The Impact of Fuel Price on Energy Consumption on Indonesia’s Industries: A Firm-Level Analysis

Pradana Puche Widodo; Toshihiro Kudo

doi:10.15294/jeec.v11i2.68940

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Affiliations

Pradana Puche Widodo
National Graduate Institute for Policy Studies, Tokyo, Japan

Toshihiro Kudo
National Graduate Institute for Policy Studies, Tokyo, Japan

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The Impact of Fuel Price on Energy Consumption on Indonesia’s Industries: A Firm-Level Analysis

Pradana Puche Widodo ,
Toshihiro Kudo

Vol 11 No 2 (2022): December 2022

DOI 10.15294/jeec.v11i2.68940

Submitted: May 23, 2023

Published: May 23, 2023

Abstract

This study aims to investigate the effect of energy price changes on energy consumption, especially oil and coal, for Indonesian manufacturing sectors. Unbalanced panel data analysis is utilized on firm-level data from 2003 to 2015 to examine the price elasticity of oil and coal demand. The estimation indicates that Indonesia’s manufacturing sectors are sensitive to energy price. On the aggregate analysis, one percent oil price increase is significant to reduce the demand of 0.194 percent, while coal consumption is not significantly affected by its price. Coal regression illustrates different outcomes than oil estimation which shows a positive relationship between coal price and coal demand even though it is insignificant. This phenomenon can be possibly interpreted through several explanations: a small number of firms using coal, concentration of coal demand in a few sub-sectors, and meager price of coal relative to oil. For further understanding, sectoral analysis has been examined on five priority sub-sectors—food and beverage; textile, apparel and footwear; chemicals and pharmacy; electronics and optical device; and automotive and transport equipment. The sectoral evaluations suggest that price elasticity for oil demand is considered as inelastic, ranging from 0.184 to 0.387 in absolute value. Oil price changes have the most impact on textile, apparel, and footwear sub-sectors, while food and beverage is the most unaffected by oil shocks.