Does Energy Subsidy Policy Affect Sustainable Energy Development?: Evidence From Indonesia Using Granger Causality Test on CO2 Emissions

Abstract

This study was conducted to analyze the effect of energy subsidy on country's sustainable energy development by looking in depth at the statistic data on CO2 emissions in Indonesia. The method used in this study is Granger Causality Test and used series data from 1986-2014. Granger Causality Test showed that energy subsidy has weak influenced (significant at 10%) to CO2 emissions and statistically proves that energy subsidy is the reason to the change of CO2 emissions. While industrial energy consumption has strong influenced (significant at 1%) to CO2 emissions, and energy price has strong influenced (significant at 1%) to the change in industrial energy consumption. Based on the discussion, it clearly conduces to pro-growth, pro-job and pro-poor but not fully promote pro-environment. Therefore, we suggest that CO2 emissions can be reduced by the cost developing green energy technologies. Energy subsidy should improve its focus on allocating funds on research that seeking renewable energy, applying environmentally friendly technologies, in order to achieve sustainable energy development, and to protect the environment from environmental degradation caused by increasing CO2 emissions in Indonesia.