Promoting Economic Growth and Environmental Sustainability through Energy Efficiency: Evidence from Indonesia

Indonesia has set a unilateral greenhouse gas emissions (GHG) emissions reduction target by 29% and conditional targets with international support of up to 41%, compared to the business as usual by 2030. This paper aims to formulate energy conservation policies to increase productivity and promote economic growth in Indonesia. Indonesia's energy conservation policy has multiple aspects: supporting energy security, commitment to GHG emission reduction, state budget efficiency, and improving productivity and competitiveness. Using Social Accounting Matrix (SAM), this study found evidence that energy efficiency saving will positively affect ecological sustainability and economic agents in the five targeted sectors: energy, waste, industrial processes, product use, agriculture, and forestry. Further, the Corporate Social Responsibility (CSR) policy provides positive effects in increasing economic growth and reducing income disparities.


BACKGROUND
As income level rises, there is a tendency to desire higher material comfort levels and higher demand for personal mobility, leading to greater demand for energy (Setyawan, 2020a). In this context, as a response to the greater need for energy, Indonesia's government has introduced several policy measures to improve energy efficiency-related issues (Setyawan, 2020b). One policy initiative has been to reformulate its National Energy Policy to enhance energy security and rebalance the energy mix towards indigenous energy supplies. Regarding energy security and diversification, one key focus is to reduce reliance on oil consumption by increasing gas consumption and production, escalating the usage of coal and new renewable energy sources (i.e., coal bed methane, nuclear, and oil shale).
Since 2010, Indonesia's government (GoI) has committed to reducing GHG emissions by 26% in 2020 and 41% with international support, against business as usual scenario. Indonesia has also issued policies to implement Rencana Aksi Nasional Penurunan Emisi GRK (RAN GRK) through Presidential Decree No.61 of 2011 and GHG Inventory Presidential Decree No.71 of 2011. Indonesia increases its target by 3%, and conditional marks with international support remain 41% against business as usual scenario by 2030, which can be seen in the table-1. Based on the target above, it can be seen that the sector with the most significant reduction target is the forestry sector, then the energy sector, the waste/waste sector, the agricultural sector, and the industrial sector. Based on the target, the forestry sector has the most significant reduction target, followed by the energy sector, the waste sector, the agricultural sector, and the industrial sector. The second-largest reduction target is the energy sector. The guidelines include the policy on diversifying energy sources, as stated in the National energy policy mix scenario. Another approach is the energy savings target or energy conservation. The objective of energy conservation policy in Indonesia is to improve energy efficiency on the supply-demand side. The conservation energy target is to decrease energy intensity by 1 percent per year and decrease energy consumption by 17 percent lower than business as usual by 2025. The energy conservation policy has multiple benefits: supporting energy security, Indonesia's commitment to climate change, the government's budget efficiency, and improving productivity and competitiveness. Indonesia already has a policy on energy management, which requires the consumer to consume 6000 tonnes of oil equivalent (TOE), and more are obliged to implement energy management.
The energy sector is the sector with the second-largest reduction target after the forestry sector, which causes the need for optimal and appropriate policies in reducing emissions. The guidelines include the policy on diversifying energy sources, as regulated in the National energy mix policy scenario.
Moreover, Indonesia is one of the countries with a low energy efficiency score, and China, India, Iran, and Russia (Wang et al., 2019). However, Indonesia also witnessed an improvement in energy efficiency, but the growth was insignificant (Wang et al., 2019). Therefore the GoI has issued regulation regarding Energy Conservation that required energy source users and energy users who use energy sources and energy more than or equal to 6,000 (six thousand) TOE per year to carry out energy conservation through energy management. The government should provide a fiscal policy to support energy-saving or energy conservation activities, but it is necessary to understand these economic impacts.
However, studies of the relationship between energy conservation and economic growth show inconclusive results. Sener & Karakas (2019); (Rajbhandari & Zhang, 2017) shows that "economic growth decreases energy intensity" for high income and upper-middle income country groups countries but is not valid for the lower-middle-income country group. It means that energy efficiency will increase Indonesian economic growth as Indonesia is one of the upper-middle countries. Soares, Kim, & Heo (2014) revealed that a causal relationship between GDP and energy consumption does exist in the short run, but not in the long run. In Indonesia's case, Jafari, Othman, & Nor (2012) found no relationship between economic growth and energy consumption. Further, (Go, Lau, & Yii, 2019); (Bataille & Melton, 2017) indicated that energy efficiency causes economic growth in the case of Malaysia and Canada, respectively. Therefore, it is essential to design appropriate energy conservation policies that can produce an optimal impact on the economy and the environment. This paper seeks to determine the financial implications of energy-saving or energy conservation activities. This study aims to recommend an energy conservation policy that could positively impact environmental sustainability and economic growth in five targeted sectors: energy, waste, industrial processes, and product use, agriculture, and forestry. This study recommends the GoI add a requirement that energy efficiency savings are returned to the sector in the form of additional capacity and the community in the condition of CSR. The rest of this paper is organized as follows. Section 2 presents the literature review. Section 3 describes the research methodology used to calculate the impact of energy efficiency policy in consumers that consume 6000 TOE. Section 4 offers the economic impact of energy efficiency, and section 5 concludes the paper.

LITERATURE REVIEW
Business actors conducting energy efficiency activities have their respective considerations in determining the energy savings results. Gains in energy consumption efficiency will result in an effective reduction in the price per unit of energy services. As a result, consumption of energy services must increase (e.g., "rebound" or "take-back") to offset the impact of increased efficiency in fuel use. (Greening L.A.David L.G and Carmen D. 2000) Energy efficiency activities will reduce national energy consumption, and hence an effective policy to reduce national CO2 emissions. (Herring H., 2006). Energy efficiency and conservation are considered the main ways to reduce greenhouse gas emissions and achieve other energy policy goals. Still, related market behavior and policy responses have generated debate in the economic literature. (Gillingham K., Richard G.N, and Karen P., 2009).
GHG emissions have reached an alarming level, and the international energy system has to be transformed to limit global climate change . Many studies have assessed the relationships between energy policies, economic activities, and emissions reduction (see, e.g., Bloch et al., 2015;Chen et al., 2016;Narayan et al., 2016). There is a growing debate between environmentalists and economists about economic growth and sustainable development. In this debate, it is often viewed that "green growth" should become a standard of living to promote while GHG emissions decrease (e.g., Garret-Peltier, 2017;Pollin et al., 2014).
Both fiscal policies and "command and control" regulations have been used in the energy sector. Budgetary policies include tax incentives, direct government spending, loans, grants, guarantees, specific financing mechanisms, investments in research and development, and other forms of supports and incentives. At the same time, energy regulations include, among other things, energy efficiency and renewable energy. It is widely recognized that energy efficiency has become one of the primary ways to reduce GHG emissions (Shove, 2017). Governments across countries have been encouraging energy efficiency as their essential parts of climate mitigation policy strategies.
Researchers have acknowledged energy efficiency prospects that could create instrumental contributions towards reducing GHG emissions. For example, the International Energy Agency (IEA), in its scenario to achieve the global Paris Accord target, found that energy efficiency could contribute around 44% of the required GHG emissions reduction in 2040 (IEA, 2018). The Natural Resources Defense Council also found that energy efficiency could provide approximately two-third of its 80% emissions reduction target in the United States comparative to the 1990 level (Gowrishankar and Levin, 2017). Therefore, the IEA asserts that energy efficiency is the key to achieving a 'sustainable energy system in the future' and is 'the least costly way of addressing energy security, environmental and economic challenges (See http://www.iea.org/topics/energyefficiency/). Technologies and practices can be applied as energy efficiency opportunities to reduce the use of energy. Examples of energy efficiency programs include using LED lights, using smart electrical grids, using electric cars, designing ergonomic vehicles to reduce air resistance, biking, and walking rather than driving and reducing travel. These programs and activities provide extensive opportunities to save money on energy bills or other benefits. These opportunities need government policies to support better investments in the energy sector. Policy options to spur private investments include setting efficiency standards, labeling energy efficiency certification, providing incentives and preferences, charging fees, providing loans, education and training, and funding research and development (Nadel and Ungar, 2019).
Literature shows the benefits of energy efficiency strategies in social sciences, economics, and engineering. Gupta and Ivanova (2009) assert that energy efficiency is perceived as popular, non-controversial, and politically desirable as an energy policy strategy. Energy efficiency provides a wide range of benefits such as energy savings, environmental sustainability, industrial productivity, and energy security (Cole et al., 2018;Geller, 2003;Rosenow et al., 2017;Boyd and Pang, 2000;Porter and Van der Linde, 1995;Worrell et al., 2003). Nowadays, many international organizations such as the IEA and the World Bank acknowledge that energy efficiency reduces energy demand growth and creates energy savings (OECD/IEA, 2014; World Bank, 2017).
However, there have been long debates about those perceived benefits, especially in economics. First, energy price reductions from energy efficiency will increase energy demand directly through price elasticity or indirectly through repurchase energy-intensive goods and services (Khazzoom, 1980;Khazzoom, 1987;Khazzoom, 1989;Brookes, 1978;Brookes, 1979;Brookes, 1990;Brookes, 2000). Secondly, a growing literature shows the reduction of expected energy savings through energy efficiency strategies, known as the 'rebound effect' (Turner, 2013). Third, energy efficiency policy is not an effective measure to mitigate climate change, as energy efficiency mechanisms do not guarantee fossil fuel reduction .
Moreover, the trade-off between energy efficiency and economic growth is still an issue for poor and developing countries that need high growth to alleviate poverty (Dercon, 2014). However, the conclusion is a positive relationship between energy efficiency and economic growth results from (Cantore, Cali, & Velde, 2015) (Bataille & Melton, 2017) (Go, Lau, & Yii, 2019) can strengthen the basis for the formulation of green growth policies in countries including Indonesia.

METHODOLOGY
This study uses quantitative methodology by processing data on the Social Accounting Matrix (SAM) data. The data are collected from Statistics Indonesia (BPS), the Ministry of Finance, and the Ministry of Energy and Mineral Resources.
SAM is a data framework that can describe socioeconomic variables in a compact and integrated matrix. The SAM framework is compiled and presented to provide details on various classifications of production factors, economic actors (actors), and economic activities. SAM can provide an overview of a community's socioeconomic condition in a particular year, the process of income formation and distribution, and partially show the economic conditions of classified households according to income and expenditure for each household class (BPS, 2005). As a comprehensive macroeconomic data framework, SAM is a powerful tool for studying energy issues (J. Liu, Li, & Yao, 2019).
The SAM 2005 publication provides information and a general description of Indonesia's socioeconomic performance in 2005, such as the Indonesian economy's performance, income distribution (factorial income distribution), household income distribution, and household expenditure pattern (household expenditure pattern). Source: BPS (2010) The SAM framework consists of three endogenous balance sheet blocks and one exogenous balance block. The endogenous balance sheet consists of the production factor balance block, the institutional balance block, and the production sector balance block consisting of the balance block and the capital investment block. Further, An exogenous balance sheet is an overseas balance sheet or the rest of the world. All of these balance sheet blocks are arranged in a matrix consisting of rows and columns. Rows show receipts, and columns represent expenses. Each cell that is a cross between rows and columns illustrates the interaction between the balance sheet blocks. We can do a multiplier analysis in the SAM model, which consists of (i) an accounting multiplier that shows the effects of changes in a sector on other sectors of all linkages in the SAM, (ii) a transfer multiplier that shows the impacts of a balance sheet block on itself, (iii) open-loop multiplier or cross effect which shows the direct effects of one block to another, and (iv) closed-loop multiplier which shows the impacts of one block to another, then back to the original block. The scenario uses several approaches as follows:

EXPENDITURES
1. Scenario 1, the results of energy efficiency savings are returned to the sector in the form of additional capacity 2. Scenario 2, the result of energy efficiency savings is returned 50% to the sector in the form of additional capacity, and 50% is saved in the format of the company retained earnings 3. Scenario 3, the results of energy efficiency savings are returned 50% to the sector in additional capacity, and 50% returned to the community in corporate social responsibility.
Energy efficiency savings based on energy management report from Ministry of Energy and Mineral Resources. The company reporting their amount of energy saving, then this amount is monetized by multiplying it with the energy cost per kWh

Research Limitations
Data processing uses SAM data in 2005 because it is the latest official data released by BPS.

THE ECONOMIC IMPACT OF ENERGY EFFICIENCY
Data processing was carried out using the 2005 Indonesian Socio-Economic Balance System table, with several scenarios. The scenario used several approaches, namely based on the company's utilization policy of budget savings because it has carried out an energy efficiency program.
Based on the three scenarios aforementioned (see the methodology section), an analysis of utilization policies' effect is made from saving energy efficiency budgets on the economy. The impact on the economy will have a different impact on each economic agent. In this study, several alternative policy scenarios for using budget savings are provided as consideration for decision-makers whether the energy efficiency program needs government supports. The following will explain the comparison of each policy scenario's impact on the economy to determine the best policy option.

Data Processing Results, Comparison of Several Policies.
A different financial agent makes every policy change for other economic agents. Data processing in this review analyzes some company policies on changes in financial indicators. The results of data processing of the government's five procedures towards the budget are as follows. Overall, based on the results of data processing, every policy of using budget savings positively impacts the economy and each agent of the economy. Suppose we analyze each policy that is applied. In that case, the approach that has the most significant impact is the policy based on scenario 3, which is a policy where energy efficiency savings are returned 50 percent to the sector in the form of additional capacity, and 50% is returned to the community in the condition of Corporate Social Responsibility.
We can do further analysis of the impacts on each economic agent. This analysis is required to find out the effect expected by the government from each of its policies. For the implications for economic agents in the form of an increase in production factor income, it is known that the most significant impact is scenario one resulting from energy efficiency savings returned to the sector in the form of additional production capacity. In the third scenario, energy efficiency saving results in 50 percent to the industry in other capacity production conditions, and 50 percent is returned to the community in corporate social responsibility. The value of the impact of scenarios 1 and 3 on production agents' economic factors is the same, 0.15 percent.
The most significant increase in institutional income results from scenario 3, a policy where the energy efficiency savings are returned 50 percent to the sector in the form of additional production capacity, and 50 percent is returned to the community in the condition of Corporate Social Responsibility. The policy scenario has the most significant positive impact on increasing income distribution from production and institutions. The energy efficiency savings are returned 50 percent to the sector in the form of additional production capacity, and 50 percent is returned to the community in the condition of Corporate Social Responsibility.
Another economic agent, namely the production sector, will receive the most significant positive impact in increasing total output. This scenario of using the energy efficiency savings follows procedure 3, namely a policy where the results of energy efficiency savings are returned 50 percent to the sector in the form of additional production capacity, and 50 percent is returned to the community in the condition of Corporate Social Responsibility. Furthermore, for the economic impact of each scenario, we can elaborate further based on the criteria of each financial agent, as we can see in the following Based on the results of advanced data processing to see the impact of the economy on each economic agents' criterion, it can be seen that economic agents will feel the most significant positive effects of each financial agent. Scenario 3 provides energy efficiency savings for around 50 percent to the sector in the form of additional capacity, and 50 percent returned to the community in the condition of Corporate Social Responsibility. This scenario has the most significant impact on almost all economic agents, namely production of labor, household institutions, and all the business sector, both the production sector, trade, transportation margins, and domestic and imported commodities.
Further, in scenario 2, the energy efficiency savings are returned 50 percent to the sector in the form of additional production capacity, and 50 percent is saved in the company's format retained earnings. This scenario has the most significant positive impact on corporate and government institutions' forms of tax payments. Scenario 1 has the most significant positive effect on production labor, operators of transportation equipment, manuals, manual labor, aspects of production, not work or capital, and the production sector.
This study argues that the policy increases the highest-income households, which is policy based on scenario 3. Products of energy efficiency savings are returned 50 percent to the sector in the form of additional capacity, and 50 percent is returned to the community in the condition of Corporate Social Responsibility. While the policy that increases the highest income for corporate and government institutions is scenario two, energy efficiency savings are returned 50 percent to the sector in the form of additional production capacity, and 50 percent is saved in the company's format retained earnings.
Policies that can increase total output are policies according to scenario three. The results of energy efficiency savings are returned 50 percent to the sector in the form of additional capacity, and 50 percent is returned to the community in the condition of Corporate Social Responsibility. All criteria included in the business sector's economic agents, namely the production sector, trade margins, transport margins, domestic commodities, and imported commodities, will increase their total output if the policy is implemented under scenario 3.
In summary, three scenarios carried out in the data processing stage present the government's expected policy design to be carried out by companies in utilizing budget savings from energy efficiency activities. This study found that the best scenario is scenario 3 in increasing economic growth, expanding the business sector's total output, the added value of labor production factors, and household income. Energy efficiency savings are returned by 50 percent to the industry in the form of additional capacity, and 50 percent is returned to the community in the condition of Corporate Social Responsibility.
On the other hand, if the government expects to increase its income and company revenues, the suggested scenario is scenario 2. In this scenario, energy efficiency savings were returned 50 percent to the sector in the form of additional production capacity, and 50 percent saved in the company's format retained earnings. Suppose the government wants the company's capital to increase. In that case, the scenario selected is scenario one, where the results of energy efficiency savings are returned to the sector in additional production capacity.
The positive impact on the Indonesian economy and the effect of company policy changes in utilizing energy efficiency activities to sectors in the economy can be seen in table 4.

CONCLUSION
This study recommends an energy conservation policy that could positively impact environmental sustainability and economic growth in five targeted sectors. This paper employs a SAM multiplier model to formulate energy conservation policies to increase productivity and promote Indonesia's economic growth. This method can overview the impact of energy efficiency policy in consumers that consume 6000 TOE. From that result, this study can estimate the effect on environmental sustainability and economic growth.
Based on data processing results, it is found that energy efficiency activities positively impact, regardless of company policies taken to utilize these savings products. However, suppose the government expects the energy conservation policy to positively impact environmental sustainability and economic agents in five targeted sectors. In that case, the government should add a requirement for energy efficiency savings returned 50 percent to the industry in the form of additional capacity, and 50 percent returned to the community in the condition of CSR. Further, the government should also follow Indonesia's development goals, namely economic growth and reducing income disparities, the incentive for energy efficiency activities. This research helps policymakers to formulate energy conservation policies to increase productivity and promote economic growth. At the same time, it also can sustain environmental preservation.
However, the limitation of this study is because it uses the 2005 SAM data. This data may not reflect the current condition. However, it is the latest official data released by BPS Indonesia. Furthermore, another issue is the Indonesian SAM's reliability and validity since there are so many underground economies in Indonesia. Therefore whether or not the Indonesian SAM covers the whole of the Indonesian economy, including those in rural areas and informal sectors (Hartono & Resosudarmo, 2008;Setiawan, Damayanty, & Tenrini, 2020). However, BPS already tries to overcome this issue by a possible survey on the informal sectors and rural economies in the socio-economics survey, one of the primary input sources for the SAM data.