying depending on the time of day and crossing location. Vehicles using alternative fuels were
initially exempt to stimulate the market but later included in the charge. Charges are imposed
automatically using licence plate scanning technology, so there are no delays or congestion at the
charge boundaries.

The Stockholm charge has been effective in reducing traffic volumes, which fell by 25% three
weeks after the introduction of the charge and has remained stable at about 22 percent below
pre-charge levels. Over time, congestion has been reduced by 30-50 percent and public transport
use increased by 10-15 percent (Eliasson 2014). It has been estimated that NO2 emissions fell by
5-7.5 percent by 2010 and PM10 emissions by 15-20 percent between the 2006 trial of the
congestion charge and 2010. This was associated with a significant decrease in acute asthma
attacks amongst young children within the congestion charging zone (Simeonova et al. 2018).
Benefits attributable to improved human health and reduced health costs have been quantified
at US$ 2.3 million annually (Eliasson 2014).

In Stockholm, health benefits were realised more gradually than the change in ambient air
pollution, which seems to suggest that it may take some time for the full health effects of changes
in pollution to be felt. Therefore, short-run estimates of the pollution reduction programs may
understate the long-run health benefits (Simeonova et al. 2018). The charge has raised an average
of around US$82 million of revenues each year. Increased revenues from public transport amount
to a further US$ 14 million, while operational costs – administration, maintenance and
reinvestment – amount to around US$22 million annually. Start-up costs for the scheme were
recouped within two years (Eliasson 2014).

Congestion charging in London, introduced in 2003, has had similar impacts. Congestion was
reduced by 30 percent on 2002 levels in 2003 and 2004, and by 26 percent in 2005, although
congestion since increased due to road repairs and other factors (TFL 2008). Modal switch to
public transport was significant, with a 37 percent increase in bus passengers entering the
congestion zone during charging hours in the first year of the scheme (CPI 2016).

In terms of air pollutant emissions: from 2002-2003, Transport for London has claimed that
greenhouse gas emissions in the congestion zone were reduced by 16 percent, NOx emissions by
8 percent and PM emissions by 6 percent. Subsequently, between 2003 and 2006, annual
improvements in central London have been estimated to amount to reductions of 6 percent for
NOx, 7 for PM and 1 for CO2 emissions per year (TFL 2008). However, a 2018 study by Green,
Heywood and Navarro, found that while CO, PM10 and NO emissions decreased, NO2 emissions
increased in the congestion zone, which the authors suggest may have been due to the increased

88
use of diesel-powered vehicles such as taxis and buses, that were exempt from the charge, (Green,
Heywood and Navarro 2018).58 This finding highlights uncertainties relating to the correlation
between reducing congestion and reducing the harms of air pollution: an undesired shift e.g. to
diesel vehicles may lead to increases in emissions of pollutants harmful to human health, even
while congestion is reduced. Notwithstanding these findings, a 2008 study conducted to model
the impacts of the congestion charge on human health based on reduced NO2 and PM10
concentrations found that benefits in congestion zone wards amounted to 183 years of life per
100,000 of population, a total of 1,888 years of life for London overall (Tonne et al. 2008).

The impacts of the congestion charge have been disproportionately progressive. First, because
revenues are raised from wealthier income quintiles prepared to pay the charge and travel by car
to the city centre and used primarily to fund improvements to public buses (Clayton, N., Jeffrey,
S. and Breach, A. 2017). Second, because more deprived areas within the congestion zone have
benefitted from greater air pollution reductions and mortality benefits, as they had previously
suffered from higher air pollution concentrations (Tonne et al. 2008).

4.4.2. Low-emissions zones in Germany: an honour system with enforcement penalties

There are low-emissions zones in a 57 city and town centres in Germany. In the country, the policy
used to implement these zones is a hybrid between a regulation and a fiscal instrument –
understood in this case in the broadest sense of the word, as an instrument that raises revenue
through payment of penalties for non-compliance.

Low-emissions zones require all vehicles to display a sticker—a Plakette—stating the emissions of
the vehicle. Vehicles which do not comply with the performance standards of the zone, or which
do not display a sticker, are not permitted to enter the zone. Non-compliance, if observed, results
in a fine, of US$ 88 in Berlin or Munich.
Generally, city residents tend to comply with the zones and purchase stickers once they become
accustomed to the system. In Munich, for example, non-compliance fell by 54 percent between
2012 and 2017. In Berlin in 2017, 97 percent of city residents complied with the system. In total,
65,000 drivers failed to comply (Morgenpost 2018). In terms of revenue: If enforced at the highest
rate, penalty charges in Berlin of US$ 88 per vehicle have the potential to raise revenues of
approximately US$5.7 million/IDR 81 billion annually.

One of the most important objectives of the low-emissions zones in Germany is to reduce
emissions harmful to human health in compliance with EU air quality standards, particularly
particulate emissions. Prior to their introduction in many German cities, air quality standards for
PM and NO2 for average annual emissions and peak emissions were regularly exceeded. Although
this is still often the case, low-emissions zones have made an important contribution to reducing
PM10 emissions harmful to human health by up to 10 percent (Umweltbundesamt 2017).

58
This problem highlights the importance of improving vehicle fleet performance by ensuring that newer vehicles conform to higher
Euro emissions standards. In London from October 2020, the EURO VI standard will be compulsory for all buses and heavier vehicles
in the low-emissions and ultra-low emissions zones. Alongside an age limit on taxis, this can be expected to address the problem of
NO2 emissions to some extent. The issue of vehicle standards is returned to in the second half of this chapter, which looks at concrete
recommendations for Jakarta.

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Nonetheless, Germany’s Federal Environment Agency considers further improvements and more
strict standards necessary to safeguard human health (Umweltbundesamt 2017). NO2 emissions
remain a problem, due to high NO2 emissions even from newer diesel vehicles allowed to enter
the zones (Federal Environment Agency 2019). This problem was exacerbated by the 2014-16
diesel emissions scandal in Europe, during which it was discovered that automobile
manufacturers had programmed vehicle software to make engines emit less when undergoing
vehicle emissions testing (Guardian 2015).

4.5. Subsidising cleaner transport

4.5.1. Subsidies for public transport: examples from India and the UK
In Himachal Pradesh, a mountainous state in North West India, electric buses have been
promoted using fiscal policies since 2017. In the first phase, a pilot project included 25 electric
buses that were subsidised through a US$5.5 million grant under the Faster Adoption and
Manufacturing of (hybrid and) Electric vehicles (FAME) programme of the Indian government.
Subsequent phases in 2018 and 2019 have rolled out a further 100 electric buses. Aside from the
grants for the first pilot phase, the policy also included a package of fiscal incentives in the state
budget, including exemptions from the token tax (a tax on vehicle ownership for which a token is
issued), registration charges and VAT on all EVs for five years (GGGI 2017).

Deployment of electric buses in the region has effectively substituted fossil fuel powered vehicles
with electric vehicles powered by clean hydropower, thus substantially reducing emissions of air
pollutants harmful to human health, GHGs and noise by 30 percent. No robust data is available
on absolute reductions of air pollutants or related human health impacts, however, anecdotal
evidence suggest improvements at pollution hotspots with residents claiming they: “can definitely
feel the difference in the level of pollution at places where electric buses and cars are running,
especially at crowded city areas” (NDTV India 2019). Other benefits include substantial savings
since for electric buses lifecycle maintenance cost is 85 percent lower than for diesel buses and
operational cost is 65 percent lower. This has allowed for ticket prices to remain unchanged and
freed up revenues for other services. Electric buses have also created new employment
opportunities in manufacturing and related industries (see GGGI 2017).

In urban areas in India, in a business as usual scenario, harmful emissions are predicted to rise by
25 percent in terms of PM2.5 and 200-400 percent in terms of SO2 and NOx by 2030, which will
inevitably lead to severe impacts on human health (Public Health Foundation of India and Centre
for Environmental Health 2017). With the explicit aim of reducing air pollution harmful to human
health, the Delhi municipal government is funding the purchase of 1,000 electric buses and
infrastructure construction through revenues from the Environmental Compensation Charge (a
green tax), rather than a FAME subsidy (Times of India 2019).

Similarly, 80 percent of revenues raised through London’s congestion charge were initially used
to finance an improved bus system in central London and today, around 43 percent or revenues
go towards funding improvements in the bus transit system. Between 2002 and 2004, this
included purchase of 30 percent more buses, development of longer bus lanes, improved ticketing
systems and other measures to reduce journey times, which boosted passenger numbers by
about 30,000 annually (Givoni 2012).

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4.5.2. Demand-side policies subsidizing a transit-oriented city in Seoul
In Seoul since 2003 a broad package of measures, both fiscal and non-fiscal, has transformed the
city (for a detailed description see e.g. Lee et al. 2015). By 2011, over 60 percent of total modal
share was in public transport and Seoul was ranked second worldwide for modal share in public
transport amongst all large cities (Lee et al. 2015). An important element in the package of
measures were steps to reduce the number of road transport journeys – both public and private.
This was relatively successful, with passengers shifting to the subway, which increased its modal
share from 19 percent in 1990 to 36 percent in 2010, and away from high-emitting buses, in which
modal share fell from 43 percent in 1990 to 28 percent (Ko 2015).

The package included both non-fiscal and fiscal elements. Several of the non-fiscal elements are
worth considering in Jakarta. For example, there is a high level of city government involvement in
bus route planning, to ensure that accessibility rather than profitability is maximised (see Lee et
al. 2015). In contrast, in Jakarta, many private bus companies operate without being fully
integrated in the publicly owned transport system and focus on the most profitable routes, rather
than those that would best integrate the public transport system. Some steps have been taken to
integrate Transjakarta bus routes within the cooperative Kopaja, to introduce a feeder service,
and to coordinate ticketing. Still, substantial potential for improvement remains, particularly in
relation to the integration of privately-owned transport companies (see Miharja and Priadi 2018).
At the same time in Seoul, public transport subsidies cover the cost of a new ticketing system,
which enables easy and free transfers between buses, community buses (for the last mile), and
the metro. This is centred on distance-based transport tickets that use a smart card system, with
card readers installed in all public transport modes. In Jakarta, currently progress is being made
towards introducing fully transferable tickets, but the process has not yet been successfully
completed.

These subsidies are relatively costly, with the operating losses of the bus system worth around
US$200 million per year, an actual loss of US$20 per person (Lee et al. 2015). However, this
calculation does not include the benefits of public transport in relation to human health as a result
of improved air quality (see Figure 29). Indeed, concentrations of PM10 fell by 27 percent between
2004 and 2013 (Ko 2015).

While it remains a challenge to find evidence that quantifies the health benefits of these air quality
improvements in Seoul, the Korea Environment Institute estimated in 2006 that 7,400 fewer
people would die from air-pollution related causes annually in Seoul if the Special Measures for
Metropolitan Air Quality Improvement – which includes the measures described above in the
transport sector and additional measures to reduce emissions from stationary sources – were
implemented, and that health benefits could amount to as much as US$17.8 billion annually
(WHO Western Pacific n.d. b).59

59
Average exchange rate 2006 (ECB).

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Figure 29: Air pollution levels in Seoul 1989-2012

Source: Lee et al. 2015.

4.5.3. Grants and subsidies to promote cleaner motorcycles and three-wheelers

In many countries in South East Asia, low-cost loans and grants have been implemented to drive
a shift to cleaner motorcycles and three-wheelers. In the Philippines San Fernando city, for
example, interest-free loans were made available in 2001 for the purchase of four-stroke three-
wheelers. In combination with regulations to phase out two-stroke vehicles by 2004, this resulted
in the replacement of 400 two-stroke tricycles with four-stroke tricycles, one third of the city’s
total two-stroke tricycle fleet (ICCT 2009). Given the higher pollution associated with two-stroke
engines, it is likely that this resulted in reduced harmful emissions.

Similarly, in Taiwan, tighter emissions standards for two-strokes combined with financial
incentives for the purchase of four-stroke motorcycles were adopted in 2004. Almost no new two-
stroke motorcycles have been sold since that date (ICCT 2009). Although no measured data is
available on trends in emissions harmful to human health during this period, emissions of HC and
PM would have been reduced by 10-40% for each two-stroke motorcycle replaced by a four-
stroke motorcycle, with corresponding reductions in harmful air pollution.

4.5.4. Subsidies to promote alternative fuels

Alongside registration taxes, Thailand has implemented additional successful policies to increase
take-up of alternative fuels, and alternative fuel vehicles. Subsidies to support the use of LPG and
NGV as an alternative to gasoline and diesel under the 2015 Oil Plan have complemented earlier
fiscal incentives in favour of gas-fuelled and dual fuel vehicles and subsidies to fund the conversion
of buses to NGV. Together, these fiscal measures have been relatively successful in incentivising
the purchase of low-emissions vehicles. In 2007, only 0.16 million petrol/LPG dual fuel vehicles
were registered, in contrast to 1 million vehicles in 2015, more than half registered in Bangkok.
The number of LPG/NGV gas stations has increased from 166 in 2007 to 500 in 2015. In 2015 there
were 186,000 dual fuel petrol/NGV vehicles registered in Thailand, 63 percent of which were
registered in Bangkok (AEDP 2015; DLT 2016). There is no concrete data available on the health
impacts of these measures but given the effectiveness of the policy in promoting alternative fuel
vehicles, health benefits are likely to have been the result.
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4.5.5. Scrappage schemes: China and Beijing
The Chinese government has initiated multiple scrappage programmes at national and local levels
to modernise the vehicle fleet alongside supporting policies including mandatory vehicle age
limits and activity restrictions. Pre-Euro standard gasoline (pre-2000) and diesel (pre-2008)
vehicles are targeted because they emit disproportionate volumes of harmful emissions. In 2011,
the Ministry of Environmental Protection estimated such vehicles accounted for 16 percent of the
fleet but 64 percent of NOx, 87 percent of PM and 56 percent of CO emissions (cited in Posada et
al. 2015).

The Chinese experience demonstrated that relatively high scrappage subsidies may be required
to encourage participation. In 2009-2010, subsidies were increased from US$980 to US$2,940,
leading to a twelvefold increase in uptake. The programme cost a little over US$1 billion for
459,000 vehicles: an average of US$2,270 per vehicle: mainly subsidies towards the high end of
the possible range were paid out (Posada et al. 2015). Around 46 percent of subsidies were given
for passenger vehicles, 21 percent for buses and 17 percent for small or micro trucks. The national
scheme made clear that vehicles must be at least one year younger than the mandatory limit to
be eligible receive the subsidy, encouraging the renewal of the fleet.

The city of Beijing has also implemented several scrappage schemes. The first was from 2006-
2010. Subsidies were announced at the start of the programme but fell over time to encourage
early take-up and were initially worth between USD$131–4,086, falling to US$82–3,595 in 2009
(Posada et al. 2015). Subsidies varied according to vehicle type and age: the newer the vehicle,
the higher the subsidy paid. Subsequent schemes have overreached their targets substantially: by
150 percent in 2012, by 80 percent in 2013 and 22 percent in 2014 – the lower overshoot in 2014
reflecting the higher ambition of the scheme – to retire 391,000 vehicles, rather than a fall in
effectiveness (Yang et al. 2015).

In terms of impacts on emissions harmful to human health, Beijing’s scrappage schemes have
been relatively successful. Yang et al. (2015) have calculated that annual NOx emissions for the
Beijing BAU scenario in 2010 were 45 percent lower than emissions in China’s BAU scenario, while
PM2.5 emissions were 68 percent lower and black carbon emissions 40 percent lower. The Beijing
Environmental Protection Board has calculated that the elimination of the first 50,000 vehicles
scrapped between 2006-2010 resulted in daily reductions of 245 tons of CO, 35 tons of HC, 32
tons of NOx and 3 tons of PM in the city (cited in Posada et al. 2015). Between 1.5 million vehicles
were retired between 2009 and 2014: if these vehicles all emitted on average the same average
amount of pollutants as the first 50,000 scrapped, then total daily reductions by 2014 would have
amounted to 7,350 tons of CO, 1,050 tons of HC, 960 tons of NOx and 90 tons of PM.

However, criticisms of the scheme include: Higher subsidies for newer vehicles than for older
vehicles create incentives to scrap newer vehicles while keeping older more polluting vehicles on
the road. Such unwanted substitutions could be avoided by differentiated scrappage subsidies
aligned with pollutant emissions, rather than vehicle age. The scheme was also unpredictable in
terms of its cost – targets were frequently overshot by a significant margin – and expensive,
because it targeted the entire vehicle fleet. Furthermore, while little evidence is available in the
public domain, the scheme is likely to have had quite significant regressive impacts, as poorer
households are more likely to own older vehicles (which were eligible for lower subsidies) or not

93
to own vehicles at all. The scheme also permitted scrapped vehicles to be sold outside Beijing,
exporting high polluting vehicles beyond the city limits rather than taking them off the road. Even
though transferred vehicles were eligible for a slightly lower subsidy, if a vehicle was sold outside
Beijing, this amount was certainly not sufficient to cover the difference between true scrappage
and vehicle transfer.

4.5.6. Scrappage schemes for trucks in Mexico

In Mexico, truck owners with vehicles over ten years old can receive a subsidy for the purchase of
a vehicle that is new or five years old or less. The incentive amount is the lowest of the following:
the value of the old vehicle; 15 percent of the cost of replacement; a bonus defined by law as
shown in

Table 16.

From 2004-2010, it has been estimated that the scheme avoided following amounts of emissions
harmful to human health: 31,410 tons of HC, 152,663 tons of CO, 77,547 tons of NOx and 7,543
tons of PM 2.5 (Posada at al. 2015). Despite these reductions in harmful emissions, the
programme has had low rates of participation. The HDV sector is dominated by small family
businesses with fewer than five vehicles: such firms make up 83 percent of all transport
businesses (Posada et al. 2015). These firms, some of which are in the informal sector, find it
difficult to access credit, and even with the scrappage incentives, cannot access sufficient funds
to replace older vehicles. In addition, unlike in Beijing, there are no emissions performance
standards to push older vehicles off the road and no high taxes on older vehicles to incentivise
scrappage.

Table 166: Incentives by vehicle type

Vehicle category Incentive
Two-axle trucks US$5,350
Conventional buses US$6,200
Three-axle trucks US$8,000
Integral buses US$10,650
5-wheel tractor-trailers US$12,400
Source: Posada at al. 2015

4.6. Road tolls to incentivise modal shift from road to rail and shipping
The fiscal policies delineated above to introduce differentiated excise taxes on diesel fuels in line
with e.g. sulphur content or CO2 emissions or to charge high-polluting vehicles higher circulation
and registration taxes can incentivise modal shift. Tax exemptions or reductions for shipping and
rail freight can complement such policies.

Distance-based tolls on HDVs, such as those implemented in Germany, have been shown to boost
transport volumes by rail and shipping – important in this regard is to ensure the sound
alternatives to road freight are available, and intermodal hubs exist to transfer between freight
modes. They have also boosted logistics efficiency by just over 2 percent, reducing empty freight
journeys on major roads. The German HDV tolls were introduced at a rate per kilometre calculated
to cover the costs of extension, maintenance and operation of the road network – USD 0.13/km,
although this has since increased (Doll et al. 2016). At first, revenues raised were spread between

94
federal motorways (50 percent), rail (38 percent) and inland waterways (12 percent): a model that
seems applicable to the Indonesian context. In 2005, when the system was first introduced,
around 20 percent of total revenues were required to operate the system, but this has since fallen
to around 11-12% (Doll et al. 2016).

A positive impact on GHG emissions and resulting co-benefits in relation to human health can be
expected from a shift in the freight sector from road to rail and shipping. Globally, if growth in
road freight were halved between 2010 and 2050 and instead shifted to rail freight, the IEA has
estimated that this would result in a 20 percent reduction in fuel demand and CO2 emissions and
corresponding health benefits, with only a fifth of these energy savings being offset by increased
energy use (IEA 2009). Impacts on economic growth, consumer prices and employment have been
found to be negligible and thus, impacts on social equity as well (Doll et al. 2016).

4.7. Lessons for Jakarta

The international best practice cases above have important implications for the design and
application of fiscal policies in Jakarta to reduce emissions harmful to human health from the road
transport sector.

Taxes on fuels, whether carbon taxes or more general excise duties on fuel, can be effective in
incentivising shifts between fuels, even if only a small price differentiation is the result of
differentiated tax rates. The experience in Hong Kong indicated that the speed of the transition
to cleaner fuels may be directly related to the price difference between high and lower polluting
fuels, and that greater price differentials do incentivise more rapid rates of switching (Hung 2006).
However, given the politicised nature of transport fuel prices in Indonesia, taxes should probably
be implemented gradually to ensure that they meet with political acceptance and to minimise
policy reversals. Good and transparent communication of fiscal policy measures is also of
fundamental importance in this regard.

Various forms of congestion charging, including both simpler schemes in Stockholm and London
and the more complex ERP scheme in Singapore have been shown to have reduced emissions
harmful to human health by reducing overall emissions attributable to congestion and idling. In
the case of Singapore, twenty years of the area licensing scheme paved the way for the ERP in
1998 by fostering widespread acceptance that the system existed to constrain traffic growth and
manage congestion, not raise revenue (DPPL and IWA 2018). Laying the foundations for the roll-
out of ERP in Jakarta could be achieved in a similar way through the implementation of the current
odd-even policy and in future, the implementation of a low-tech congestion charging zone, which
is proposed below and which could be implemented using an honour system, in much the same
way as low-emissions zones in German cities.

In terms of revenue, there are some important differences between the London congestion
charge and the Stockholm charge. The former is implemented by Transport for London, a local
government body responsible for the transport system, including revenue collection and
expenditure. In Stockholm, the charge is a tax levied at national level. A charge levied and
administrated at municipal level, with revenues spent transparently on improving public transport
and other measures to reduce harmful emissions, is likely to meet with greater political
acceptance and be easier to communicate and is thus perhaps the most feasible option available.

95
When designing a scheme to promote low emissions vehicles, care should be taken to ensure that
the scheme encourages ambitious emissions reductions and that it does not result in higher
overall vehicle sales. Avoiding rebates or subsidies which create disproportionate incentives to
purchase new low-emission vehicles is thus essential. Furthermore, as noted at the start of this
chapter, fiscal policies should be implemented within a complementary package of measures to
encourage modal shift away from private vehicles and towards public transport.

When implementing differentiated vehicle registration charges, as shown by the feebate scheme
in France, or subsidies for scrappage, low-cost public transport tickets, or the purchase of low-
emissions vehicles, it is essential that measures are carefully costed and that revenues are
available to cover the cost of the scheme. To fund the roll-out of public buses, the funding models
used in Delhi and London, where tax revenues fund public transport improvements, might be of
higher relevance to DKI Jakarta than the subsidy model implemented in Himachal Pradesh.

All subsidies in the transport sector should be carefully assessed in line with their equity impacts.
It is also particularly important in the context of countries with substantial income inequality to
evaluate whether subsidies will disproportionately benefit those on higher incomes, as
exemplified by the unequal benefits of fossil fuel subsidies in Indonesia (for detailed figures see
sections 3.4.5 above and 5.1.2. below).

Scrappage schemes for private vehicles have several disadvantages: they are relatively costly and
may also be inefficient, subsidising consumers who would have purchased a new vehicle in any
event. Unless carefully designed they tend to benefit wealthier households rather than those on
low incomes. Finally, scrappage schemes encourage vehicle ownership rather than modal shift to
public transport and do not target the highest-emitting vehicles on the road. These problems are
less pronounced in the freight sector and as a result, this study does propose a scrappage scheme
for freight in the medium-term.

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5. Policy reform options to reduce emissions harmful to human health in
Jakarta
The sections below look at a range of fiscal measures which have potential in Jakarta to reduce
harmful emissions in the transport sector. Fiscal and complimentary non-fiscal policies are
proposed which have the potential to reduce emissions harmful to human health and so improve
air quality and tackle the current health crisis in Jakarta. Within the confines of this study,
reductions in CO2 emissions are treated as co-benefits, but are not the primary objective.

Nonetheless, given the close correlation between air pollution and CO2 emissions, most of the
policies proposed, if effective, will bring about reductions in both. One proposal, drawing on a
government Green Paper from 2009, is for a national carbon tax on transport fuel rather than on
air pollutant emissions; since there is a nearly linear relationship between CO2 emissions and
emissions of pollutants harmful to human health, both are expected to fall as a result of the
national carbon tax. Although, as evidenced by the need for an ultra-low-emissions zone in
London alongside a congestion charge, the relationship between health benefits and falling CO2
emissions is not always clear cut. It is important to note that per kilometre driven, diesel vehicles
emit less CO2 but higher levels of air pollutants than gasoline-powered vehicles, particularly if
vehicles are old and/or low quality, high-sulphur fuel is used. Thus, the climate benefits of
differentiated fuel excise on the sulphur content of fuels are less obvious.60

An additional consideration when focusing on policies to improve ambient air quality are the
potentially severe human health impacts of pollution spikes and hotspots. In the case of CO2
emissions, these considerations are irrelevant – aside from aviation, it is the overall emissions that
count. For air pollutants, not only how much pollutant is emitted is important, but also where and
when (see section 2.3). Thus, measures like ERP or a low-tech congestion charge (implemented
through the compulsory display of stickers within an honour system) might have more potential
to reduce harmful air pollution than CO2 emissions, as they may redistribute traffic volumes
throughout the day, thus avoiding spikes in pollution concentrations and pollution hotspots,
rather than reducing traffic volumes overall.

Together the policies proposed here have the potential to achieve multiple policy outcomes and
in so-doing reduce harmful emissions from transport: by reducing traffic volumes in Jakarta and
transport fuel consumption (e.g. congestion charging, fuel taxation, road tolls); by driving a shift
towards cleaner production and consumption in the private vehicle sector (vehicle registration
charges, subsidies for CNG retrofits, freight, scrappage); and by fostering modal shift from private
vehicles to public transport, and from road to rail and shipping freight (e.g. road tolls, fuel tax
exemptions for shipping).

Where possible, the impacts of the fiscal policies proposed in this chapter on health costs, GHG
emissions and government revenue have been quantified (for details of the approach used see
the methodology for calculations of policy impacts in Annex I). Predicting these impacts is a
complex process. Unintended substitutions rebound effects and other unpredictable responses

60Although as shown in section 5.1.1. we calculated that differentiated sulphur taxes would bring about an overall reduction in fuel
consumption and thus reductions in CO2 emissions as well as SO2 and secondary emissions.

97
to policy measures do occur, although many can be prevented through careful preparation of
policy and in-depth policy impact assessments. In addition, if appropriate and regular monitoring
of policy outcomes is in place, in line with international best practice, policymakers can adjust tax
rates or amend policy measures within a relatively short timeframe in response to any unwanted
effects and to ensure that policy objectives are met.

This chapter first proposes fiscal policies to be implemented at the national level, followed by
policies applicable to either national or municipal level and finally, fiscal policies for the
government of Jakarta. Chapter 6 prioritises these measures and proposes an implementation
timeline.

5.1. Proposals at the national level

5.1.1. Differentiated excise duties on oil imports and domestically produced fuels based on
sulphur content
As noted in chapter 3, fuel standards in Indonesia are poorly enforced. Fiscal measures can
complement standards and pave the way for their more effective enforcement, as was the case
in Thailand for unleaded fuels (see section 4.2.3.). An excise duty differentiated in line with
sulphur content levied on fuel imports, as well as fuels produced by domestic refineries, would
create tangible financial incentives in favour of reducing the sulphur content of fuels. Revenues
could be used to fund the technological improvement of domestic refineries.

Such a measure has the potential to motivate industry to invest in low-sulphur technology and
encourage the uptake of cleaner fuels by consumers by making them cheaper at the pump than
other high-sulphur fuels. The measure also has the potential to foster increased competitiveness
in the downstream domestic market for transport fuels, which was initially opened under Act
22/2001. An excise duty on sulphur would be easy to administer, as it would involve few
taxpayers: Indonesia’s domestic refineries and oil importers.61

Policymakers could refer to the emissions index for sulphur content, in order to establish the
correct charge for the sulphur tax. Opposition to the measure could be mitigated by using a
proportion of revenue to fund refinery improvements and investment in low-sulphur
technologies. The proposal is in line with current policy to reduce sulphur content sufficiently to
shift to Euro IV vehicles from 2018. The state-owned enterprise Pertamina, responsible for
Indonesia’s refineries, has already indicated an interest in implementing a programme of
investment in low-sulphur technologies (CCAC 2016).

If a differentiated excise duty of just 0.2 IDR per 1 ppm sulphur/litre had been imposed in 2018,
IDR 22,078 billion/US$1.57 billion of revenue would have been raised, or just over 0.1 percent of
GDP (see table 17). This is substantially more than the amount of investment necessary to install
low-sulphur technologies in Indonesia’s refineries, estimated in 2016 to amount to roughly USD
0.6 billion (CCAC 2016).

61In 2018 Indonesia produced 282 million barrels of oil equivalent (BOE) of crude oil and imported a further 113 million BOE and
imported 166 million BOE of petroleum (MoEMR 2019).

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As in Thailand, this can be expected to be a relatively short-term measure, as revenues will fall
rapidly once new technology is installed and refineries and importers move away from high-
sulphur diesel. Although earmarking is not permitted in Indonesia, a subsidy could be introduced
alongside the sulphur duty, and the relationship between the two communicated clearly to state-
owned enterprises, the general public and other stakeholders to help reduce opposition.

International experience has shown that even a small price difference has the potential to bring
about a strong consumer response. On the basis of the low rate proposed here, our calculations
indicate that if the excise duty on sulphur in fuels had been implemented in 2018, it might have
reduced CN48 consumption (3,500 ppm sulphur) by 4 percent, bio gasoil consumption (2,500 ppm
sulphur) by 2 percent, and consumption of other transport sector fuels (500 ppm sulphur) by less
than 1 percent in comparison to fuel consumption under a business as usual scenario in the same
year (see Table 17). This indicative fuel consumption decrease translates into fuel cost savings of
5,520 billion IDR (US$393 million) on the national level.

Table 17: Most used road transport fuels used in Indonesia and their sulphur content 2018
% of total Predicted
Sulphur
Fuel transport Fuels sales revenue in Price increase (IDR and US$)
content
fuels 2018 62

% ('000 litres) (ppm) (billion IDR) (IDR/litre) (USD/litre)

Gasoline RON
15.51 10,737,683 500 1,074 100 0.007
88
Gasoline RON
0.57 385,977 500 39 100 0.007
95+98+100
Gasoline RON
8.40 5,643,055 500 564 100 0.007
92
Gasoline RON
26.36 17,706,790 500 1,771 100 0.007
90
Gasoil CN 51 1.10 666,191 500 67 100 0.007
Gasoil CN 53 0.33 199,901 500 20 100 0.007
Gasoil CN 48 9.85 11,946,056 3500 8,362 700 0.050
Bio gasoil 29.08 18,182,154 2800 10,182 560 0.040
TOTAL REVENUE IDR 22,078 billion / USD 1.57 billion
Source: MoEMR 2019, revenue estimates and price increases based on authors own calculations based on MoEMR data

Figure 30: Potential retail price increase and consumption decrease under Sulphur Excise Duty

62 Calculated on the basis of the proposed tax rate of 0.2 IDR / 1 ppm sulphur / litre.

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Source: 2018 Fuel prices are based on Pertamina 2018 and 2019 and MEMR, assumptions on fuel consumption decrease
based on pages 22/23 in Victoria Transport Policy Institute: “Understanding Transport Demands and Elasticities”.

It is not possible to draw a direct link between the estimated energy consumption reduction; air
pollution decreases and health cost savings because we are lacking the necessary data. The latest
related health cost data available refers to DKI Jakarta in 2016 (KPBB, 2018) and while the
transport sector’s contribution to this figure is not quantified; as a result, our estimations are
based on 2010 figures. Many factors have changed since then, including health treatment costs,
congestion, type of vehicles in use including their engine sizes, fuel efficiency, fuel type and vehicle
kilometres driven, the influence of other sectors on air pollution, etc. All these factors influence
the levels of energy consumption, subsequent air pollution and related health cost.

However, it is possible is to outline a hypothetical case for 2016 (see Annex I). If we assume an
average 1.4 percent reduction in transport sector energy consumption in 2016 (similar to what is
to be expected in the year following the introduction of the Sulphur Content Excise Duty) and a
subsequent 1.4 percent decrease in transport sector related63 air pollution, the health cost savings
could have been as much as 258 billion IDR ( US$19 million) in DKI Jakarta. This figure does not
take into account the above average reductions in consumption of high-sulphur fuels – 4 percent
for CN48 and 2 percent for bio gasoil – implying that the actual figure is likely to be considerably
higher.64

As shown in Table 17, the impact of the proposal on the price of a litre of fuel can be expected to
be very low and thus, social impacts will be minimal.

63
As in 2010 the transport sector had contributed about one third to fuel consumption in Indonesia (ESDM 2018 Handbook of
Energy) and about 36% of PM10 emission in Jakarta (Breathe Easy Jakarta (BEJ) (2017)), we assume that its contribution to local air
pollution accounted for roughly one third.
64 Given the complex relationship between SO emissions and human health impacts, and the lack of available data, it is not possible
2
to make an accurate estimate of reduced health costs by fuel type.

100
 Box 2: Additional regulations required to support the transition to low-sulphur fuels

Fuel quality and vehicle standards are essential elements of any policy package to reduce road transport
emissions harmful to human health in the city of Jakarta. Many international organisations and expert
research institutions have identified Indonesia as a priority for the reduction of sulphur content in fuel,
due to the significant negative impacts high sulphur fuels have on human health (CCAC 2016). Currently,
standards for sulphur content in transport fuels are lacking ambition and are poorly enforced.
Nonetheless, lowering sulphur content and improving fuel quality is an essential first step towards
reducing air pollution from vehicles.

Euro IV vehicles require fuel with a sulphur content of less than 50 ppm for vehicles to function optimally:
otherwise they emit higher volumes of pollutants harmful to human health (ICCT 2014; CCAC 2016).
Thus, it is essential that the MEMR revises fuel standards and enforces those standards effectively. When
Euro IV implementation began in 2018, total sales of gasoline with Euro IV compliant sulphur content
decreased, although such fuel has been produced since 2017 in Indonesia. Interviews and stakeholder
consultations suggest that this is due to a number of factors: lack of awareness of the significance of
using clean fuels in Euro IV vehicles amongst the general public (this is not publicised or communicated
by the automobile industry); lack of promotion of cleaner fuels that comply with Euro IV standards by oil
companies; and the tendency for people to consume cheaper lower-quality fuels.

According to current legislation, the 50ppm target for sulphur content for diesel is to be achieved by
2025; meanwhile, RON 90 specifications currently set a limit of 500 ppm, which is not Euro IV
compliant.65 This process must be accelerated, and ambition ratcheted up if fuels are to be low-sulphur
by 2025. This is an urgent priority to reduce harmful emissions from transport. A second important
regulatory step would be to require vehicle manufacturers to meet the Euro VI standard by 2023. This
would reduce the harmful pollution load emitted by road vehicles significantly: Euro VI diesel passenger
vehicles emit 82% less PM and 68% less NOx than Euro IV.

5.1.2. Removal of price regulations and other fossil fuel subsidy mechanisms
The deviation from automatic price adjustments to diesel prices described in chapter 3 represents
a partial reversal of fossil fuel subsidy reform. This was a political decision: in March 2018 (in the
run-up to the 2019 presidential election), it was announced that fuel prices would be kept at
current levels until at least the end of 2019 (OECD 2019b). A failure to continue to pursue reform
in future will undermine any fiscal policies introduced to reduce pollutant emissions.

This ongoing failure to phase out fossil fuel subsidies is fiscally damaging, as noted in chapter 3.
Subsidies resulting from the 2018 price freeze are estimated to have been worth IDR 24
trillion/US$1.7 billion (Braithwaite and Gerasimchuk 2019). In 2019, IDR 101 trillion/US$7 billion
was allocated for spending on subsidised diesel in the government budget, with overall spending
was increased by IDR 3 trillion/US$70 million at the end of November 2019, once it became clear
that the budget allocation would not cover the cost of subsidies (Jakarta Post 2019a). This seems
to indicate an ongoing acceptance in government of subsidy spending, albeit at lower levels than
pre-2015.

65 See https://jdih.esdm.go.id/peraturan/Kepdirjen%20Migas%20No.%2028%20Thn%202016.pdf for diesel and

https://jdih.esdm.go.id/peraturan/Kepdirjen%20Migas%20No.%200486%20Thn%202017.pdf for gasoline specifications.
Specifications for all fuels are available here: https://jdih.esdm.go.id/?page=peraturan&act=listperaturan&id=90 (in Bahasa
Indonesia).

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At the same time, the International Energy Agency (IEA) has claimed that one of the most obvious
consequences of fossil fuel subsidies is chronic congestion in Jakarta as well as “lost output,
dissipation of energy, negative health effects and reduced productivity….[and] CO2 emissions”
(IEA 2016, p. 62). The ongoing reform of subsidies in the transport sector is an important pillar of
the contribution national government can make to reducing harmful health impacts from
transport emissions.

Fossil fuel subsidies, if not effectively targeted at vulnerable households, are a very inefficient
means of protecting the vulnerable from high energy prices, because they keep transport fuels
cheap for everyone, even high-income households who benefit disproportionately. The
Indonesian government has already acknowledged this (Chelminski 2018). From an equity
perspective, blanket subsidies should be replaced by targeted welfare measures to protect low-
income households from potential negative impacts.

It is important to ensure that the energy price rises resulting from fossil fuel subsidy reforms do
not negatively affect poor populations. As demonstrated in 2015, subsidy reform can be
implemented, and public resistance dealt with if the policy is executed carefully. Since 2015,
compensation for rising prices has been linked to the well-established smart card system covering
financial assistance, education and healthcare (see e.g. Pradiptyo et al. 2016). Given that an
effective compensation system is already in place, there is considerable scope for policymakers
to use fuel prices as a lever to encourage cleaner mobility while protecting the vulnerable (G20
2019).

Box 3: Subsidies for CNG

Although CNG emits lower levels of localised air pollutants, the price cap for CNG should also be
reformed, as it limits the profitability of privately owned CNG stations and so discourages its large-scale
deployment, thus working against the realisation of Decree 22/2017 (the RUEN) for the mass
development of CNG fuel stations (more details see ICCT 2014).

Free distribution of conversion kits to highly polluting heavy-duty diesel freight vehicles would be a more
effective, targeted and time-limited subsidy policy (this is proposed at municipal level, see below). In
addition, differentiated tax rates on transport fuels can be used to encourage increased use of CNG,
rather than gasoline and diesel, without undermining incentives for market penetration (details below).

There are strong fiscal, economic, environmental, climate-related, social equity and health-
related reasons to complete the process of reforming diesel and CNG price regulations. This
should be an integral part of any fiscal policy package to address pollutant emissions harmful to
human health in the transport sector in Indonesia. However, given the existing body of work on
fossil fuel subsidy reform in Indonesia – see e.g. (G20 2019; ADB 2015; IEA 2015; Bridle et al. 2018)
– reform of fossil fuel subsidies will not be discussed in more depth in this study.

5.1.3. Carbon taxation of transport fuels

Currently in Indonesia, fuel consumption taxes – VAT and motor fuel tax – generate revenue
equivalent to 0.57 percent of GDP. This is low in comparison to the value of fuel and electricity
subsidies – 1.7 percent of GDP (Braithwaite and Gerasimchuk 2019). In parallel to the withdrawal

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of all forms of subsidies for fossil fuels and in line with international best practice, it would be
advisable to introduce an ad quantum carbon tax at national level on all transport fuels.

Globally, Indonesia has the second-largest carbon-pricing gap amongst emerging economies. The
carbon- pricing gap is an OECD indicator that quantifies the difference between a conservative
benchmark carbon price of US$35/tCO2 and the carbon price in Indonesia. As much as 84 percent
of CO2 emissions from energy use is unpriced in Indonesia and the remainder is priced at around
USD 8/tCO2 (OECD 2019a). Therefore, energy and fuel are priced at levels well below their
associated environmental and social cost.

The introduction of a carbon tax is in line with Presidential Decree No 22/2017. Taxation of
transport fuels is very much in line with international best practice (see section 4.2). A carbon tax
would complement the emissions trading system for stationary emissions sources 66 currently
under consideration (see Table 10), by targeting mobile emissions.

In 2009, the Ministry of Finance published a Green Paper on climate change, which proposed a
carbon price on stationary emissions of US$10/tCO2 targeting power generation and large
industrial installations. This was to be implemented in 2014 and the rate increased by 5 percent
per until 2020, with revenues used to alleviate the impact of higher prices on poorer households.
The Green Paper predicted that the tax would reduce CO2 emissions by 10 percent compared to
BAU with no negative impacts on growth or poverty reduction (OECD 2019a).

International experience supports the proposal in the Green Paper to implement fuel taxation at
a low rate initially and gradually increase the rate over time. This can boost political acceptance
and is an approach that has been pursued by the majority of EU and indeed OECD countries (see
section 4.2. on fuel taxes). A clear lesson from the UK fuel duty escalator was that annual increases
in excise duty, if poorly communicated or perceived to be excessive, can lead to protests and
ultimately policy reversals.

Thus, in 18, the price proposed in the 2009 Green Paper is taken as a possible starting point of a
carbon tax escalator on transport fuels, which gradually increases the carbon price over 10
years.67 In the calculations below, a biannual increase of US$2 until 2031 is proposed. Given the
politicised nature of fuel prices increases in the Indonesian context, such an has the potential to
prevent policy reversals and foster acceptance for the principle of price increases. This would give
business and individual consumers a predictable fuel price upon which to base their investment
decisions. Once political acceptance for such a reform is established and fuel prices become less
politicised, more rapid adjustments could be implemented to bring the carbon price into line with
the conservative benchmark price of US$35/tCO2.

Table 18: Proposed carbon tax rates 2020-2030

2020-2021 10 USD/tCO2
2022-2023 12 USD/tCO2
2024-2025 14 USD/tCO2

66 Government Regulation No. 46/ 2017 has laid the foundations for emissions trading in Indonesia. At the time of writing, no
political commitments had been made, but under consideration is a scheme that would target the power and industry sectors (ICAP
2020).
67
Carbon content should be calculated on the basis of the carbon index for fuels.

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 2026-2027 16 USD/tCO2
2028-2029 18 USD/tCO2
2030-2031 20 USD/tCO2
Source: Authors

Figure 31 shows the estimated development of nominal retail prices under the proposed carbon
tax scheme. We assume constant nominal retail prices for 2019-2031 (based on 2018 prices)
under a business as usual scenario (BAU), namely 6,469 IDR/litre/US$0.46/litre) for gasoline,
4,627 IDR/litre / US$0.33/litre for diesel and 3,100 IDR/litre / US$0.22/litre for CNG. By 2031 the
carbon tax scheme could increase real retail prices stepwise by up to 11 percent for gasoline, 16
percent for diesel and 15 percent for CNG. Considering the stand-alone price increase of each fuel
type leads to an estimated consumption decrease of 3 percent for gasoline, 4 percent for diesel
and 4 percent for CNG (compared to the BAU) by 2031. In the longer run, average fuel
consumption in the transport sector could decrease by up to 7 percent as compared to BAU.

Figure 31: Impact of proposed Carbon Tax scheme on fuel prices and energy consumption

Based on these estimates, fuel cost savings in DKI Jakarta alone might add up to 368 billion
IDR/US$26 million in the first year after implementation. Consumption decrease estimates might
be different under a more detailed and data-heavy model, which could also allow for the effects
of switching between fuel types. A higher initial rate and/or a more rapid escalation of fuel
taxation would also result in more rapid reductions in fuel consumption.

With respect to transport sector air pollution reductions and health cost savings, a very
hypothetical case can be drawn for 2016: If we assumed an average 1.5 percent reduction in
transport sector energy consumption in 2016 (similar to what we would expect in the year after
implementing the carbon tax) and a subsequent 1.5 percent decrease in transport sector related
air pollution and health costs, health cost savings could have been as much as 283 billion
IDR/US$21 million in DKI Jakarta compared to a non-reduction-scenario.
Government revenues generated from the carbon tax have been derived by relating the predicted
future fuel prices to future fuel consumption under a carbon tax scheme. Carbon tax revenues
raised in DKI Jakarta could be as high as 1,447 billion IDR/US$102 million in 2020, adding another
3 percent to the overall local tax revenues. In the same year, national carbon tax revenues could
be as much as 23,550 billion IDR/US$1,663 million, by applying 2019 currency exchange rates.
Revenues could be used for a variety of purposes, including investment in social welfare (health,

104
education, public transport infrastructure), climate mitigation, carbon leakage prevention, debt
reduction, development objectives (investment in the SDGs).

A carbon tax can be expected to have several additional benefits, including enhanced greater
competitiveness deriving from improved energy efficiency, reduced dependence on energy
imports, and innovation and job creation in low-carbon sectors.

The social impacts of the scheme as proposed are expected to be relatively limited as Predicted
price increases would be gradual and relatively insignificant. Real retail prices would increase by
1-2 percent annually over 12 years: a total price increase of 11 percent for gasoline by 2031, 16
percent for diesel and 15 percent for CNG. Furthermore, as discussed in Box 1, transport fuel taxes
tend to have a progressive impact in developing countries (Morris and Sterner 2013).

Nonetheless, even a small reduction in disposable household income can have a negative impact
on the most vulnerable. Increased spending on health and education and improved access to
healthcare for poor and vulnerable households, as implemented to compensate for fossil fuel
subsidy reform, is a tried and tested policy which could effectively offset the impacts of price rises.
A similar approach was taken in the 2009 government Green Paper on carbon taxation, which
proposed to use revenues to compensate for price increases and did not predict any negative
impacts on poverty reduction (OECD 2019a).

Table 19: Potential local government tax revenues (in nominal terms) from the proposed Carbon
Tax raised in DKI Jakarta and on national level 2019-2031
(billion IDR) DKI Jakarta Indonesia
2019 - -
2020 1,447 23,550
2021 1,507 24,516
2022 1,876 30,522
2023 1,953 31,773
2024 2,364 38,458
2025 2,461 40,035
2026 2,919 47,468
2027 3,039 49,414
2028 3,547 57,673
2029 3,692 60,037
2030 4,257 69,205
2031 4,431 72,043
Source: Authors

5.1.4 HDV tolls to raise revenue to fund measures to incentivize shift from road freight
Nationally, the imposition of relatively high road tolls for heavy diesel freight vehicles, both on
existing highways and on new roads due to be built as part of the large-scale highway
infrastructure project worth US$70 billion announced by President Joko Widodo in June 2019,
could encourage modal shift towards shipping for freight transport (Bloomberg 2019). Such high

105
road tolls on HDVs would create price incentives in favour of modal shift to rail and shipping and
more efficient freight operations, including fewer empty journeys for freight vehicles.

Steps to enhance efficiency in road freight have considerable potential to reduce emissions from
road haulage: at Jakarta’s port, around 40-50 percent of all truck journeys are empty haul trips
(GIZ 2017). Similarly, penalty fines for overloading of trucks could be introduced at toll pay
stations or weigh stations to raise revenue in the short term: more than half of all trucks in
Indonesia are overloaded by an average of 45 percent above the maximum payload weight limit
(GIZ 2017).

A proportion of toll revenues, savings resulting from reduced spending on fossil fuel subsidies,
and a proportion of the investment currently allocated to road construction project should be
used to invest in enabling measures to facilitate modal shift within the freight sector, e.g.
investment in railways, ports and intermodal connectivity. The construction of a smart freight
centre in Jakarta using industry 4.0 automation technologies to integrate freight modes could
reduce energy use and emissions from the sector. Such measures are key policy objectives in
Indonesia’s National Mid-term Development Plan (RPJMN) 2015-2019, which set out to increase
rail freight volumes to 5% of total freight, and in Transport Ministerial Regulation 43/2011, which
sets out to increase rail freight volumes to 15-17 percent of the total (GIZ 2017).68

There is not sufficient data on freight transport in Indonesia to make accurate predictions for
potential revenues from road tolls, or the impact of increased use of shipping on human health.
In terms of social impacts, international experience has shown that HDV tolls can result in job
losses in the freight sector, particularly in countries where SMEs are dominant, as they are in
Indonesia. Schemes to fund freight vehicle retrofits and scrappage schemes, either at national or
Jakarta level, can compensate to some extent for potential negative impacts.

A number of fiscal measures to reduce air pollution from freight and encourage modal shift from
road to rail, inland waterways and short sea shipping are proposed in this study, e.g. vehicle
ownership tax differentiated on the basis of vehicle emissions (section 5.2.1.); the proposed
congestion charging scheme for Jakarta, which includes high fees for diesel freight vehicles with
high emissions (section 5.3.2.); and differentiated taxation of shipping and road transport fuels in
DKI Jakarta (section 5.3.3.).

68
Non-fiscal measures to enhance efficiency and reduce emissions from road freight are described in GIZ 2017.

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5.2. Proposals at the national and/or municipal level

5.2.1. Vehicle ownership tax differentiated by vehicle emissions

The current tax system for vehicle ownership in Indonesia is shown in Error! Reference source n
ot found.. Vehicles are subject to import duty, luxury tax, local ownership progressive taxes, title
transfer fees, and VAT. Currently, electric vehicles (EVs) are exempt from luxury taxes, and low-
cost green cars are subject to reduced rates. These tax breaks certainly create a substantial fiscal
incentive for consumers to purchase EVs and low-emissions vehicles.

Figure 32: Vehicle taxation in Indonesia up to the point of purchase

Source: Authors

A more nuanced structure for new vehicle ownership differentiated in line with emissions of CO2
and harmful air pollutants could create strong incentives in favour of cleaner vehicles throughout
the fleet and encourage consumers unable or unwilling to purchase an EV to nevertheless choose
a low-emissions vehicle.

There are two points at which the vehicle ownership tax could be revised. The luxury tax regulated
by Government Regulation 22/2014 could be reformed at national level with differentiated tax
rates applied in line with vehicle emissions of CO2 and harmful air pollutants. Low cost green cars
are currently exempt and EVs will be subject to lower luxury tax rates in future (see Box 2). This
policy would be in line with the National Energy Plan (RUEN) to reduce GHG emissions by 58
percent on BAU, which foresees the mass penetration of cleaner cars (see chapter 3).

107
Alternatively, the vehicle ownership progressive tax could be reformed at local level, in Jakarta,
with differentiated tax rates in line with pollutant emissions, which would be possible under Law
N. 28 2009 on local taxes and retribution.

A feebate system is not recommended. Some countries have been able, after some initial
problems with the feebate design, to successfully implement feebate systems that subsidise the
purchase of cleaner vehicles and levy a differentiated fee on high-emitting vehicles, as in France
(see section 4.3.1). Ultimately, such schemes can be designed to raise revenue, subsidise the
renewal of the fleet, or to be revenue neutral. However, when a feebate is first introduced, it may
prove difficult to predict revenue impacts accurately and higher costs than anticipated may result.

Given the risk of a feebate policy leading to unpredictably high levels of government expenditure,
it seems preferable to introduce a range of fees from a zero rate for low-emissions vehicles to
higher rates for high polluting vehicles, as in the case of Norway (see section 4.3.1). Furthermore,
from an equity perspective, subsidising individual private transport is undesirable, as these
subsidies tend to benefit wealthier income groups, particularly in countries with a relatively
unequal distribution of wealth.

The differentiated tax proposed here would be paid at the point of purchase by the consumer and
replace or reform the luxury tax at national level and/or the ownership progressive tax at local
level, to avoid introducing further complications to vehicle purchase taxes. In both cases, existing
collection mechanisms could be used. While it may be politically easier to reform the ownership
progressive tax at local level, President Widodo has also called for the reform of the luxury tax to
incorporate reduced rates for EVs in August 2019 and this may provide a possible opportunity to
link the differentiated tax measures proposed here to ongoing reform processes at the national
level.

The possible rates shown in Table 19 are relatively low and geared towards the reform of the
ownership progressive tax at local level, rather than the luxury tax. However, these rates should
be understood as an illustration of the possible fee structure, rather than a concrete proposal.69
The tax rates and the vehicles to which they apply should be revised periodically as cleaner
vehicles come into more widespread use to ensure that the charges create a dynamic incentive in
favour of driving cleaner vehicles and reflect the newest technological developments in the
vehicle market. Adjustments would also be important to ensure that revenues do not fall over
time.

69A table showing trends in fleet development in Jakarta from 2012 to 2016 is in annex 1. However, this does not include disaggregated
data on the composition of the Jakarta fleet, as this is not available in the public domain: neither are sufficiently disaggregated data
for Indonesia. Without this data, it has not been possible to develop specific proposals for tax rates within the confines of this study.

108
Table 190: Vehicle ownership tax differentiated by emissions: possible structure and rates
Ownership tax Ownership tax Ownership tax Ownership tax
IDR USD70 IDR USD
Motorcycles and scooters CO2 emissions component for all four-wheeled vehicles

Electric scooters 0 0 0-39g CO2/km 1,000,000 70

Under 100cc 1,000,000 70 40-70g CO2/km 2,000,000 140

100cc-150cc 1,200,000 84 71-95g CO2/km 3,000,000 210
150cc-250cc 1,400,000 98 96-125g CO2/km 4,000,000 280
250cc-500cc 1,600,000 112 126-194g CO2/km 6,000,000 420
Over 500cc 2,000,000 140 >195g CO2/km 8,000,000 560
AIR POLLUTANT EMISSIONS COMPONENT for the following vehicles
Gasoline-powered LDVs Diesel-powered LDVs
Retrofitted (filter) 500,000 35
Euro IV 250,000 17.50 Euro IV 500,000 35
Euro III 750,000 52.50 Euro III 1,000,000 70
Euro II 3,000,000 210 Euro II 4,000,000 280
Euro I 6,000,000 420 Euro I 8,000,000 560
Pre-Euro standard 8,000,000 560 Pre-Euro standard 10,000,000 700

Alternative fuelled LDVs Light commercial vehicles (gasoline powered)

Electric cars 0 0 Euro IV 2,000,000 140
CNG / LPG 500,000 35 Euro III 4,000,000 280
vehicles
Hybrid vehicles 1,000,000 70 Euro II 6,000,000 420
3-wheelers 500,000 35 Euro I 10,000,000 700
3-wheelers CNG 250,000 17.50 Pre-Euro standard 15,000,000 1,050
conv.
Light commercial vehicles (diesel powered) Heavy duty vehicles (HDVs)
Public transport vehicles pay 50% of rate
Retrofitted 0 0 Retrofitted 0 0
Euro IV 3,000,000 210 CNG conversion 0 0
Euro III 5,000,000 350 Euro IV 2,000,000 140
Euro II 7,000,000 490 Euro III 6,000,000 210
Euro I 12,000,000 840 Euro II 8,000,000 280
Pre-Euro standard 15,000,000 1,050 Euro I 15,000,000 1,050

Pre-Euro standard 20,000,000 1400

Source: Authors

It would also be possible to levy a zero rate of vehicle registration tax on electric vehicles (EVs),
or to tax them at a lower rate than fossil fuel vehicles, to incentivise their deployment. This would
be in line with Presidential Decrees no. 22/2017 and no. 55/2019: the former assumes that by
2025, there will be around 2,200 EVs and hybrid cars and 2.1 electric motorbikes on the road in
Indonesia, while the latter calls for the implementation of fiscal incentives for electric and hybrid
vehicles (for further comments on EVs, see Box 4).

70Exchange rate October 2019 average 1USD = 14,165 / 1 IDR = 0.00007 USD taken from InforEuro
https://ec.europa.eu/budget/graphs/inforeuro.html

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 Box 4: Electric vehicles in Indonesia

Indonesia aims to become an EV hub for Asia and beyond and is aiming to start EV production in 2022
and achieve a 20 percent share of EVs in total manufacturing output from the automotive industry by
2025. Several fiscal support measures have been announced, including reduced export tariffs and
reduced luxury taxes on electric cars. When President Widodo announced these measures in August
2019, he also called for DKI Jakarta to offer EVs free parking and or free administrative fees (Business
Times 2019).

There seem to be strong arguments in favour of fiscal measures to boost electric motorcycles in Jakarta,
as they are space efficient means of transport in a congested city. The measures proposed above, as well
as the tax measures proposed in sections 5.2.1, 5.3.2. and 5.3.3. will support this trend.

However, the promotion of EVs is unlikely to bring about significant reductions in impacts on human
health in Indonesia as a whole in the medium-term unless steps are taken to accelerate the deployment
of renewable energy in parallel, although measures to increase the number of EVs in Jakarta may export
some health impacts beyond the city’s boundaries. This is due to the important role played by coal in
Indonesia’s energy mix: in 2016, coal accounted for 54 percent of electricity production (IEA 2019). In
the period leading up to 2015, it has been estimated that coal-fired power plants in Indonesia caused
6,500 premature deaths annually. Each new coal-fired power station (1000MW capacity) built in
Indonesia in the future is expected to result, on average, in 600 additional premature deaths each year
(Greenpeace 2015). The IMF has estimated that in 2015, there were 5.9 deaths per million Gigajoules of
energy produced by coal-fired power stations (Coady et al. 2019).

Therefore, minimising additional health impacts resulting from rising demand for electricity in the
transport sector calls for renewable energy deployment on a relatively large scale and the introduction
of more stringent emissions standards for coal-fired power stations. The former is in line with the
government target to increase renewables in the energy mix to 23 percent by 2025 and is feasible given
Indonesia’s estimated 716 GW of theoretical potential for renewable power generation (IRENA 2017). 71
However, it is uncertain whether these targets will be met and moreover, given rising energy
consumption in the country, it is also not clear that meeting these targets will reduce the negative human
health impacts of coal significantly (see e.g. Bridle et al. 2018).

Interviews conducted during research for this report have indicated that the national government
intends to pursue a two-pronged strategy, reducing power sector emissions while promoting EVs using
fiscal incentives. Given the timescales typically required for EVs to penetrate a market on a large scale,
this approach may prove to be a viable strategy to encourage first movers immediately with a view to
the widespread deployment of EVs in the medium-term.

In countries with a large proportion of fossil fuels in the energy mix, it has been demonstrated that using
plug-in hybrids and EVs to replace gasoline engines reduces CO 2 emissions, but results in increased
emissions of particulates, NOx and SO2 (Wu and Zhang 2017). Thus, several measures are proposed in
this study which will encourage the take-up of electric and hybrid vehicles, including the differentiated
vehicle registration charges (5.2.1), a congestion charging scheme in Jakarta (5.3.2) and reforms to
annual motorized vehicle tax (5.3.5). Direct subsidies for EVs are not proposed, due to the risk of higher
impacts on human health as a result of increased coal combustion.

71There are a number of publications which examine policy steps necessary to facilitate renewable energy deployment in the
country, which are beyond the scope of their report: the reader is referred to IRENA (2017) and Braithwaite and Gerasimchuk
(2019).

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To implement the differentiated registration taxes proposed here, data on emissions of CO, PM,
VOCs, NOX and CO2 from all new vehicles is required. To maximise the impact of the measure, a
compulsory labelling scheme should make clear the tax liability of all new cars to consumers.

Given the lack of data available on the current fleet, neither revenue estimates nor calculations
of health impacts are possible within the limitations of this study. The aim of the policy measure,
whether implemented at national or municipal level, would be to encourage sustainable
consumption of low-emitting vehicles, slow the growth of new car purchases, and encourage a
shift to low-carbon transport modes. Slowing the growth of new car purchases requires a rate of
taxation sufficiently high to deter some potential buyers from purchasing a new vehicle, but not
so high that it incentivises the use of older second-hand vehicles. Lessons learned during the
design and implementation of vehicle taxation in Norway (section 4.3.1.) and in Indonesia’s LCGC
scheme (section 3.4.7.) can feed in to setting the tax rates in this case.

If implemented at national level to replace the luxury tax, the measure has the potential to raise
substantial additional revenue. 72 Revenues could be used to invest in public transport and
encourage low-emissions alternatives to private cars, e.g. grants for e-motorbikes or information
campaigns or mobile phone apps to encourage higher levels of car-sharing.

Negative social impacts resulting from the vehicle ownership tax can be expected to be minimal.
Taxes of this nature are generally progressive, as wealthier income groups are more able to afford
to purchase new vehicles.

Simulations of possible impacts are available for a proposal to reform the luxury tax on new
vehicles and to refocus it solely on CO2 emissions. This would take the form of a progressive ad
valorem tax of 5 percent on low-emissions vehicles up to 40 percent on high-emissions vehicles.
The simulation found that CO2 emissions would decrease by 37 percent and total car sales would
decline by 27 percent, while increasing government revenues by 10 percent or US$10 billion/IDR
1458 trillion (LCSP 2015). A more conservative estimate for a reform of the luxury tax available in
the public domain is a World Bank study cited by Lewis (2019), which proposes aligning motor
vehicle taxes with environmental externalities, amending both the luxury tax and import tariffs
on expensive hybrid and electric vehicle imports to do so. Such a measure could generate
increased revenues of IDR 89 trillion/US$6.2 billion.

5.2.2. Scrappage schemes for heavy duty freight vehicles

Scrappage schemes are hybrid policy instruments which typically combine a fiscal policy – a
subsidy for the purchase of a new vehicle – and regulations to force older vehicles off the road. In
Beijing, a hybrid scheme has been relatively successful in renewing the vehicle fleet and taking
vehicles emitting high levels of pollution harmful human health off the road (section 4.5.5.)
Positive economic impacts are also likely to result from a scheme that promotes consumption of
cleaner vehicles, many of which will be manufactured in Indonesia. They do not reduce overall
vehicle numbers, however, as those receiving a scrappage subsidy will purchase new vehicles.73

72Although the luxury tax currently raises just 0.2% of GDP (Lewis 2019).
73This was a criticism voiced by stakeholders in the September 2019 workshop conducted in Jakarta to review the initial policy
proposals of the study.

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In DKI Jakarta, a scrappage scheme for high-polluting HDVs would be preferable to a scheme for
private vehicles, for several reasons (see section 4.7). Under current regulations in DKI Jakarta,
public transport vehicles may be no more than ten years old and so, a scheme for freight vehicles
is likely to be the most cost-effective means to reduce emissions harmful to human health. This
could be implemented either at national or municipal level. The cost of the scheme would depend
on the scrappage incentive per vehicle and could be capped at an upper limit.

To take a hypothetical example: In Jakarta there are roughly 700,000 trucks. If a scrappage subsidy
of IDR 21.2 million/US$1,500 for medium and heavy freight vehicles more than 10 years old had
been taken up by 1 percent of the fleet in 2019, the total cost would have been IDR 149
billion/US$10.5 million, or 0.75 percent of the 2019 local government budget. 74 To achieve
meaningful reductions in emissions harmful to human health, however, a higher take-up is
required and possibly also higher scrappage rates, to encourage participation, particularly of
SMEs. Doubling the subsidy and increasing participation to 5 percent would have cost IDR 1.5
trillion/US$105 million in 2019, or 7.5 percent of the local government budget in 2019.

An estimate of the impacts of scrappage on human health is impossible given the lack of
disaggregated data on freight vehicles. However, as demonstrated by the Beijing experience,
scrappage schemes can target the highest emitting vehicles in the fleet and so realise major
reductions in harmful emissions. A Euro IV HDV emits 78% less NOx than a Euro O HDV, 88% less
CO than a Euro O HDV, and 95% less PM than a Euro I.

Scrappage schemes can become expensive, as uptake and overall cost are difficult to estimate
accurately, particularly given that very limited data is available on current vehicle ownership. This
problem can be addressed by capping the amount of funds available and distributing the subsidy
on a first-come first-served basis. Alternatively, a time limit for scrappage subsidies can encourage
rapid take-up but is less predictable in terms of the overall cost of the measure.

Scrappage schemes come at a sizeable cost to freight companies: SMEs dominate the sector in
Indonesia and will struggle to cover the cost of new freight vehicles, and to access sufficient credit.
To avoid job losses and failure of businesses in the sector, it may be more equitable and feasible
to retrofit older vehicles or convert them to CNG and initiate scrappage schemes in the future,
when more data is available on the fleet and sound policies to protect SMEs from negative impacts
have been developed (proposed in section 5.3.6 below).

5.3. Proposals at the municipal level

The measures proposed in section 5.1 can be implemented at national level and require actions
on the part of the national government. Measures in section 0 can be implemented at national or
municipal level. In this section short, medium and long-term policy approaches to reduce
pollution harmful to human health which can be taken by the municipal government of DKI Jakarta
are discussed.

74
The average rate offered in Beijing in 2013/14 for medium and heavy freight more than ten years old (Posada et al. 2015).

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5.3.1. Electronic road pricing
As discussed in chapter 3, in theory electronic road pricing (ERP) is set to be implemented in
Jakarta. Possible models, e.g. Singapore, have been touched on above and have the potential to
effectively address harmful pollution at hotspots in the city. Currently, it is unclear when the
system will be up and running, inter alia due to difficulties in the tendering process which have
led to several delays. Given political declarations that this measure will be implemented as soon
as possible and that a second tendering process is well under way, it does not seem appropriate
to make concrete recommendations for the design of the ERP design in this study.

Nonetheless, it is important to note that one success factor for ERP in Singapore has been the
perceived reliability of the system, which is likely to have been attributable to exhaustive testing
prior to implementation. Detailed traffic monitoring is also required to permit the design of the
scheme to address congestion effectively. Both these factors should be taken into account when
developing, testing and rolling out ERP for Jakarta.

5.3.2. Low-tech congestion charging scheme for road vehicles in DKI Jakarta
The odd-even policy was brought into force in response to delays in implementing ERP and the
advantages and disadvantages of the scheme were discussed in chapter 3. A more targeted
interim measure, such as the introduction of a low-tech congestion charge for entering a central
zone, could address many of the problems of the odd/even policy by targeting vehicles on the
basis of their harmful emissions, incorporating charging for scooters and motorcycles in the
scheme, and reducing perverse incentives e.g. to obtain a second vehicle.

A sticker system is a low-tech way of implementing a basic form of congestion charging in the city
of Jakarta without requiring the installation of technology to charge vehicles for each trip they
make to the city centre. A requirement for a sticker to be always displayed on a vehicle within the
Jakarta Outer Ring Road (JORR) could address the policy gaps of the odd-even policy and act as an
interim measure prior to the implementation of ERP. The sticker system would differentiate
between high and low emissions vehicles, and hence create a strong price signal in favour of
cleaner vehicles within the congestion charging zone. The approach is similar to the honour
systems used for low-emissions zones in Germany (and London), where a sticker must be
displayed if vehicles wish to access the low-emissions zone (see section 4.4.3).

The cost of the sticker would be calculated based on two components: air pollutant emissions
harmful to human health based on Euro standards for emissions of CO, NOx and PM, and a CO2
component. If vehicles conform to the Euro standard for some pollutant emissions, but deviate
negatively for others, then the lowest category to which the vehicle conforms should be used for
tax purposes. A possible tax structure is shown in Table 21.

Motorists could be given the option of purchasing a monthly or an annual pass and would always
be required to display the sticker on their vehicle . Such a measure could be enforced by means
of an honour system, whereby all drivers are expected to purchase a sticker, and parking
attendants and traffic police check vehicles and levy high fines for non-compliance.

This low-tech congestion charging scheme offers policymakers a more targeted way of reducing
air pollution in Jakarta than the current odd-even policy. The scheme could be implemented
rapidly, without installing costly or complex technology. This is important, as the ERP has faced

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many setbacks and it is not likely to be possible to install automatic number plate recognition
software on ERP gantries around the city. Instead, stickers could be made available for purchase
from several outlets, including automatic machines. To prevent theft, stickers would have to be
clearly attributed to a vehicle number plate.

Table 20: Proposed fee structure for the congestion charging scheme
Monthly Monthly Monthly cost Monthly cost USD
cost IDR cost USD75 IDR
Motorcycles and scooters CO2 emissions component for all four-wheeled vehicles
Electric 0 0 0-39g CO2/km 50,000 3.50
scooters
Under 100cc 50,000 3.50 40-70g CO2/km 100,000 7.00
100cc-150cc 60,000 4.20 71-95g CO2/km 150,000 10.50
150cc-250cc 70,000 4.90 96-125g CO2/km 200,000 14.00
250cc-500cc 80,000 5.60 126-194g CO2/km 300,000 21.00
Over 500cc 100,000 7.00 >195g CO2/km 400,000 28.00
AIR POLLUTANT EMISSIONS COMPONENT for the following vehicles
Gasoline-powered LDVs Diesel-powered LDVs
Retrofitted (filter) 50,000 3.50
Euro IV 25,000 1.75 Euro IV 50,000 3.50
Euro III 50,000 3.50 Euro III 100,000 7.00
Euro II 75,000 5.25 Euro II 150,000 10.50
Euro I 100,000 7.00 Euro I 200,000 14.00
Pre-Euro 300,000 21.00 Pre-Euro standard 400,000 28.00
standard
Alternative fuelled LDVs Light commercial vehicles (gasoline powered)
Electric cars 0 0 Euro IV 50,000 3.50
CNG / LPG 50,000 3.50 Euro III 100,000 7.00
vehicles
Hybrid vehicles 100,000 7.00 Euro II 150,000 10.50
3-wheelers 50,000 3.50 Euro I 200,000 14.00
3-wheelers CNG 25,000 1.75 Pre-Euro standard 400,000 28.00
conv.
Light commercial vehicles (diesel powered) Heavy duty vehicles (HDVs)
Public transport vehicles pay 50% of rate
Retrofitted 100,000 7.00 Retrofitted 0 0
Euro IV 100,000 7.00 CNG conversion 0 0
Euro III 200,000 14.00 Euro IV 200,000 14.00
Euro II 300,000 21.00 Euro III 300,000 21.00
Euro I 400,000 28.00 Euro II 400,000 28.00
Pre-Euro 600,000 42.00 Euro I 600,000 42.00
standard
Source: Authors

A proportion of the savings resulting from the failure to implement ERP in 2019 – IDR 39.3 billion
in 2019/US$2.75 million – could be reinvested in the congestion charging scheme (Jakarta Post
2019b). A 2019 gubernatorial instruction foresees the implementation of ERP in 2021, when the
sticker system could be replaced. However, independent experts have suggested that this
timeline might also not prove realistic, given the time taken so far for the bidding process and the

75
Exchange rate October 2019 average taken from InforEuro https://ec.europa.eu/budget/graphs/inforeuro.html

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withdrawal of business that had tendered for the scheme, citing “continued uncertainty regarding
the tendering timeline, project structure and financing, and project profitability” (Jakarta Post
2019b).

Given the lack of data available on the Jakarta fleet, neither accurate revenue estimates nor
calculations of health impacts are possible within the limitations of this study. We can however
take an average of the impacts of congestion charging elsewhere on emissions. Timilsina and Dulal
(2015) suggest that congestion charges generally reduce vehicle traffic by 9-12 percent. If we take
the lower figure of 9%, we can sketch out a hypothetical case for health cost savings had
congestion charging been implemented in 2016. Assuming a linear relationship between a fall in
traffic volumes, harmful emissions, and health costs: If congestion charging reduces traffic by 9%,
this would result in a 9% drop in transport sector related air pollutant emissions, and a 9%
reduction in health costs, generating health cost savings of as much as IDR 1.6 trillion/US$120
million compared to a non-reduction scenario.

Further possible impacts include: Higher use of cleaner vehicles; modal shift to public transport;
reduced non-essential journeys; bundling of tasks in central Jakarta by travellers. As it is not
transferable between vehicles, the sticker system may also encourage higher rates of car and
motorcycle sharing. These changes in behaviour would reduce emissions harmful to human
health, by reducing overall traffic volumes, congestion and idling. Positive outcomes will likely be
maximised by implementing congestion charging in parallel to two further measures proposed
below: a reform of municipal vehicle registration tax and the distribution of low-cost and free
public transport tickets.

Unlike the odd-even policy, introducing congestion charging would also have the potential to raise
revenues for the city of Jakarta, which could be used to fund CNG conversions or retrofits to install
diesel filters in heavy duty vehicles, including both freight vehicles and public transport (see
below). Clearly, the revenue-raising potential of the measure is closely linked to how effectively
the scheme is enforced, and there is a risk of evasion and corruption.

Relatively high penalties can encourage compliance, offset the financial cost of tax evaders and
raise additional revenue. In terms of revenue, in Berlin for example, 65,000 drivers annually on
average, the vast majority not from the city, fail to comply with the low-emissions zone (for more
information on lessons learned from the enforcement of low-emissions zones in Germany see
4.4.3.). Assuming 100 percent enforcement, penalty charges in Berlin have the potential to raise
revenues of approximately US$5.7 million / IDR 81 billion annually. Furthermore, as noted above,
honour systems also tend to see reduced levels of evasion over time, as compliance becomes the
norm and drivers understand the system.

In terms of public acceptability, the scheme is open to criticism, because it cannot differentiate
between the time of travel or the distance travelled. However, this is also true of the odd/even
policy, in comparison to which the proposed scheme represents a significant improvement in
terms of fairness and more effective targeting of polluters.

Concerns regarding possible negative impacts on poorer households may also be raised, although
the differentiated charges, and low charges for motorcycles, mean that in many cases, the fee
charges will have a progressive impact. It is proposed that accompanying measures to distribute

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free public transport tickets to poorer households be introduced concurrently to encourage
modal shift and prevent negative equity impacts on poorer households (see 5.3.4. below).

5.3.3. Increase Motorized Vehicle Fuel Tax differentiated by fuel type under Act 28/2009
Currently, Motorized Vehicle Fuel Tax is levied at 5 percent under Act 28/2009 in DKI Jakarta.
Under this act, provinces can impose a tax on transport fuels of up to 10 percent on the sale price.
However, this rate was capped at 5 percent by Presidential Decree in 2014. This 5 percent tax rate
represents an effective carbon tax of IDR 323/US$9.24 on gasoline (RON 88), IDR 231/US$6.18 on
diesel (CN48) and IDR 155/US$6.67 on CNG – an average of around US$7.37, which is low by
international comparison and far below the recommended rates proposed by the High-Level
Commission on Carbon Prices of US$40-80/tCO2e by 2020 and US$50-100/tCO2e by 2030 (OECD
2019a; HLCCP 2017).76

Lifting the cap set by the 2014 Decree with immediate effect would enable DKI Jakarta to impose
higher taxes on transport fuels. The gradual implementation of a differentiated tax rate up to the
upper limit of 10 percent would boost political acceptance for the measure and deliver stable and
predictable tax increases upon which business and private consumers can base their decisions.
Possible rates are shown in Table 22.

Table 21: Proposed fuel tax escalator 2020-2022

Diesel Gasoline LPG / CNG Shipping fuel
2020 8% 6% 0% 0%
2021 9% 7% 0% 0%
2022 10% 8% 0% 0%
Source: Authors

Levying an environmental tax on the price of transport fuels rather than on the quantity
consumed is not recommended in the longer term. An ad quantum tax is more in line with the
principles and rationale of environmental taxation, as it imposes a price on a unit of pollution,
rather than deriving the tax payable from the price of the good or service. An ad valorem tax on
the other hand risks amplifying fluctuations in the global oil price in a domestic setting.
Furthermore, there is a risk that levying a tax on transport fuels at different rates in different
provinces will create market distortions and result in “tank tourism” or fuel mixing.

However, even taking these disadvantages into account, as an interim measure with the potential
to be implemented relatively rapidly, a differentiated ad valorem tax would create a price signal
in favour of cleaner fuel in the city.
International experience has shown that the response to differentiated tax rates on transport
fuels can be disproportionate to the amount of price increase, e.g. differentiated taxes on leaded
and unleaded fuels in Thailand (see 4.2.3.).

This measure has the potential to reduce consumption of transport fuels in general, encourage
fuel switching from diesel to CNG/LPG and to gasoline vehicles, as well as encouraging modal shift
from road freight to inland waterways/shipping in response to the rising cost of diesel and the
zero rate of tax imposed on shipping fuels for shipping.

76
The rates calculated here use the same assumptions as for the calculation of the impact assessment in 2019.

116
Figure 33 shows the development of gasoline and diesel retail prices and consumption in Jakarta
from 2008-2018. In addition, it reflects the potential retail price increases of 1-3 percent for
gasoline and of 3-5 percent for diesel under the proposed Motorized Vehicle Fuel Duty Scheme
(assuming constant nominal retail prices based from 2018 onwards).

Figure 33: Development of total gasoline and diesel consumption and retail prices under BAU
and proposed Motorized Vehicle Fuel Tax Scheme 2008-2022

Source: Time series for 2008-2018 based on Tables 4.4. and 5.4.2 in the 2018 Handbook of Energy & Economic Statistics of
Indonesia (MEMR 2019). Assumptions about stagnating nominal gasoline and diesel retail prices under a BAU scenario from
2018 onwards are based on Tables 7 to 8 in Indonesia Biofuels Annual Report 2019 (USDA Foreign Agricultural Service
(2019).

The inflation adjusted average fuel price increase under the proposed Motorized Vehicle Fuel
Duty scheme would be close to zero, and much less than the fuel price fluctuations following the
2015 fossil fuel subsidy reform, or in response to global oil price fluctuations. In consequence, the
proposed scheme would not lead to a significant reduction in fuel consumption compared to 2019
level. However, compared to the BAU scenario the increased fuel duty could help to thwart the
steady rise in fuel consumption by up to 1 percent until 2022 and by up to 2 percent until 2027
(as shown in Figure 34). Based on these estimates, fuel cost savings in DKI Jakarta might add up
to 88 billion IDR (US$6 million) in the first year after implementation.

The hypothetical impact of this proposal on transport sector air pollution decrease and health
cost savings for the year 2016 are estimated to amount to as much as IDR 41 billion/US$3 million
in DKI Jakarta comparison to a non-reduction scenario. This figure assumes an average 0.4 percent
reduction in transport sector energy consumption in 2016 (like what we would expect in the year
after implementing the proposed Fuel Duty rates) and a subsequent 0.4 percent decrease in
transport sector related air pollution and health costs.

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Figure 34: Impact of proposed Motorized Fuel Duty on fuel prices and energy consumption

Between 2013 and 2019 government revenues from the existing duty on fuel for motorized
vehicles (in Indonesian: Pajak Bahan Bakar – Kendaraan Bermotor or PBB-KB) ranged between
1,027 and 1,275 billion IDR or between 84 and 90 million US$ as shown in Figure 35.

We apply the proposed differentiated fuel duty escalator (22) to estimate ranges for government
revenues from the proposed Motorized Vehicle Fuel Duty scheme between 2020-2022 (see table
23). Based on our assumptions, government revenues from the proposed fuel duty could raise an
additional 344-793 billion IDR or 24-56 million US$ (Figure 36). These revenues could be used for
several purposes, including funding low-cost and/or free public transport tickets for poorer
households (see further recommendation below).

In 2017, transport-related government revenues contributed 40 percent in total to the local

government budget, namely:
▪ 3 percent from Motorized Vehicle Fuel Duty (in Indonesian: Pajak Bahan Bakar –
Kendaraan Bermotor or PBB-KB),
▪ 14 percent from Transfer of Motor Vehicle Name Fee (in Indonesian: Bea Balik
Nama Kendaraan Bermotor or BBN-KB),
▪ 22 percent from Motor Vehicle Tax (in Indonesian: Pajak Kendaraan Bermotor or
PKB), and
▪ 1 percent from Parking Fees (in Indonesian: Pajak Parkir).
Between 2013 and 2019 revenues from the fuel duty remained more or less stable, while
revenues from the motor vehicle tax and parking fees doubled and revenues from the transfer of
motor vehicle name fee decreased slightly. In the same period, revenues from other local taxes
almost doubled. Although our estimates for an increase in budget revenues from the proposed
Motorized Vehicle Fuel Duty seem significant when considered stand-alone, they might only
increase the contribution of the fuel duty to overall local budget tax revenues by 1 percent.

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Figure 35: Realised and targeted government revenues from the existing Motorized Vehicle
Fuel Duty scheme/ PBB-KB in relation to gasoline and diesel retail prices between 2013-2019

Sources: Realized revenues from the existing Motorized Vehicle Fuel Duty scheme/ PBB -KB between 2013-2017 cited from
Tables 2.9 to 2.13 in “Rencana Strategis (Renstra) Tahun 2017 -2022 (Badan Pajak dan Retribusi Daerah Provinsi (BPRDP) DKI
Jakarta (2019); Gasoline, diesel and crude oil prices between 2013-2018 cited from Tables 1.5 and 4.4. in (MEMR 2019);
assumptions about stabilized gasoline and diesel retail prices in 2019 are based on Tables 7 to 8 in (USDA Foreign Agricultural
Service 2019); 2019 Motorized Vehicle Fuel Duty revenues represent the target of the Government of DKI Jakarta instead of
realized revenues (APBD Jakarta 2019); due to a lack of data 2018 Motorized Vehicle Fuel Duty revenues were calculated as
the mean of values for 2017 and 2019.

Table 22: Minimum and maximum estimated local tax revenues from the fuel duty in DKI
Jakarta between 2020-2022
(billion IDR) Total minimum Total maximum Average increase as compared to BAU
Range 2013-2019 1,027 1,275
2020 1,334 1,656 344
2021 1,535 1,905 569
2022 1,734 2,153 793
Assumptions for 2020-2022: constant contribution to transport sector fuel sales of each fuel type (73% gasoline, 27%
diesel) in DKI Jakarta as of 2015; constant Motorized Vehicle Fuel Duty revenues under BAU (ranging between 1,027 -1,275
billion IDR).

Figure 36: Realised and estimated local tax revenues from the fuel duty between 2019-2022
(in billion IDR)

Assumptions for 2020-2022: constant contribution to transport sector fuel sales of each fuel type (73% gasoline, 27%
diesel) in DKI Jakarta as of 2015; constant Motorized Vehicle Fuel Duty revenues under BAU (ranging between 1,027 -1,275
billion IDR).

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A carbon tax on transport fuels in DKI Jakarta may pave the way for the imposition of a carbon tax
on transport fuels at national level, if a national tax proves politically too difficult to implement.
The national carbon tax could be linked to the collection mechanisms used for excise duty,
targeting very few taxpayers to minimise the administrative cost.

If the introduction of a national ad quantum carbon tax proves to be politically difficult, an

alternative approach would be to reform Law 28/009 pertaining to the PBBKB law, to enable
provinces to levy an ad quantum tax on the carbon content of transport fuels. Once this has been
achieved, as with the proposal for a national carbon tax, a tax rate should be implemented
gradually and by means of an escalator.

Figure 37: Share of transport related local tax revenues of total local tax revenues between
2013-2019 (billion IDR)

Source: Realized revenues from Fuel Duty/ PBB-KB between 2013-2017 cited from Tables 2.9 to 2.13 in “Rencana Strategis
(Renstra) Tahun 2017-2022” (Badan Pajak dan Retribusi Daerah Provinsi DKI Jakarta 2019); 2019 Fuel duty revenues
represent the target of the Government of DKI Jakarta instead of realized revenues (APBD Jakarta 2019); due to a lack of
data 2018 revenues were calculated as the mean of values for 2017 and 2019.

5.3.4. Allocation of free public transport tickets for poor households

Packages of measures to foster transport policy objectives such as modal shift tend to be more
effective than instruments implemented in isolation. Distribution of free tickets to poorer
households for mass rapid transit and light rail transit in parallel to the introduction of higher
taxes on transport fuels has the potential to increase the rate of modal shift to public transport.
While it would not be possible to legally earmark revenues raised through the PBBKB,
policymakers could communicate the political relationship between the two policies.

Considering a current subsidy of 11,000-21,000 IDR per metro (MRT) ticket and 35,000 IDR per
light rail transit (LRT) ticket (The Insider Stories 2019), the increase in government revenues from
the proposed Motorized Fuel Duty Scheme (above) could help to subsidize 16-31 million MRT
tickets or 10 million LRT tickets in 2020, 27-52 million MRT tickets or 16 million LRT tickets in 2021
and 38-72 million MRT tickets or 23 million LRT tickets in 2022 (see Table 23). The Jakarta MRT
became operational at the beginning of 2019 and by July 2019, up to 94,000 passengers were
using the MRT per day. A further decrease of ticket prices might help to increase the number of
passengers (Kompas 2019).

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Table 23: Number of MRT or LRT tickets that could be subsidized from the increase in
government revenues from the proposed Motorized Vehicle Fuel Duty scheme 2020-2022
(IDR) MRT Minimum MRT Maximum LRT
Economic tariff 21.000 31.000 41.000
Ticket 10.000 10.000 6.000
Subsidy 11.000 21.000 35.000
Number of tickets that could be subsidized from the increase in government
revenues from the proposed Motorized Vehicle Fuel Duty scheme
2020 31.278.782 16.384.124 9.830.474
2021 51.756.588 27.110.594 16.266.356
2022 72.134.735 37.784.861 22.670.917
Source: The Insider Story 2019

Such a policy could go some way to mitigating potentially negative impacts of the introduction of
the congestion charging scheme and/or increased fuel prices resulting from the measures
proposed above. Distribution could be linked to existing pro-poor mechanisms distributing low-
cost tickets for public transport. The measure would also complement existing measures to
subsidise public transport tickets.

5.3.5. Reform annual motorized vehicle tax in Jakarta (PKB) to differentiate based on
harmful emissions
Reforming the annual motorized vehicle tax in Jakarta – the Pajak Kendaraan Bermotor or PKB) –
to turn it into a tax differentiated based on vehicle emissions could follow the basic tax structure
for the vehicle ownership tax proposed above.

This measure is relatively important in terms of revenue in Jakarta and accounted for IDR 5.1
trillion/US$357 billion – 15.7 percent of all local tax income in the 2014 budget (LCSP 2015).
Currently, to deter multiple car ownership, Jakarta charges a 2 percent PKB tax on the first car
registered at an address, 4 percent on the second car, 6 percent on the third and 10 percent on
the fourth. Given that the system is currently easily avoided by registering cars under different
names, or even in different provinces, some caution in the implementation of these multipliers
should be exercised to encourage compliance. Annual motorized vehicle taxes could be levied e.g.
using a multiple of 1.5 for the second vehicle, x2 for the third, x2.5 for the fourth, etc.

To implement, Law 28 of 2009 regarding Local Government Taxes and Retributions would have to
be reformed. The implementation of this measure would also require additional data in vehicle
registration certificates (STNK). For circulation charges to be implemented on the basis of the tax
brackets proposed in Table 19, data on the Euro classification and CO2 emissions of all road
vehicles in the fleet is required. It is unclear whether such data is currently available for all vehicles
in Indonesia and as a result, this measure is recommended for implementation pending further
analysis.

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5.3.6. Subsidies for the installation of CNG conversion kits and particulate filters for
diesel freight vehicles and diesel
However, emissions from freight vehicles are yet to be tackled effectively, although they are
expected to account for 10 percent of SO2 emissions in Jakarta by 2030 in a BAU scenario
(Haryanto 2017). A ban on the import of second-hand trucks from 2006-2015 was not enforced,
which led to an estimated 2,000 trucks being illegally imported each year. Subsequent legislation
reversed the policy (GIZ 2017).

Small fiscal incentives to retrofit or convert freight vehicles to CNG would be created by the
schemes proposed above to differentiate vehicle registration and circulation fees in line with
emissions, as would the proposed introduction of congestion charging in Jakarta. However, the
payback times would be relatively long.

Subsidy schemes to fund or part-fund the installation of technologies to reduce emissions harmful
to human health in diesel freight vehicles, e.g. conversion to CNG or retrofitting to recirculate
exhaust gas, install diesel oxidation catalysts and implement selective catalytic reduction would
encourage freight companies operating on narrow profit margins to invest in clean technologies.
Low awareness of solutions to reduce emissions in a fragmented sector could be addressed by
information campaigns to raise awareness of the subsidy. Revenues from fuel taxes or sale of
stickers for the congestion charging scheme could be used to fund the programme. The subsidy
could cover the cost of installation minus the annual savings resulting from the lower congestion
charge payable and lower annual taxation of CNG-converted or retrofitted freight vehicles.

Upgrading a Euro II HDV with emission control technologies necessary to comply with Euro IV
standards costs approximately IDR 38 million/US$2,700 per vehicle (ICCT 2014). Some vehicle
technologies are too old to be effectively retrofitted. In such cases, a scrappage scheme might be
the most effective best policy response.

It is not possible to predict the potential cost of this scheme, or its health impacts, as data is not
available on the composition of the fleet and take-up is unpredictable. If 1% of freight vehicles in
Jakarta took up the scheme, or 7,000 vehicles, it would cost IDR 268 billion/US$18.9 million.

There is a risk that higher freight costs result in indirect price increases, such as higher food prices,
which would impact negatively on poor households. Depending on their magnitude, economic
growth may also be negatively affected by policies to increase the cost of freight. However, this
must be weighed against the economic, social and environmental benefits of reduced air
pollution.

5.3.7. Subsidies for electrification of public transport

In the public transport sector, many efforts have already been made to reduce emissions from
the fleet. Regulations to clean up the public transport fleet have resulted in buses over 10 years
old with high levels of harmful emissions being taken off the road in Jakarta (see Perda
no.5/2014). UN Environment and partners are currently supporting a program move towards
electrifying the public transport fleet in Jakarta. Initial pilots of single and medium-size electric
buses took place in May 2019 (UNEP 2019). Widespread deployment of electric buses in the
capital is currently under consideration and could have significant effects on air pollution: There
are more than 3,000 buses in Jakarta: if 30 percent of the fleet was made up of electric vehicles,

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local emissions of harmful pollutants such as NOx and SO2 would fall by around 30 percent,
particulate emissions would also fall to a lesser extent as some emissions are from braking and
tyres.

In terms of equity impacts, it would be important to ensure that public transport ticket prices do
not increase as a result of the higher upfront costs of electric buses. Otherwise, only positive
equity impacts are predicted due to improvements in human health outcomes and reduced health
costs. As noted elsewhere in this study, these benefits will be disproportionately felt by poorer
income quintiles.

Increased revenues from the policies proposed above, including the congestion charge, could be
used by the Jakarta government to build charging infrastructure and subsidise the deployment of
electric buses, as has taken place in India and the UK (see section 4.5.1). In parallel, it is essential
that Indonesia introduce higher emissions standards for coal plants to ensure that emissions are
not simply shifted out of the city centre: otherwise, the human health benefits of introducing EVs
in the public transport sector will be low.

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6. Conclusions: Policy options and the way forward

6.1. Summary of key findings and proposed policy reform package

Table 24 summarises the recommended fiscal policy package and proposes an implementation
timeline. 77 The timeline is based on three main considerations. First, the need to sequence
policies carefully and so minimise negative impacts on vulnerable households and small
businesses. Second, to ensure that policymakers have time to respond gradually to political
developments and potential negative impacts as they occur – particularly important in view of the
political sensitivity of fuel prices in Indonesia. Third, to leave time for preparatory measures to be
put in place prior to the implementation of the fiscal policies suggested. Purely fiscal policy
measures and hybrid measures – which combine elements of regulatory measures and fiscal
policies – are proposed. The fiscal policy measures which are the focus of this chapter should be
complemented by additional non-fiscal recommendations outlined in this study, including efforts
to improve data collection, transparency, monitoring and reporting capacities, more stringent fuel
quality regulations, and efforts to update existing regulation and address overlaps (see section
6.2. on implementation challenges).

Short-term measures focus on quick or easy wins, which can be implemented efficiently and are
likely to be met with low resistance on the part of stakeholders or consist of measures which are
necessary to pave the way for deeper reforms in the transport sector. These measures include a
combination of regulations to reduce sulphur content in fuel and a fiscal measure – differentiated
sulphur excise duty – to incentivise cleaner fuels and ensure that price signals work in favour of
cleaner fuels throughout the economy. It is intended that some of these complementary
measures will bring about relatively rapid reductions in emissions in Jakarta, e.g. differentiated
sulphur taxation alongside better regulation of vehicle and fuel standards. The low-tech
congestion charge proposed is a response to the delays to the implementation of ERP and could
act as a stop gap to reduce traffic volumes in the interim and be replaced by the more targeted
ERP as soon as possible.

Medium term measures will take longer to prepare and implement, due to a greater level of
consensus building that is required, or the need for further data analysis to inform policy
development. Lower priority medium-term policies call for provincial and/or national government
expenditure, and so might be more suitable for a second policy phase once additional revenues
have been raised for investment.

Some measures could be implemented at national or provincial level. Where this is the case, it
has been clearly marked in the table. Without further analysis of the political economy from the
perspectives of relevant policymakers and stakeholders, it is difficult to ascertain which level of
government will prove to be more politically feasible in practice.

In all cases, an effort was made to identify measures that are relatively simple and cost-effective,
so as not to introduce additional complexity into the system. The administrative cost of levying

77
Detailed descriptions of all measures proposed, including, data permitting, analyses of their costs or potential revenue raised, as
well as impacts on human health and broader environmental and climate impacts can be found in chapter 5.

124
taxes on transport fuels is low and such taxes are easy to implement as they target only a few
taxpayers at the top of the value chain, whether the tax base is sulphur content, CO2 emissions or
fuel type.

The package prioritises the application of taxes, fees and charges to change behaviour and boost
the revenue available to subsidise alternative transport modes and invest in public transport in
Jakarta. These steps are essential to establish a viable alternative to private mobility and reduce
congestion and traffic volumes. Such measures would build on and support ongoing initiatives to
improve public transport by expanding LRT, MRT and BRT networks and efforts to better integrate
public and private bus transport systems, as well as ongoing programmes to pilot electric buses
and clean up the bus fleet by taking the oldest and most high polluting public transport vehicles
off the road.

Where the obstacles to the reduction of harmful emissions are related to lack of access to capital
or lack of incentives to invest in lower-polluting alternatives, subsidy expenditures are proposed
to bring about behavioural change and foster investment in clean alternatives. This is the case for
road freight. On the one hand, freight will be affected by the proposed congestion charging
scheme and fuel tax increases, which will encourage greater efficiency in the sector, fewer empty
journeys and upgrading of the fleet. On the other hand, as a sector dominated by SMEs, many
businesses are unlikely to be able to access sufficient credit to retrofit or replace older vehicles.
For this reason, subsidies are also proposed. In this way, the package sets out to address multiple
aspects of the pollution and health nexus in Jakarta and to systematically address the primary
obstacles to behavioural change.

Finally, this study proposes several measures to encourage the take-up of private low-emissions
and electric vehicles, including the differentiated vehicle registration charges, a congestion
charging scheme, and reforms to annual motorized vehicle tax. Further measures to subsidise
electric motorcycles could be considered, as these are more energy-efficient and importantly,
space efficient in the context of a highly congested city.

For potential improvements in air quality and human health to be realised from electrification of
the transport sector, the importance of reducing emissions of harmful pollutants and GHGs from
power generation cannot be overemphasised. Renewable energy deployment is an absolute
priority in this context, as are steps to tighten and enforce emissions standards in existing coal
power stations. If a corresponding focus on tackling harmful emissions from coal and driving
energy transition does not accompany EV penetration, the overall health benefits will be low.

It should be noted that positive equity impacts result from improvements in human health
outcomes and reduced health costs. These benefits will be disproportionately felt by poorer
income quintiles, as they are more negatively affected by poor air quality. Communication
strategies employed by the Jakarta government to build support for fiscal policies should
emphasise these benefits and educate the public on the costs associated with poor ambient air
quality and its impacts on human health. Such a strategy would feed into the current wave of
increasing awareness of the negative impacts of air pollution on health amongst Jakarta’s
population, which is simultaneously the cause and the result of the citizen’s lawsuit instigated in
2018.

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Table 24: Fiscal policy recommendations
Measure Relationship to existing Predicted Impacts on Health cost Social impacts Further comments Priority
National = N policies revenue emissions savings78 and measures to and
Provincial = P address timeline
Differentiated MoEF Decree No. 20/ IDR 22,078 Reduced fuel IDR 258 billion Tax rate per litre Essential to reinforce fuel Highest
sulphur excise 2017 regulates sulphur bn consumption: US$19 million for most fuels standards and drive investment priority
duty (N) content of fuels CN48 -4% IDR 100 (0.7 US in desulphurisation of fuels. Easy
US$1.6 bn Bio gasoil -1% cents). IDR 700 to implement – targets a few Short
(2018) Other fuels <1% on CN48 (5 US large taxpayers. Will address term
cents). Limited perverse incentive that poor (2020)
1.4% decrease in social impacts quality fuels are currently priced
air pollution anticipated. lower than high quality fuels.

Reform of Price regulations IDR 24 tr / Estimates for Estimates not Possible negative Fuel price regulation must be Highest
diesel subsidies, imposed by US$1.7 bn 2018 not available impacts on lower phased out (current presidential priority
removal of price Presidential Decree in 2018 available but income groups. guarantees run until the end of
regulations will run out at end international Cash transfers & 2019). In 2020, subsidies should Short
(N) 2019. They should not IDR 104 tr experience higher spending be replaced with market-based term
be extended. / USD 7 shows that a on welfare, fuel pricing and fuel taxes. (2020)
bn in reduction in health, Consensus building and sound
2019 harmful education welfare measures will be
emissions and essential in parallel to reform.
CO2 is to be
expected (see
e.g. IMF 2019)
Measure Relationship to Predicted Impacts on Health cost Social impacts Further comments Priority
National = N existing policies revenue79 emissions savings80 and measures to
Provincial = P address
Congestion 2019 gubernatorial Estimates Congestion If the scheme Distribution of Low administrative cost (covered High
charging system instruction foresees not charging reduces reduces traffic free public by revenues from sticker sales), priority

78 Health cost savings are calculated on the basis of total health costs in 2016 (the most recent year for which data is available).
79
Predicted revenues are based on costings for 2018 unless otherwise stated.
80
Health cost savings are calculated on the basis of total health costs in 2016 (the most recent year for which data is available).

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in Jakarta within ERP in 2021. A low-tech possible traffic volumes by 9%: transport tickets low-tech measure to reduce
JORR sticker system is due to lack on average by IDR 1.6 trillion / to poor harmful emissions and Short
(P) proposed as a of fleet 9-12%. We US$120 million households to discourage most polluting term
temporary measure to data assume roughly mitigate negative vehicles to travel in central (2020)
implement, in line with linear emissions equity impacts Jakarta. Should reduce
previous gubernatorial reductions congestion and encourage
instructions. modal shift. Requires further
analysis of the fleet in Jakarta to
finalise tax bands and tax rates
and estimate revenue and
impact.
Increased Under Act 28/2009 IDR 344- Reduced fuel IDR 41 bn / Negative equity Low administrative cost, but may High
Motor Vehicle provinces can tax 793 bn consumption: US$3 mn impacts be challenging to build priority
Fuel Tax transport fuels up to 1% by 2022 and expected to be consensus and implement, as
differentiated 10% of the sale price. US$24-56 2% by 2027. minimal: fuel prices highly politicised in Short
by fuel type Rate capped at 5% by mn Distribution of Indonesia. Essential that lower term
(P) Presidential Decree in (2020- Fuel cost savings free / low-cost taxes are levied on cleaner fuels (2020)
2014. Cap needs to be 2022) IDR 88 billion / public transport (anything else distorts the
lifted to implement. USD 6 million in tickets to market in favour of dirty fuel).
first year mitigate negative
impacts

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 Measure Relationship to Predicted Impacts on Health cost Social impacts Further comments Priority
National = N existing policies revenue81 emissions savings82 and measures to
Provincial = P address
Differentiated Amendment of (N) Lewis Estimates for our Estimates not Negative social National reform would have a Highest
vehicle Government 2019: USD proposal not possible impacts limited, greater impact on emissions. priority
ownership taxes regulation No. 41/ 6.2 bn/ IDR possible due to as vehicle Current luxury tax rules distort
levied on the 2013 to amend luxury 89 tr lack of fleet data purchase taxes the market and increase GHG Medium
purchase of new tax. RUEN foresees tend to affect emissions: reform is urgent! term
vehicles higher numbers of EVs, (N) LCSP LCSP model wealthier income Information on new vehicles and (2021-
(N / P) hybrids, low-emissions 2015: USD (2015) reduced deciles analysis of luxury tax / municipal 2023)
cars and urban access 10 bn / IDR CO2 emissions by ownership tax revenues
limitations on freight 1,458 tr 37% = tax of 5%- required.
transport vehicles. 40% on new cars Policies that encourage EVs must
Presidential Decree (P) up to in line with CO2 be accompanied by higher rates
No. 55/ 2019 calls for USD 1 bn / emissions of renewable energy
fiscal measures in IDR 14 tr deployment.
favour of EVs.
Carbon tax on RUEN foresees the Jakarta: Decreased IDR 283 billion / Expected to be To replace differentiated fuel High
transport fuels preparation and IDR 1,447 consumption: US$21 million in negligible given taxes at provincial level. priority
at national level implementation of a bn / USD Gasoline: 3% Jakarta the proposed tax
(N) carbon tax policy on 102 mn in Diesel: 4% rate increases National measure is preferable Medium
fossil fuels. 2020 (3% CNG: 4% to reduce distortions. National term
of local tax (compared to Revenues raised carbon tax has potential to raise (2020-
revenue) BAU by 2031). can be invested twice as much revenue as an 2023)
Longer term to address and increase to Motor Vehicle Fuel
Indonesia: impacts up to 7% minor impacts Tax at municipal level
IDR 23,550 less than BAU. identified
bn / US$
1,663 mn

81
Predicted revenues are based on costings for 2018 unless otherwise stated.
82
Health cost savings are calculated on the basis of total health costs in 2016 (the most recent year for which data is available).

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 Measure Relationship to Predicted Impacts on Health cost Social impacts Further comments Priority
National = N existing policies revenue83 emissions savings84 and measures to
Provincial = P address
Subsidies for Feeds into existing 1% take up Estimate not Estimate not Negative impacts Freight is not the highest priority High
CNG conversion policies to distribute would cost possible given possible on family-run in Jakarta, as other sectors – esp. priority
kits and free conversion kits. IDR 268 bn lack of data on SMEs: Subsidy diesel passenger vehicles –
particulate RUEN foresees mass / USD 19 freight vehicles will compensate produce more harmful air Medium
filters in HDVs development of CNG mio for congestion pollution according to GAINS term
(P) stations. charging scheme data (see chapter 2) (2021-
2023)
Subsidies for Pilots currently Dependent A 30% increase Estimate not None required Must be implemented in parallel Medium
electric buses underway in Jakarta on in electric buses possible based to efforts to increase the amount priority
and charging revenue would reduce on available data of renewable energy in the
infrastructure available harmful energy mix, and to tighten Medium
(P) (medium pollution by 30% emissions standards on coal- term
priority) fired power stations (2020-
2025)
Scrappage RUEN foresees clean- IDR 149 bn Emissions Estimate not Family-run SMEs Would remove oldest and Medium
scheme for up of freight sector. US$10.5 reductions per possible given may not be able dirtiest vehicles from Jakarta. priority
heavy duty Scrappage already mio (1% HDV scrapped: lack of data to access credit
freight vehicles implemented at uptake of NOx 78% or afford new Costly programme, could be Medium
(P) municipal level for IDR 21.2 CO 88% vehicles: risk of funded by revenues from fuel term
public transport mio / USD PM 95% job losses taxes proposed above or the
vehicles. 1,500) congestion charge

83
Predicted revenues are based on costings for 2018 unless otherwise stated.
84
Health cost savings are calculated on the basis of total health costs in 2016 (the most recent year for which data is available).

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6.2. Challenges to the reform package and how they can be overcome

6.2.1. Lack of robust data on air pollution in Jakarta

Monitoring of air pollutants in Indonesia is relatively inconsistent and highly politicized.
Specifically, regular monitoring to identify pollution spikes – the most harmful to human health –
would enable policymakers to tailor transport policies to the air quality situations on any day. It
is also difficult to ascertain which are the most severe pollution hotspots in the city. This situation
is a hindrance to evidence-based policymaking. There is a danger that this current lack of data will
undermine future attempts of the national or Jakarta governments to communicate the rationale
behind better and more targeted fiscal policy measures in the transport sector.

This challenge can be overcome if the responsible agencies make a commitment to more detailed,
transparent and regular reporting of pollution concentrations. In political economy terms, the
implementation of measures to improve air quality might encourage such a commitment, as it
would afford the responsible agencies the opportunity to prove that their policies are effective.
Transparent and regular reporting could incorporate warning mechanisms if concentrations
exceed NAAQS or are consistently higher than WHO guideline values. A warning mechanism could
feed into the ERP scheme, e.g. by using monitoring data to set road prices for commuters on days
or times of year where pollution concentrations are particularly high. Prior to ERP
implementation, such a warning mechanism could lead to the temporary re-introduction of the
odd/even policy (which we propose should be replaced by a congestion charge, see section 5.3.2.
and Table 25).

6.2.2. Data and knowledge bias towards GHG emissions rather than emissions harmful to
human health
In general, data and research available in the public domain on transport policies tends to refer
to GHG emissions reductions, rather than emissions harmful to human health. As a result,
understanding and estimating the human health impacts of fiscal policies in the transport sector
can be challenging for policymakers. This study aims to go some way to addressing this problem
by collating the positive health impacts of fiscal transport policy measures.

In the past, this focus on climate policy has posed a challenge to policymakers. It is not sufficient
to assume that reducing GHG emissions will reduce emissions of pollutants harmful to human
health: while there is in many cases a correlation between the two, this is not necessarily the case.
Fiscal incentives put in place in the 1990s and 2000s in the European Union to shift the private
vehicle fleet towards diesel vehicles are a case in point. The 406 percent increase in the proportion
of diesel vehicles in the UK fleet over the past 20 years has resulted in significant and unintended
increases in air pollutant emissions harmful to human health. In response, many European cities
have set up low-emissions zones to prevent older diesel vehicles entering city centres, as
described in section 4.4.3.

Policymakers in Indonesia can learn from this problem when developing policies for the transport
sector, whether fiscal or regulatory. In terms of regulations, the RUEN has foreseen the
establishment of fuel economy standards for motorized vehicles, especially private vehicles,
before 2020, although this is unlikely to be implemented in time. The adoption of fuel economy
standards for all vehicles of 5 litres/100 km by 2020 and 3.75 litres/100 km by 2025 does have
considerable potential to reduce GHG emissions from road transport: if enforced, by 2030 these

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fuel standards could avoid emissions of 0.28 gigatons CO2e, deliver economic benefits worth IDR
4,444 trillion/US$311 billion through fuel efficiency, production savings and public health
improvements, and generate roughly IDR 677 trillion/US$47 billion annually in fuel savings
(Safrudin 2018).

Notwithstanding these potentials, the missed 2020 deadline offers policymakers an opportunity
to fine tune this policy. Focussing exclusively on fuel efficiency favours diesel cars, which generally
emit higher volumes of pollutants harmful to human health: amending RUEN standards to include
not only fuel economy but also emissions of harmful pollutants is well worth considering.

6.2.3. Addressing the trade-off between air quality and fiscal policy goals
Policymakers often have to make a conscious effort to address and find solutions to potential
trade-offs between fiscal and environmental objectives of green fiscal policies. For example, a
primary source of revenue for the Jakarta government is motorised transport. If fiscal policies
foster a preference for fuel-efficient vehicles that are liable for lower rates of registration and
ownership tax, and a cheaper congestion charge, this will result – in the medium term at the latest
– in reduced revenues. One example of such a conflict is the current delay to the implementation
of a regulation to scrap vehicles more than ten years old. This regulation has been announced but
will only be implemented in 2025, possibly so that the government can continue to benefit from
fiscal revenues from vehicle ownership in the interim. Discouraging private vehicle ownership has
very real consequences for the public purse in Jakarta.

Policymakers can address these problems in several ways. For transport fuels this issue can be
addressed by implementing a tax escalator to stabilise revenues over time. This approach has
been proposed for carbon taxation of transport fuels at national level, and for taxation of fuels at
provincial level. In both cases, such a policy will incentivise a dynamic response to the price signal
and falling fuel consumption should be made up for by the gradually increasing tax rate. Such a
policy also creates predictability and stability for transport fuel taxpayers over the medium term
and so encourages investment in cleaner vehicles and vehicle technologies. This strategy has been
implemented in many European countries, including in the UK and Germany. In Vietnam, the
Environmental Protection Tax incorporates tax rate ranges that enable relatively depoliticised
increases to tax rates decided by a parliamentary committee (Cottrell et al. 2016).

Similarly, differentiated vehicle registration taxes and congestion charges should be regularly
reviewed to ensure that tax rates and tax bands reflect technological developments and
correspond with the development of the vehicle fleet. Hybrids, CNG vehicles, LCGCs, LCVs and EVs
also contribute to congestion, particulate emissions, wear and tear of roads, GHG emissions, and
air pollution: hence, in the medium term, they should not be exempt from transport taxation.

Furthermore, the costs of inaction in Jakarta are proving to be extremely high: health costs
resulting from poor air quality in Jakarta amounted to IDR 51.2 trillion/US$3.9 billion in 2016
(KPBB 2019). If the provincial government costed the environmental and health impacts and
factored them into its calculations, then preventative approaches to air pollution and health
would gain attractiveness and traction.

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6.2.4. Revenue allocation between national and provincial government
As provincial government budgets are quite limited and options to raise revenue are fewer than
at national level, policymakers at provincial level are faced with split incentives when it comes to
fiscal policy in the transport sector. For example: if the 5 percent cap on transport fuel tax is
reformed, the provincial government will be able to increase the tax rate on transport fuels, as
proposed in this study. By raising taxes, policymakers risk their political reputation and popularity.
This may be worth the political risk if policymakers are able to transparently redistribute the
revenues raised to fund e.g. free public transport tickets or conversion kits for freight vehicles.
However, there is a fundamental lack of transparency in the ultimate distribution of additional
revenue. Due to fiscal equalisation regulations, it is unclear that provincial governments will
receive additional revenue from central government, even if they increase taxation. Thus,
policymakers at the provincial level remain disincentivized from implementing environmentally-
forward fiscal policies, for fear of political backlash.85

A similar split incentives problem has plagued the implementation of the ERP scheme: the lack of
clarity on the destination of revenues is a significant obstacle to implementation. This is one
underlying reason for the municipal government seeming to be reluctant to prioritise ERP, as it is
unclear where it will be able to recoup its investment once the scheme is up and running. Legal
advice on how to address this challenge in relation to ERP has not been made available in the
public domain, according to experts interviewed during our research.

The root of this problem of split incentives reaches back to laws enacting regional autonomy (Law
22 of 1999, revised by Law 32 of 2004), which created regional autonomy for a range of
government functions but failed to match this with corresponding levels of fiscal autonomy.
Instead, revenue is redistributed in line with a set of fixed revenue-sharing arrangements, which
some authors have suggested are in practice “totally irrelevant for almost all regional
governments” (McLeod and McLeod 2010, p.31).

Moreover, fiscal equalisation regulations remove incentives for provincial governments to

increase taxes since allocation rules do not reflect tax revenues raised by particular sub-national
jurisdictions. Thus, at present increased revenues from a differentiated tax at provincial level may
benefit central government, but not the provincial government responsible for the additional
revenues raised (McLeod and McLeod 2010).

From 2020, the intergovernmental system of fiscal transfers governed under Act No. 32/ 2009
and Government Regulation No. 46/ 2017 will be amended to reflect ecological considerations.
While this may not solve the general problem of split incentives for fiscal policies, or the obscure
nature of fiscal transfers, this step will create incentives for the DKI Jakarta government to
implement green fiscal policies as a route to increasing fiscal transfers from central government.
A further solution to this problem might be to render it unambiguous during the drafting of fiscal
policies which level of government (national or provincial) and which ministry or agency is entitled
to receive the revenues. From the perspective of the provincial government, this can be achieved
by referring to specific fiscal revenue-raising measures as “retributions”, which would guarantee

85In a political environment in which fuel prices and transport are highly politicised, the problem of split incentives is just one of
several factors that deter policymakers from implementing green taxes or charges: increasing taxation is seldom a vote winner.

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that revenues flow to the provincial government. Experts interviewed for this study reported that
the Ministry of Finance is considering whether to introduce similar unambiguous terminology on
national level, although this has not yet been forthcoming.

6.2.5. Earmarking of revenue

Legal earmarking of revenue or hypothecation is not possible in Indonesia or DKI Jakarta.
Revenues from taxes are required to flow into the general budget, to be spent as the government
sees fit. The absence of earmarking can be said to have a few advantages in situations when:
collection volumes and required expenditure for the implementation of particular measures may
not match; retaining a degree of freedom to make decisions in line with policy priorities is
preferable for governments; revenues of green taxes might be too high to justify their being
entirely channelled into a specific environmental policy. On the other hand, where transparency
is lacking, the inability to earmark can undermine confidence and trust in government.

One possible solution to this problem might be to introduce political or soft earmarking. This
would imply that although government cannot legislate that tax revenue be used a specific
purpose, it could clearly communicate its intention to do so. Although this approach is essentially
a communication tool without legal force, it can be useful for make the objective of a particular
measure clear and to make revenue use more transparent. If this strategy is used, it is important
that such political earmarking be accompanied by a serious political commitment to deliver on
these promises: otherwise, it may not be sufficient to reassure government entities that they will
be the recipients of funding, or to reassure the public that revenues will be used as stated by
government.

6.2.6. Overlapping and outdated regulations result in poor enforcement

The analysis in chapter 3 showed the many ways in which regulations in Indonesia overlap,
become obsolete when new measures are implemented, or are not updated and thus lose their
relevance in the face of technology improvements. The challenge policymakers face is how to
decide which law or decree has precedence, and how to proceed in relation to policymaking. This
has slowed reform in several areas of transport policy. To address this issue, whenever a policy
proposal is implemented, lawmakers should consider re-examining all related legislation and
amend as appropriate or establish clearly in law which measure has precedence.

A related problem is that the enforcement of acts, decrees and regulations is sometimes poor.
This can be attributable to uncertainty regarding which policy has greater force; poor inter-
ministerial cooperation and coordination; corruption amongst officials and in the civil service (for
details of corruption charges in the civil service from 2013-16 see Jakarta Post 2017b); and officials
or agencies / ministries with a vested interest in the status quo.

Tackling corruption is a challenging process beyond the bounds of this study. However, two
aspects are particularly relevant on this context. First, dealing with the petty corruption in DKI
Jakarta – which has resulted in poor enforcement of the odd-even policy and poses a risk to the
effective implementation of the sticker system proposed to implement congestion charging –
might be possible if officials are both compensated at a level high enough to discourage cheating
the system and if severe penalties are introduced (e.g. immediate dismissal for those who are
caught cheating). To create a culture of compliance, a marketing campaign could be launched to
explain the rationale behind the congestion charge – for example, under the narrative that

133
reducing harmful emissions is a shared responsibility to stop irreversible health damage among
the most vulnerable.86

Second, it is important to note that the proposed carbon taxes and differentiated sulphur taxes
on transport fuels would be difficult to evade, as they are levied upstream on relatively few
taxpayers. The same is true of fiscal measures related to car purchase and registration, as these
can be collected using existing mechanisms for the collection of luxury tax, or progressive taxes
on vehicles at the local level.

6.2.7. Politicization of fuel prices

Fuel and energy prices are highly politicised in Indonesia. Many of the fiscal measures proposed
will result in higher prices for transport fuels and for individual mobility. Thus, political
acceptability is likely to prove the single most critical issue and potential obstacle to
implementation. If fiscal measures are implemented, a concerted effort will need to be made to
communicate clearly the reasoning behind the measures: better outcomes for human health;
better air quality in Jakarta; reduced congestion; shorter journey times; availability of additional
revenues for continuous improvement to the system.

Communication efforts conducted by provincial or national government may be able to draw on

a growing awareness of the negative impacts of air pollution on human health, created i.e. as a
result of the citizen’s civil lawsuit. Fossil fuel subsidy reform in 2015 led to substantial increases
in funding for infrastructure, education and health and provides several lessons for the
Government on how best implement such reforms. Subsidy reform laid the foundations for
subsequent increases in energy prices and raised awareness amongst the general public on the
reasoning behind such measures. The widespread understanding that spending on fossil fuels had
become fiscally unsustainable by 2015 fostered political acceptance of reform at the time: today,
these higher levels of understanding and awareness might create a window for government to
implement a further round of pricing reforms in the transport sector. For this potential to be
realised, however, the government will have to modify its approach on subsidies for transport
fuels, take steps to develop and solidify a long-term strategy for permanent subsidy phase-out,
and make a concerted effort to prevent policy reversals.

Numerous experiences around the world from France to Ecuador have shown that increasing fuel
prices without careful planning can be politically risky and result in policy reversals. In the past,
cheap energy prices have been used as a means of redistributing natural resource wealth and as
a rudimentary social welfare system. This has changed in recent years, with fossil fuel subsidy
reform freeing up revenues for higher investment in education, improvements in healthcare
(vaccination programmes, free access for the poor) and infrastructure. Nonetheless, fuel price
increases remain politicised and the Presidential price freeze implemented in 2018, set to remain
in place until at least the end of 2019, has proved to be a useful strategy for garnering additional
support from the electorate, albeit an expensive one. It is not clear at this stage whether there
will be further reforms of the subsidies in 2020, but no political commitments had been made to
this effect at the time of writing.

86The Transport for London campaign in London for the Low-Emissions Zone is a good example, see:
https://tfl.gov.uk/corporate/about-tfl/air-quality (accessed on 8 December 2019).

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Tackling the root cause of this politicisation is one way to address this challenge. Fossil fuel subsidy
reform and fuel price rises should be planned carefully and accompanied by structural changes to
ensure that higher spending on welfare continues, e.g. on healthcare and education, but is more
accurately targeted to the vulnerable. Prices should be adjusted gradually or timed to coincide
with falling global oil prices to alleviate the impact of reform. As in 2015, consensus building within
ministries and amongst the general public will be vital to lock in reform in the long-term. Industrial
stakeholders can be supported through the transition by way of support measures to mitigate the
negative impacts of fuel price rises, i.e. grants and subsidies to purchase energy-efficient
equipment, or low-emissions technologies for the freight sector, or subsidies to fund the
installation of desulphurization technologies in refineries. In the transport sector, revenues can
be used to invest in public transport and infrastructure to facilitate modal shift to public transport
and freight rail and shipping.

At the same time, better communication of policy logic and objectives – including data on the
unfair and inequitable impact of the status quo, and the cost of inaction derived from the failure
to address the public health crisis – can frame the reform process as part of a broader and more
wide-ranging policy debate. In general, rising awareness of the public health crisis in Jakarta –
including the citizen’s lawsuit – may create a political climate more receptive to fiscal policy
reforms. Improved data on human health costs and impacts resulting from poor air quality which
is widely publicized can also help inform the public discourse.

6.3. Policy synergies from a national and international perspective

The objectives of the fiscal measures proposed in this study – to reduce emissions harmful to
health from the transport sector – are closely related to several SDG targets and indicators. For
example, SDG3 on Good Health and Well-Being, which has targets and indicators relating to
deaths and illnesses from air pollution and health risks, or SDG 11 Sustainable Cities and
Communities, which has targets and indicators relating to accessible public transport, air quality
and particulate levels (for details see chapter 1). The connection to multiple SDG goals and targets
may allow policymakers to identify possible sources of external finance to invest in measures to
reduce harmful emissions. It may also be helpful for policymakers to explore synergies between
existing transport policies and proposals in this study with policies and approaches in other
sectors, e.g. industry policies, and urban planning, and consider how efforts to improve air quality
and minimise negative impacts on human health can be mainstreamed in a range of portfolios.
Urban planning for example can contribute massively to reduced exposure of populations to
harmful emissions from the transport sector by creating safe routes for zero-carbon transport
modes, such as cycling and walking.87

As highlighted in this study, GHG emissions in the transport sector and emissions harmful to
human health are closely linked. The relationship is not always linear, e.g. in the case of (older)
diesel vehicles or poor-quality transport fuels with high-sulphur content. However, the

87A discussion of urban planning policy is beyond the bounds of this study but very important in the Indonesian context, given the
declared intention to relocate the capital city away from Jakarta. Sustainable urban planning of the new capital emphasising public
transport and sustainable transport modes, while minimising necessary travel distances has the potential to prevent poor air quality.

135
correlation between human health and CO2 emissions on a global scale is clearly demonstrated
in chapter 2 in Figure 3, Figure 7 and
Figure 8 for the case of Indonesia. For this reason, if the policies proposed here were to fulfil
their objectives, the majority would bring about reductions in both CO2 emissions and pollutants
harmful to human health. Thus, the proposals can support policymakers in their efforts to
ensure that Indonesia achieves its climate mitigation targets laid down in its Nationally
Determined Contribution (NDC) – of a 29 percent reduction of GHG emissions on BAU – as well
as the achievement of the SDGs and the commitments of the Low-Carbon Development
Initiative.

Linking the human health, climate policy and sustainable development agendas might prove to
be a helpful way of communicating about fiscal policies in the transport sector. Emphasising the
co-benefits of policies can enhance their appeal to a wider audience and in the Jakarta case, can
feed into growing awareness of the negative human health impacts of poor air quality. In general,
transport strategies can target several objectives simultaneously and so, offer users lower travel
costs, improved mobility, better health, greater energy security, improved safety, and time
savings (Sims et al. 2014).

This study has focused on the severe health impacts of air pollution from the transport sector in
Jakarta and has proposed a series of measures to address it. The findings of this study and the
fiscal policies proposed are not only relevant for the case of DKI Jakarta, but also for other Asian
cities facing similar challenges, such as Hanoi or Bangkok, and beyond to other developing and
emerging economies facing the challenge of rapid urbanisation.

6.4. Further work and follow-up activities

During the writing of this study, it became clear that better and more comparable data is required
as a matter of urgency to inform policy formulation, including constant monitoring of air quality
at a range of pollution hotspots in Jakarta. Currently, as noted in chapter 2, data on emissions
harmful to human health is piecemeal at best, and data collection is poorly coordinated and
unreliable. An in-depth analysis of the vehicle fleet in Jakarta, would be necessary to refine the
proposal for the congestion charge and will be essential for the effective implementation of ERP
in the future, was not possible based on the available data.

It should be noted that those proposals that have been superficially costed in this study still merit
further analysis with improved and more up-to-date data. Going forward, an impact assessment
of any potential policies would be necessary to evaluate in-depth potential impacts and revenues,
which should include an assessment of low- and high-end tax scenarios, to understand what level
of tax is most likely to be effective.

In terms of next steps, capacity building on the transport emissions / health nexus and transport
policy design – fiscal and non-fiscal measures – might be helpful. This could include best practice
in the development of transparent mechanisms for revenue allocation. Given the urgent need to
make progress in Jakarta and reduce the frequency and severity of pollution spikes in the city,
capacity building could focus first on 2-3 priority measures, e.g. differentiated sulphur duties;
vehicle registration taxes; and the introduction of a congestion charge in Jakarta.

136
To create and maintain momentum for fiscal policy implementation, stakeholder engagement
processes could be advanced by the creation of two inter-ministerial working groups, drawing in
policymakers at both the national and provincial level. The high-level working group could bring
together decision-makers to foster the exchange of policy perspectives and the exploration of
possible approaches to air pollution from the transport sector (and beyond) in the city of Jakarta.
The operational level working group could support the high-level group by conducting background
research and upon request, developing concrete proposals and impact assessments.

In several countries, green fiscal commissions have proven helpful to raise awareness of possible
fiscal measures, explore their feasibility and engage with a range of stakeholders to build
consensus on possible next steps. To deal with the range of complex issues currently facing the
Indonesian government in meeting the targets of their NDC and domestic targets reflected in the
RUEN and other documents, such a commission could illuminate possible ways forward.

In Indonesia, or indeed at the provincial level in DKI Jakarta, a green fiscal and public health
commission working across ministries and stakeholders could create the momentum necessary
to implement some or indeed the majority of the measures recommended in this study and thus
realize concrete health benefits for the citizens of Jakarta.

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 Annexes

Annex I. Methodology for calculation of policy impacts

In chapter 5 of this study the potential impacts that some of the proposed policy instruments
could have on fuel prices, transport fuel consumption and related potential fuel cost savings,
government revenues and health cost savings were described.

Some policy instruments had to be excluded from this impact assessment e.g. vehicle ownership
tax or the proposed congestion charging system, because we were not able to access data in the
required complexity and granularity. For example, there was no information available on the
vehicle types currently in use (neither for Jakarta nor for Indonesia) including their engine sizes,
fuel efficiency, fuel type, compliance with certain emission standards or vehicle kilometres
travelled.

In the following we describe the datasets, assumptions and methodologies underlying our impact
assessments for the proposed Sulphur Content Excise Duty, the Carbon Tax and the Motorized
Vehicle Fuel Duty schemes which were eventually included in the impact assessment.

Future transport sector fuel prices under the BAU scenario

Local fuel prices depend mainly on the crude oil price, but also on fuel price regulations such as
subsidies, the ministerial-decree-regulated profit margins of the gas stations and the state-owned
Oil and Natural Gas Mining Company Pertamina, local taxes, value added tax and the Motorized
Vehicle Fuel Duty (PBB-KB) (CNN Indonesia, 2016). Predicting the future development of these
price components was beyond both the scope and capacity of this study. The challenge posed
when undertaking such predictions becomes clear when considering the significant variations in
the crude oil price and fuel price regulations experienced in the past (Figure 38) which were
changing four times within ten years from subsidisation to taxation and the other way around.

Figure 38: Crude oil price, gasoline retail price and energy subsidy in Indonesia 2008-2018

Data sources: Average crude oil price/ gasoline retail price: Table 4.1 on Crude Oil Price and Table 4.4 on Energy Retail Price
per Energy Unit in "2018 Handbook of Energy & Economic Statistics of Indonesia”;
https://www.esdm.go.id/assets/media/content/content-handbook-of-energy-and-economic-statistics-of-indonesia-2018-
final-edition.pdf
Fuel & gas subsidy: Data for 2008-2010 from Table 1 on Government expenditures and subsidies (2005–2011) in International
Institute for Sustainable Development (IISD), 2011: "A Citizens' Guide to Energy Subsidies in Indonesia";
https://www.iisd.org/pdf/2011/indonesia_czguide_eng.pdf; data for 2011 from slide on Energy Subsidies Budget Allocation
in 2016 Ministry of Finance presentation on "Fiscal Reform on Energy Subsidy Policy in Indonesia";
http://www.greenfiscalpolicy.org/wp-content/uploads/2016/09/Noor-Iskandarsyah_Indonesia.pdf; data for 2012-2018
from table on Indonesia's Energy Subsidy Spending & Indonesian Crude Price published by Indonesia Investments online

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media on 19.Nov 2018; https://www.indonesia-investments.com/news/news-columns/indonesia-s-energy-subsidy-
spending-far-above-target-in-2018/item9036

For this reason, in this study we set out with the explicit aim of providing rough estimates on the
potential magnitudes of future energy consumption, energy cost savings and government
revenues under the proposed policy scenarios. Thus, we simply assumed that current fuel prices
would stay constant under the business as usual (BAU) scenario. Assumptions are based on 2018
prices (see Table 25). The table below results from a time-consuming compilation of different data
sources to reflect 2018 retail prices of all types of transport fuels. While the annual Energy
Handbook published by the Ministry of Energy and Mineral Resources provides complete time
series on energy consumption for all fuel types, it only compiles retail price time series for gasoline
RON88 and diesel CN48. Hence – considering the timeframe of this study – contextual information
given in the chapters is limited to those two fuel types e.g. graph on realized government revenues
from the existing Motorized Vehicle Fuel Duty scheme in relation to gasoline and diesel retail
prices between 2013-2019.

Table 25: Detailed Transport Sector Fuel Retail Prices per Fuel Type in 2018
Fuel type Data Price (IDR/litre) Price (USD/litre)
source
CNG 4) 3,100 0.22
RON 88 1) 6,469 0.46
RON 95 3) 11,700 0.83
Gasoline RON 98 2) 12,000 0.85
RON 92 2) 10,200 0.73
RON 90 – 91 2) 7,650 0.54
CN 51 2) 10,300 0.73
Diesel CN 53 2) 11,750 0.84
CN 48 1) 4,627 0.33
Bio Diesel 5) 7,300 0.52
Data sources:
1) Table 4.4 on Energy Retail Price per Energy Unit in "2018 Handbook of Energy & Economic
Statistics of Indonesia”; https://www.esdm.go.id/assets/media/content/content-handbook-of-
energy-and-economic-statistics-of-indonesia-2018-final-edition.pdf; conversion from energy into
volume units based on Table 26 below.
2) Pertamina online price list as of 05th Jan. 2019; https://www.pertamina.com/id/news-
room/announcement/daftar-harga-bbk-tmt-5-januari-2019
3) Online article as of 03rd July 2019; https://www.moneysmart.id/daftar-harga-bbm-terbaru/
4) Okefinance online article “Kualitas Setara Pertamax, Harga BBG Hanya Rp3.100/Liter” as of 25 th
April 2017; https://economy.okezone.com/read/2017/04/25/320/1675874/kualitas-setara-
pertamax-harga-bbg-hanya-rp3-100-liter
5) Rounded average of monthly prices in 2018 published by the Ministry of Energy and Mineral
Resources (ESDM): http://ebtke.esdm.go.id/category/22/hip.bbn
Note: IDR to USD conversion is based on 2018 exchange rates published in Table 1.5 on International Trade in "2018
Handbook of Energy & Economic Statistics of Indonesia"; https://www.esdm.go.id/assets/media/content/content-
handbook-of-energy-and-economic-statistics-of-indonesia-2018-final-edition.pdf

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Emission and conversion factors of transport sector fuels
In Table 26 we summarize the default emission factors and local conversion factors that we used
to estimate policy impacts.

Table 26: Emission and conversion factors

Data source Gasoline Diesel CNG
Default emission factor 1) 69,300.0000 74,100.0000 56,100.0000
(kg CO2/TJ)
Calculation: Default emission 2) 423.9679 453.3337 343.2121
factor
(kg CO2/BOE*)
(3) Local conversion factor 3) 0.0058 0.0058 0.0048
(BOE/l) 4)
Calculation: Emission factor 0.0025 0.0026 0.0016
(t CO2/l)
* BOE: barrel of oil equivalent
Data sources:
1) Table 3.2.1. on Road Transport Default CO2 Emission Factors and Uncertainty Ranges in “2006 IPCC
Guidelines for National Greenhouse Gas Inventories - Chapter 3 Mobile Combustion”;
https://www.ipcc-
nggip.iges.or.jp/public/2006gl/pdf/2_Volume2/V2_3_Ch3_Mobile_Combustion.pdf
2) With 0.0061 TJ/ BOE as the default energy to volume unit conversion factor;
http://www.conversion-website.com/energy/terajoule-to-barrel-of-oil-
equivalent.html?fromNumber=1
3) Annex on Conversion in "2018 Handbook of Energy & Economic Statistics of Indonesia";
https://www.esdm.go.id/assets/media/content/content-handbook-of-energy-and-economic-
statistics-of-indonesia-2018-final-edition.pdf
4) https://www.spritmonitor.de/de/berechnung_co2_ausstoss.html

Future transport sector fuel consumption under the BAU scenario

In their annual “Handbook of Energy & Economic Statistics of Indonesia” the Ministry of Energy
and Mineral Resources publishes time series on transport sector fuel consumption covering gas,
the gasoline types RON88, RON90, RON92, RON95+98+100 and the diesel types CN48, CN51,
CN53 and bio diesel for the last 10 years. We used Table 5.4.2. of the most recent 2018 Handbook
and converted units of energy (BOE or barrel of oil equivalent) into metric units of volume (litre)
using local conversion factors for gasoline, diesel and gas as given in Table 26 of this Annex. We
used the same gasoline conversion factors for all types of gasoline and did similar for diesel. These
local conversion factors had to be applied since they represent the local differences from
international standards (0.00629 BOE/l).

We then forecasted future transport sector energy consumption in our business as usual (BAU)
scenario using a constant demand growth rate of 4.1% per year for all types of fuel (Table 27),
while – in reality – there will certainly be switches from one type of gasoline to another as well as
from one type of diesel to another. However, the methodology we have employed does not
provide us with appropriate tools to estimate the extent of fuel switching or switching between
different types of the same kind of fuel. For this reason, we did not attempt to account for this,
or to make assumptions about possible trends in fuel switching between gasoline, diesel and CNG.
The average growth rate used in our calculations is based on the Indonesian government’s own
that transportation sector energy demand will increase by 4.1% per year, while demand for

140
 natural gas (4.1.% per year) and oil (4% per year) in general will also grow at high speed
(Government of Indonesia 2017b).

Table 27: Development of transport sector fuel consumption (thousands of litres) in Indonesia
2019-2031 (BAU scenario)
(thou CNG Gasoline Gasoline Gasoline Gasoline Gasoil Gasoil Gasoil Bio Gasoil Total
sand RON88 RON92 RON95+98 RON90 CN51 CN53 CN48 transport fuel
s of +100 consumption
litres
)
2019 50,978 10,844,978 5,874,438 401,752 18,432,711 772,064 231,691 6,886,231 20,333,932 63,828,774

2020 53,068 11,289,622 6,115,290 418,224 19,188,453 803,718 241,190 7,168,566 21,167,623 66,445,754

2021 55,244 11,752,497 6,366,016 435,371 19,975,179 836,671 251,079 7,462,477 22,035,496 69,170,030

2022 57,509 12,234,349 6,627,023 453,221 20,794,162 870,974 261,373 7,768,439 22,938,951 72,006,001

2023 59,867 12,735,957 6,898,731 471,803 21,646,722 906,684 272,089 8,086,945 23,879,448 74,958,247

2024 62,322 13,258,132 7,181,579 491,147 22,534,238 943,858 283,245 8,418,510 24,858,506 78,031,536

2025 64,877 13,801,715 7,476,024 511,284 23,458,142 982,557 294,858 8,763,668 25,877,704 81,230,829

2026 67,537 14,367,585 7,782,541 532,247 24,419,925 1,022,841 306,947 9,122,979 26,938,690 84,561,292

2027 70,306 14,956,656 8,101,625 554,069 25,421,142 1,064,778 319,532 9,497,021 28,043,176 88,028,305

2028 73,188 15,569,879 8,433,791 576,786 26,463,409 1,108,434 332,633 9,886,399 29,192,947 91,637,466

2029 76,189 16,208,244 8,779,577 600,434 27,548,409 1,153,880 346,271 10,291,741 30,389,857 95,394,602

2030 79,313 16,872,782 9,139,540 625,052 28,677,894 1,201,189 360,468 10,713,703 31,635,842 99,305,781

2031 82,565 17,564,566 9,514,261 650,679 29,853,687 1,250,437 375,247 11,152,964 32,932,911 103,377,318

Assumptions on the impact of fuel price increases on fuel consumption

Being beyond the timeframe and data availability for this study, we also did not apply DKI Jakarta
or Indonesia specific measures to shed light on the relationships between a change in:
• fuel price/ taxation (other than fuel)/ income/ population; and
• traffic volumes/ fuel consumption/ vehicle fuel economy/ total vehicle ownership.
Instead we relied on a summary of elasticity studies from different countries and studies
(Goodwin, Dargay and Hanly 2003)88.
According to this summary each 1% of (inflation adjusted) fuel price increase will cause:
• Traffic volumes to fall about 0.1% within a year and 0.3% over the longer run (five years)
which translates into price elasticities of demand of 10% respectively 30% which is
comparable to international experiences.
• Fuel consumption to fall about 0.25% within a year and 0.6% over the longer run.
• Vehicle fuel economy to increase about 0.15% within a year and 0.4% over the longer run.
• Total vehicle ownership to fall less than 0.1% in the short run and 0.25% in the longer run.
We defined the fuel price increase as the difference between the real fuel price of the policy
scenario and the real fuel price of the BAU scenario of a certain year. Applying the four price
elasticities of demand listed above, we assumed that for each 1% of real price increase in a certain

88Understanding Transport Demands and Elasticities. Victoria Transport Policy Institute. Available at:
https://www.vtpi.org/elasticities.pdf

141
year the fuel consumption of the policy scenario would be 0.25% lower than the fuel consumption
predicted under the BAU scenario in that year (see Equation 1 and Equation 2).

Equation 1: Fuel consumption change rate under a certain policy scenario in a certain year
𝐹𝑢𝑒𝑙𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝐶ℎ𝑎𝑛𝑔𝑒𝑅𝑎𝑡𝑒𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,𝑡
𝐹𝑢𝑒𝑙𝑃𝑟𝑖𝑐𝑒𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,𝑡 − 𝐹𝑢𝑒𝑙𝑃𝑟𝑖𝑐𝑒𝐵𝑎𝑢,𝑡
= 0.25 ∗
𝐹𝑢𝑒𝑙𝑃𝑟𝑖𝑐𝑒𝐵𝑎𝑢,𝑡

Equation 2: Estimating the fuel consumption under a certain policy scenario in a certain year
𝐹𝑢𝑒𝑙𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,𝑡
= 𝐹𝑢𝑒𝑙𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝐶ℎ𝑎𝑛𝑔𝑒𝑅𝑎𝑡𝑒𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,𝑡 ∗ 𝐹𝑢𝑒𝑙𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝐵𝑎𝑢,𝑡

See Table 25 for nominal transport sector fuel prices under the BAU scenario and Table 27 for
transport sector fuel consumption under the BAU scenario. The methodology for calculating the
fuel price time series differs under each policy scenario and depends on the taxation or pricing
schemes proposed under the scenario (see chapters 5 and 6 for details of the proposals).
To obtain cost savings from reduced consumption we multiplied the amount of transport sector
fuels saved under each policy scenario with fuel prices under the BAU scenario (see Equation 3).
Please note that cost savings are thus restricted to those directly related to the fuel costs, but
they do e.g. not include costs savings from reduced depreciation/ use of the vehicles which tend
to have a longer operation time overall.

Equation 3: Estimating fuel cost savings under a certain policy scenario as compared to BAU in
a certain year
𝐹𝑢𝑒𝑙𝐶𝑜𝑠𝑡𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,𝑡
= (𝐹𝑢𝑒𝑙𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝐵𝑎𝑢,𝑡 − 𝐹𝑢𝑒𝑙𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,𝑡 )
∗ 𝐹𝑢𝑒𝑙𝑃𝑟𝑖𝑐𝑒𝐵𝑎𝑢,𝑡

We used the inflation rates and consumer price indices (CPI) given in Table whenever adjusting
for inflation.

Table 29: Historic and estimated inflation rates and consumer price indices (CPI) 2015-2031
Year Data source Inflation rate Consumer Price Index (CPI)
2015 3.35% 122.99
2016 Historic data (2012 = 100) 3.02% 126.71
2017 based on 1) 3.61% 131.28
2018 3.13% 135.39

2019 3.50% 100.00

2020 3.00% 103.00
2021 3.00% 106.09
BAU estimate (2019 =
2022 3.00% 109.27
100) based on 2)
2023 3.00% 112,55
2024 3.00% 115,93
2025 3.00% 119,41

142
 2026 3.00% 122,99
2027 3.00% 126,68
2028 3.00% 130,48
2029 3.00% 134,39
2030 3.00% 138,42
2031 3.00% 142,58
Data sources:
1) National Statistics Agency (Badan Pusat Statistik or BPS): “Inflasi Umum , Inti, Harga Yang Diatur
Pemerintah, dan Barang Bergejolak Inflasi Indonesia”;
https://www.bps.go.id/statictable/2012/02/02/908/inflasi-umum-inti-harga-yang-diatur-
pemerintah-dan-barang-bergejolak-inflasi-indonesia-2009-2019.html
2) Bank of Indonesia cited in
https://www.republika.co.id/berita/ekonomi/keuangan/19/06/15/pt44hu370-bi-prediksi-inflasi-
2020-terkendali-di-tiga-persen

Assumptions on the impact of fuel price increases on government revenues

When estimating the potential magnitude of government revenues raised from the Sulphur
Content Excise Duty, the Carbon Tax or the Motorized Vehicle Fuel Duty schemes, we first
calculated the difference between the fuel price of the related policy scenario and the fuel price
of the BAU scenario in a certain year. We then multiplied this fuel price difference with the energy
consumption predicted under each policy scenario for that year - also considering the energy
consumption decrease potentially caused by the related scenario as compared to BAU (see
Equation 4).

Equation 4: Estimating the government revenue raised under a certain policy scenario in a
certain year
𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑𝐺𝑜𝑣𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,𝑡
= (𝐹𝑢𝑒𝑙𝑃𝑟𝑖𝑐𝑒𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,𝑡 − 𝐹𝑢𝑒𝑙𝑃𝑟𝑖𝑐𝑒𝐵𝑎𝑢,𝑡 )
∗ 𝐹𝑢𝑒𝑙𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,𝑡

143
Assumptions on the impact of fuel price increases on health cost savings
As we were lacking the necessary data, we were hesitant to draw a direct link between the
estimated transport sector fuel consumption reduction, potential air pollution decrease, and
health cost savings. For example, we do not have an up to date estimate for the cost of illnesses
and diseases caused by transport sector air pollution. The latest related health cost data available
refers to DKI Jakarta in 2016 (KPBB, 2018), while the transport sector’s contribution to this figure
is not quantified and estimations had to be based on 2010 numbers. Many factors have changed
since 2010, including health treatment costs, congestion, type of vehicles in use including their
engine sizes, fuel efficiency, fuel type and vehicle kilometres driven, and the influence of other
sectors on local air pollution etc.

However, we decided to at least calculate a lower bound for potential health cost savings by
drawing a hypothetical case based on 2016 data. For each policy scenario we applied the transport
sector fuel consumption change rate predicted for the first year of implementation to the health
costs that arose from transport sector air pollution in DKI Jakarta in 2016. Thus, we had to mix
data of different years and based our calculations and estimates of the lower bound of possible
health cost savings on the assumption that there was a perfect correlation between transport
sector fuel consumption, air pollution attributable to the transport sector and related health cost.
When applying this approach, we assumed that the transport sector’s contribution to local air
pollution continuously accounted for 36% of the total, relying on statistics describing the situation
in 2010. In 2010, the transport sector contributed 36% to PM10 emission in Jakarta (Breathe Easy
Jakarta (BEJ) (2017). Although the transport sector’s share in final energy consumption rose
steadily, we did not find data that showed that its contribution to local air pollution grew likewise.
Hence, we took a conservative lower-bound-approach and kept with the 2010 ratio. However,
what this implies is that potential health cost savings from the measures we propose may be
considerably higher than the conservative estimates we put forward in the report.

Equation 5: Estimating the potential change in health cost under a certain policy scenario in
2016
𝐻𝑒𝑎𝑙𝑡ℎ𝐶𝑜𝑠𝑡𝐶ℎ𝑎𝑛𝑔𝑒𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,2016
= (36% ∗ 𝐻𝑒𝑎𝑙𝑡ℎ𝐶𝑜𝑠𝑡2016 )
∗ 𝐹𝑢𝑒𝑙𝐶𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛𝐶ℎ𝑎𝑛𝑔𝑒𝑅𝑎𝑡𝑒𝑃𝑜𝑙𝑖𝑐𝑦𝑆𝑐𝑒𝑛𝑎𝑟𝑖𝑜,2020

144
 Annex II. Tables

Table 28: Comparison of WHO and National Air Quality Standards

Indonesia Ambient Air Quality
WHO Air Quality Guidelines 89
Parameter Standard90
(unit: g/m3)
(unit: g/m3, excl. dust-fall)
SO2 500 (10 min); 20 (24h) 900 (h); 365 (24h); 60 (y)
CO 30.000 (h); 10.000 (day)
NO2 200 (h); 40 (y) 400 (h); 150 (24h); 100 (y)
O3 100 (8h) 235 (h); 50 (y)
HC 160 (3h)
PM10 50 (24h); 20 (y) 150 (24h)
PM2,5 25 (24h); 10 (y) 65 (24h); 15 (y)
TSP 230 (24h); 90 (y)
Pb 2 (24h); 1 (y)
Dust-fall 10 ton/km2/month (m) for settlement
20 ton/km2/month (m) for industry

89 WHO Air Quality Guidelines – Global Update 2005; https://www.who.int/airpollution/publications/aqg2005/en/ (Accessed

September 2019).
90 Government Regulation No. 41 Year 1999; http://peraturan.go.id/common/dokumen/ln/1999/pp41-1999.pdf (Accessed

September 2019); h = standard for an hour, 3h = 3 hours, 24h = 24 hours, m = a month, y = a year. As the DKI Jakarta Government
Regulation No. 2 Year 2005, DKI Jakarta follows the national ambient air quality standard;
http://hukum.unsrat.ac.id/perda/perda_dki_2_2005.pdf (Accessed September 2019)

145
Table 29: Types of legislation in Indonesia referred to in this study
Legislation Type English Translation Remarks*
Undang-Undang (UU) Act, Law Established by the People's
Representative Council (the DPR) with the
joint agreement of the President.
Peraturan Pemerintah Government Regulation Set by the President to carry out the Act as
(PP) it should.
Peraturan Daerah Provincial Government Established by the Provincial People's
(Perda) Provinsi Regulation Representative Council (the DPRD
Provinsi) with the joint agreement of the
governor.
Peraturan Menteri Ministerial Regulation After 2011, Permen will be legally binding
(Permen) if it is ordered by higher regulation and
formed based on authority.
Keputusan Presiden Precedential Decree
(Kepres)
Keputusan Menteri Ministerial Decree
(Kepmen)
Keputusan Gubernur Governor Decree
(Kepgub)
Peraturan Gubernur Governor Regulation
(Pergub)
Summarized from Act No 21/ 2011, http://peraturan.go.id/common/dokumen/ln/2011/uu12-
2011bt.pdf (Accessed October 2019)

146
Table 30: KSD for Environment and Transport
Activity Lead agency/Supporting Indicator Means of Target
Agency verification
Identification of air Environment Agency Locations for Air quality
quality monitoring (DLH) monitoring stations monitoring
stations Support: Bureau for are available, reports from
(parameter and Governance including pollutants each sampling
measurement parameter and station
procedure measurement
including PM 2.5) procedure
Procurement of Environment Agency New PM 2,5
new monitoring Support: Procurement measuring
instruments Bureau instruments are
available
Integration of air Information and Integration of Real time
quality monitoring communication agency monitoring results information is
information in JAKI Support: Environment with JAKI App available on
(Jakarta Kini) Agency JAKI App
Application
Revision of Environment Agency Revised Governor
Governor Decree Support: Decree on emission
No. 92/2007 • Revenue agency check and inspection
regarding emission • Transport & maintenance
check and agency
inspection & • Agency for
maintenance Industry and
Energy
• Information and
communication
• Legal Agency
• Cooperation
Agency
Study on PM 2.5 Environment Agency PM 2.5 Draft Governor
standard/threshold • Support: standard/threshold Decree
for Jakarta Cooperation for Jakarta is available regarding PM
Agency 2.5 is available
• Legal Agency
Public display of air Information and Public information on
quality monitoring communication agency air pollution is
results Support: available
• Mayors
• Environment
agency
• Transport
agency
• Agency for
industry and
energy
• Agency for
forestry
• Agency for
education

147
 • Agency for
health

Traffic Transport Agency • Increase of

management Support: average
• Police speed in
department Jakarta
• Information and • Expansion of
communication odd-even
agency policy in
• Bureau for Jakarta
Economic • To close 5
main U turn
in Jakarta
Revision on Transport Agency Revised Governor
Governor Decree Support: Decree on Parking
No.31/2017 on • Revenue agency
Parking, Fine, and • Environment
vehicle towing agency
• Agency for
Industry and
Energy
Air pollution Environment Agency Increase monitoring
reduction from Support: activity for approx.
point • Agency for 1.150 stationary
sources/stationary industry and sources from 114
sources energy registered industries
in Jakarta from
industrial activities
and to give
disincentive for
violation of emission
regulation and
additional 90
stationary sources will
be directly monitored.

148
Table 31: Potential retail price increase and consumption decrease under Sulphur Excise Duty
Short term Long term
Price consumption consumption
2018 Price increase Price increase decrease decrease

Quality (IDR/litre) (IDR/litre) (%) (%) (%)

RON 88 6.469 100 2% 0% 1%
RON 98 12.000 100 1% 0% 1%
RON 92 10.200 100 1% 0% 1%
RON 90 – 91 7.650 100 1% 0% 1%
CN 51 10.300 100 1% 0% 1%
CN 53 11.750 100 1% 0% 1%
CN48 4.627 700 15% 4% 9%
Bio gasoil 9.800 560 6% 1% 3%
Source: 2018 Fuel prices are based on Pertamina 2018 and 2019 and MEMR, assumptions on fuel consumption decrease
based on pages 22/23 in Victoria Transport Policy Institute: “Understanding Transp ort Demands and Elasticities”.

149
Table 32: Impact of proposed Carbon Tax scheme on fuel prices and energy consumption
Nominal retail price Real price increase compared to BAU Energy consumption decrease compared to BAU
Gasoline Diesel CNG Gasoline Diesel CNG Fuel Gasoline Diesel CNG Average Average
RON88 CN48 RON88 CN48 Average RON88 CN48 short long term
term
(IDR/litre) (%) (%)
2019 6,469 4,627 3,100
2020 6,818 5,001 3,332 5% 8% 7% 6% 1% 2% 2% 1%
2021 6,818 5,001 3,332 5% 8% 7% 6% 1% 2% 2% 2%
2022 6,888 5,076 3,379 7% 10% 9% 7% 2% 2% 2% 2%
2023 6,888 5,076 3,379 7% 10% 9% 8% 2% 2% 2% 2%
2024 6,958 5,151 3,425 8% 12% 11% 9% 2% 3% 3% 2%
2025 6,958 5,151 3,425 8% 12% 11% 9% 2% 3% 3% 2%
2026 7,028 5,226 3,472 10% 14% 13% 11% 2% 4% 3% 3%
2027 7,028 5,226 3,472 10% 15% 14% 11% 3% 4% 3% 3%
2028 7,098 5,301 3,518 12% 17% 16% 13% 3% 4% 4% 3%
2029 7,098 5,301 3,518 12% 17% 16% 13% 3% 4% 4% 3%
2030 7,168 5,375 3,565 14% 19% 18% 15% 3% 5% 5% 4%
2031 7,168 5,375 3,565 14% 20% 19% 16% 3% 5% 5% 4% 9%
Assumptions for 2020-2031: constant nominal fuel retail prices under BAU; constant inflation rate (3%); constant nat. transport sector fuel consum ption increase of 4.1% per year based on
"Indonesia Third National Communication under the UNFCCC 2017"; fuel consumption decrease rates under carbon tax scheme based on pages 22/23 in Victori a Transport Policy Institute:
“Understanding Transport Demands and Elasticities”; default emission factors based on table 3.2.1. of “2006 IPCC Guidelines for National Greenhouse Gas Inventories - Chapter 3 Mobile
Combustion”; local volume conversion factors based MEMR "2018 Handbook of Energy & Economic Statistics of Indo nesia"

150
Table 33: Impact of proposed Motorized Fuel Duty on fuel prices and energy consumption
Nominal retail price Real price increase as Energy consumption decrease as compared to
compared to BAU BAU
Gasoline Diesel Gasoline Diesel Average Gasoline Diesel Average Average long
Ron88 CN48 Ron88 CN48 RON88 CN48 short term
term
(IDR7litre) (%) (%)
2019 6,469 4,627
2020 6,530 4,759 1% 3% 1% 0% 1% 0%
2021 6,592 4,803 2% 4% 2% 0% 1% 1%
2022 6,653 4,847 3% 5% 4% 1% 1% 1% 2%
Assumptions for 2020-2022: constant nominal fuel retail prices under BAU; constant inflation rate (3%) as predicted by the
Bank of Indonesia for the year 2020; constant nat. transport sector fuel consumption increase of 4.1% per year ba sed on
"Indonesia Third National Communication under the UNFCCC 2017"; constant contribution to transport sector fuel sales of
each fuel type (73% gasoline, 27% diesel) in DKI Jakarta as of 2015.

Table 34: The fleet in Jakarta 2012-2016

Source: BPS 2018.

Translation: Sepeda motor = motorcycle / Mobil penumpang = passenger car / Mobil beban = freight/truck / Mobil bus =
bus / Ransus = special vehicle (e.g., three cycle, mobile crane, steam roller, special construction vehicles, etc .).

151
 Annex III. Strategic Regional Activity (KSD) Jakarta (as of July 2019)
Information on further inputs:
1. Relevant to transport
No. 28 Transit oriented development (TOD)
No. 29 Integrated Transport Service through JAKLINGKO
No. 30 Development of MRT
No. 31 Development of LRT
No. 31 Development of Electronic Road Pricing (ERP)
No. 33 Bus drivers’ training and certification programme
No. 34 Development of public transport through building new passenger terminals
No. 35 Development of park and ride policy and optimalization of parking management
No. 36 Development of elevated loopline
No. 37 Development of electronic fare collection (EFC)
No. 49 Development of an integrated water transport service

2. Relevant to Environment and Land Use

No. 43 Development of smart city
No. 44 Expansion of green open space (ruang terbuka hijau)
No. 71 Air pollution control
No. 72 Mitigation and adaptation of climate change

152
 Annex IV. Legal instruments hierarchy

1. Constitution (first order)

2. People’s Assembly Resolution or Tap MPR (second order)
3. Act (third order)
4. Government Regulation or PP (fourth order)
5. Presidential Decree (fifth order)
6. Governor Decree (sixth order)
7. Mayor/Head of District Decree (seventh order)
Source: https://www.hukumonline.com/klinik/detail/ulasan/cl4012/hierarki-peraturan-
perundang-undangan-di-indonesia/

153
ANNEX V. List of roundtable participants 06.09.2019

1. Local Environmental Agency, DKI Jakarta

2. UNEP representative
3. Fiscal Policy Office within The Ministry of Finance
4. Vital Strategies Programme representative
5. International Council on Clean transportation (ICCT)
6. Indonesian Environmental Scientists Association (2x)
7. Komit Penghapusan Bensin Bertimbel (KPBB) – NGO
8. KPBB
9. Local sustainable Consulting firm
10. GIZ representative
11. Faculty of Public Health, University of Indonesia
12. Transport Agency

154
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