Simulating impacts of energy prices on poverty in East Kalimantan, Indonesia

Adaptation dynamics of communities to environmental change, such as rainfall, forest stocks, fish stocks and flooding, have a multitude of consequences for livelihood choices, poverty and natural resource use. Emerging properties of such household level behaviour are analysed in the context of energy related policy changes in an agent-based model implemented in East Kalimantan, Indonesia. The underlying hypothesis is that complex systems modelling can help decision makers to better understand the responses of a socioecological system to macro-policy changes, for example fuel subsidy reductions. The participatory model development process revealed that many decision makers implied linear responses of poverty indicators to policy interventions (“if we double cash payments we can double our impact on poverty”). The agent-based model offered the opportunity to consider feedbacks created by interactions in the socio-ecological system. Model results indicate that poverty responses to changes in fuel subsidies and poverty cash payments are highly non-linear. Three important messages emerge from the model results. Firstly, petrol price reductions have a rather low impact on poverty alleviation. Secondly, diminishing marginal returns have to be expected as poverty levels do not seem to respond linearly to fuel subsidy changes. Thirdly, model results suggest that not just marginal but also absolute returns can decrease due to environmental feedbacks.