Electric Vehicle Incentives: From National Policy to Local Practice

By Niken Arumdati

The government’s plan to reintroduce electric vehicle (EV) incentives in June 2026 should be read as more than just another fiscal policy. It sits at the intersection of short-term priorities—stimulating consumption and economic growth—and a long-term agenda: transforming Indonesia’s energy system toward a cleaner, more resilient, and sustainable future. 

Yet, as with many transition policies, the real question is not simply whether it is necessary, but whether it is well-designed.

From a macroeconomic perspective, the government’s rationale is clear. EV incentives are expected to generate a multiplier effect—boosting consumption, revitalizing the automotive industry, and unlocking new value chains from upstream to downstream, including batteries and critical minerals. 

In the context of global economic slowdown and fiscal pressure, such a policy serves as a reasonable countercyclical instrument. With an initial quota of 100,000 units and a subsidy of Rp5 million per electric motorcycle, the immediate impact on middle-class purchasing power could be significant.

However, incentive-driven policies come with a familiar risk: dependency. Industries may grow because of subsidies rather than intrinsic competitiveness. When incentives are withdrawn, markets can contract sharply—a pattern observed in several countries. This is where policy design becomes crucial. Incentives must be transitional, not permanent, and accompanied by a clear roadmap toward a self-sustaining market.

Another key argument behind EV incentives is the potential reduction in fuel consumption and energy subsidies. In theory, electrifying transport can reduce fuel imports and improve the energy trade balance. Yet, a critical prerequisite is often overlooked: the national electricity mix.

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If EVs are powered by electricity generated predominantly from coal, emissions are not eliminated but merely shifted—from vehicle tailpipes to power plant smokestacks. In Indonesia, where coal-fired power plants still dominate, the decarbonization benefits of EVs remain limited. In other words, EV policy cannot stand alone; it must go hand in hand with the acceleration of renewable energy. Otherwise, the country risks replacing one form of dependency—on oil—with another—on coal.

The recent policy shift that delegates vehicle tax (PKB) and ownership transfer fees (BBNKB) to regional governments introduces a new dynamic: the decentralization of incentives. On one hand, this gives local governments flexibility to tailor policies according to their fiscal capacity and priorities. On the other hand, it risks creating market fragmentation.

If one province offers full tax exemptions while another does not, consumer decisions may be driven less by need and more by policy arbitrage. This could distort market efficiency and widen disparities in EV adoption across regions. Without a coherent framework or compensatory mechanisms from the central government, local administrations may hesitate to provide incentives due to concerns over declining revenue.

In this context, the experience of West Nusa Tenggara (NTB) offers a compelling example of how energy transition policies can be translated into concrete local action. The provincial government has taken proactive steps by promoting the use of EVs within government operations, setting an example for broader society. This initiative is reinforced by Governor Regulation No. 43 of 2024, which explicitly positions transport decarbonization as part of NTB’s pathway toward achieving Net Zero Emissions by 2050.

Importantly, this commitment is not limited to regulatory intent. NTB has begun building a supporting ecosystem. To date, 24 public EV charging stations (SPKLU) have been installed across Lombok Island and 12 in Sumbawa. In a geographically fragmented, archipelagic region, this is a meaningful achievement. It lays the groundwork for public confidence in EV adoption by addressing one of the main barriers: charging infrastructure.

Beyond infrastructure, NTB is also strengthening downstream capabilities. Two Grade B EV conversion workshops have been established at SMK Negeri 1 Jonggat and SMK Negeri 3 Mataram. These facilities are the result of a collaborative effort involving PLN UIP Nusa Tenggara, the Ministry of Energy and Mineral Resources, and the NTB Provincial Energy Office. 

Their presence is strategically important, as they expand access for the public to transition to EVs without purchasing new vehicles, while also developing local skills and workforce capacity in EV technology.

Taken together, the combination of charging infrastructure and conversion facilities provides a strong foundation for a localized EV ecosystem. It addresses not only the technical dimension but also service availability, human capital development, and long-term sustainability of adoption.

Nevertheless, challenges remain. Like many regions, NTB faces fiscal constraints. Offering local tax incentives such as exemptions on PKB and BBNKB may reduce regional revenue, while development needs remain pressing. This dilemma highlights that energy transition is not merely a technological issue, but also a matter of fiscal governance and policy trade-offs.

Equity is another critical concern. Without inclusive policy design, EV incentives risk disproportionately benefiting higher-income groups. In regions like NTB, a more relevant approach may involve promoting the conversion of conventional motorcycles to electric, expanding access to micro-financing, and integrating EVs into public transport systems and key sectors such as tourism.

Indonesia holds significant potential in the EV ecosystem, particularly due to its abundant nickel resources, a key component in battery production. However, domestic incentives should not only stimulate demand but also strengthen supply-side capabilities—through industrial development, increased local content, and job creation. Otherwise, Indonesia risks becoming merely a consumer market rather than a key player in the global EV value chain.

Ultimately, EV incentives are not inherently flawed. In many cases, they are necessary to accelerate early-stage adoption of new technologies. Yet, their effectiveness depends on policy consistency between central and local governments, integration with broader energy transition strategies, and alignment with social equity and domestic industrial development.

Indonesia does not lack policies; it often lacks orchestration. EV incentives must be positioned as part of a broader, integrated energy transition strategy—not as a standalone measure. 

NTB’s experience demonstrates that with commitment and concrete action—ranging from regulation and infrastructure to skills development—local governments can become powerful drivers of change. Without strong synergy, however, such policies risk becoming short-term stimuli: fiscally costly but structurally limited in impact.

In the end, the real choice is not about incentives alone, but about the direction of energy development itself: building a sustainable future, or merely buying time.

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Editor: Tyson Michael Burnett