Financial engineering to promote renewable energy in Indonesia: Case study bioethanol

Abstract In line with the improving economy, fuel consumption in Indonesia is increasing. Unfortunately, the production of fossil-based fuels is declining, and oil reserves are running low. If there is no serious effort from the government, it is predicted that national energy security will be disrupted. The government has set up an energy mix policy, with targets such as reducing the consumption of fossil fuels and increasing the consumption of renewable fuels, including bioethanol. Government program on bioethanol is currently unworkable, since its cost of production is more expensive than the price of fossil fuels. This study aims to find policies to encourage the bioethanol production. This study uses secondary data analyzed by the qualitative descriptive approach. The results of this study indicate that financial engineering can be used by the Government to accelerate the bioethanol programs, by using excise tax and subsidies as instruments. Excise tax for fossil fuel will increase prices, and are expected to reduce the consumption of fossil fuels. The excise revenue can be earmarked to provide subsidies for bioethanol producers. This policy will make the bioethanol production cost lower and is expected to attract producers to produce bioethanol.