Effect of fiscal incentives on coal bed methane price: a hypothetical analysis
Abstract
Fossil fuel reserves are diminishing and coal bed methane (CBM) has been regarded as a potential
replacement energy source because Indonesia’s CBM reserves are enormous, up to 453 trillion cubic
feet. To boost investment in CBM development in Indonesia, support in the form of fiscal incentives
is needed. By analysing the effects of incentives on CBM’s selling price this study assesses whether the
forms of incentives provided by the government so far have been appropriate and sufficient. This study
uses economic modelling to calculate the effect of incentives on the economics of CBM development
in Indonesia. The results of this study show that incentives will have a significant effect on CBM’s
economic price if there is a composite of different forms of incentive. Nevertheless, in implementing
an incentives policy it is important to consider the effect fiscal incentives will have on the reduction of
the subsidy for electricity.
Keywords: CBM, Fiscal incentive, Economic price
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