Feebate/rebate or fiscal failure?: uncovering the environmentally friendly vehicle incentive policy

A New Hope for Indonesia’s Green Vehicle Policy?

Indonesia’s motor vehicle fiscal policy is at a crucial juncture. The long-standing incentives for Low Cost Green Car (LCGC) vehicles, in place since 2013, have failed to achieve their primary goal of significantly reducing greenhouse gas (GHG) emissions. Instead, they’ve created a paradox: a major drain on the state budget with little environmental return. Now, a more sustainable and equitable alternative is gaining traction: a carbon-based feebate/rebate fiscal scheme.

The Flaws of the Current System

The existing incentive policy has been widely criticized for its ineffectiveness and negative side effects.

• Failure to Address Emissions: The initial goal of promoting Low Carbon Emission Vehicles (LCEVs) was sidetracked by a pragmatic push for affordable cars to boost a sluggish automotive market. As a result, the incentives were exclusively given to LCGCs, ignoring other low-carbon vehicles.
• Budgetary Strain: The current system relies on tax exemptions and rebates, which directly reduce state revenue. This reliance on the state budget makes the policy vulnerable and uncertain, creating instability for the burgeoning electric vehicle (EV) industry.
• High Social Costs: The focus on incentives without penalties for high-emission vehicles has led to massive public health costs. Air pollution from the transportation sector burdens the national health insurance system (BPJS) and, as a 2016 study shows, cost Jakarta residents an estimated IDR 51.2 trillion in medical expenses.

Introducing the Feebate/Rebate Scheme

The proposed feebate/rebate system offers a radical and sustainable solution. Its core principle is budget neutrality, meaning it does not rely on state funds.

• How it Works: The government would set a carbon emission standard (gr CO₂/km) for each vehicle category.
  • Feebate (Fine): Vehicles that exceed the standard would be subject to a carbon excise tax. The dirtier the vehicle, the higher the tax, based on the “polluter pays” principle.
  • Rebate (Incentive): Vehicles with emissions below the standard would receive a fiscal discount. The cleaner the vehicle, the larger the incentive.
• Impact on Pricing: This scheme would fundamentally shift market dynamics. A simulation by the Leaded Gasoline Elimination Committee (KPBB) shows that BEVs, currently the most expensive option, would become the most affordable, while high-emission gasoline and diesel vehicles would become the most expensive. This would incentivize consumers to choose cleaner vehicles based on price.

Benefits and Challenges

Implementing a feebate/rebate scheme would offer numerous advantages:

• Fiscal Independence: The system would be self-funding, with revenue from fines directly financing incentives, eliminating the burden on the state budget.
• Technology Neutrality: Incentives are based on emissions, not vehicle type, promoting competition across all low-carbon technologies.
• Market-Based Solution: It creates a market mechanism that encourages the adoption of clean technology, helping Indonesia achieve its Nationally Determined Contribution (NDC) for 2030 and Net Zero Emissions (NZE) target for 2045 in the automotive sector.

However, two major challenges remain: potential resistance from industry players who rely on high-emission technologies and, more critically, the lack of coherent inter-ministerial policy synchronization.

This transformation is a test of political will. The success of this shift from an ineffective subsidy model to a market-based mechanism will determine if Indonesia can effectively tackle air pollution, reduce public health costs, and meet its ambitious climate goals. The time to act is now.

source:
http://kpbb.org/berita/Feebate-Rebate-or-Fiscal-Failure