Indonesia’s Low-Cost Green Cars Cause Policy Stir

The Indonesia government plans to ban low-cost green cars from using subsidized fuel, after criticism the policy may encourage more people to buy cars, adding to Jakarta’s already crowded roads and putting pressure on the country’s expensive fuel-subsidy program.

The government launched the LCGC policy last year as a way to boost the country’s automotive industry and bring more affordable cars to Indonesia’s consumer class.

A car must achieve more than 47 mpg (5.0 L/100 km) and cost no more than 95 million rupiah ($8,383), excluding extras, to be considered an LCGC.

Qualifying vehicles are exempted from a luxury tax.

LCGC sales totaled 51,180 units last year, spread among the four models available – Toyota Agya, Daihatsu Ayla, Honda Brio Satya and Suzuki Karimun Wagon R.

Coordinating Minister for the Economy Hatta Rajasa says the LCGC policy was designed to reduce consumption of subsidized fuel from the outset. The subsidized fuel, with a lower octane level than the non-subsidized product, has higher carbon emissions.

“If the cars still use subsidized fuel, then the pollution would remain high,” Hatta tells the Jakarta Post.

He says the LCGC policy clearly states the engine used in the model must be designed to use non-subsidized fuel, but many LCGC owners are using the subsidized fuel anyway.

“We cannot punish the manufacturer if the LCGC owners decided to use subsidized fuel,” Hatta says. “This must be further regulated.”

Industry Minister M.S. Hidayat, the government official most responsible for the LCGC policy, says banning the use of subsidized fuel for LCGC owners would be difficult to enforce.

“The most ideal thing to do is to raise the price of subsidized fuel. That’s my hope,” Hidayat says.

Using subsidized fuel would not end well for LCGC owners, he tells the newspaper.

“It would damage the engines as they were designed for non-subsidized fuel.”