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The Finance Ministry announced late on Friday that it was providing incentives to boost investment in renewable energy, such as geothermal, solar and biofuels, in an effort to cut reliance on fossil fuels.

The government “aims to reduce dependency on non-renewable energy and to ensure availability of sustainable energy sources by attracting investment,” ministry spokesman Harry Z Soeratin said in a statement.

The ministerial decree includes a 5 percent tax cut over six years for renewable energy producers as well as exemptions from value-added tax and import duties on equipment. Another provision allows investors to use accelerated depreciation and amortization on assets to reduce taxable income.

The ministry did specify how much the incentives would cost the government, nor did it say when these changes would be implemented.

Paulus Tjakrawan, secretary general of the Indonesian Biofuel Producers Association (Aprobi), applauded the incentives.

“Indonesia has joined the rest of the world by applying regulations [to develop renewable energy]. The government is heading in the right direction,” he said.

Paulus said the incentives would cut biofuel production costs, making it more affordable.

“It’s hard for biofuels to compete with fossil fuels prices without incentives, even though biofuel is subsidized. Biofuel producers have to sell their products cheaper than the production cost,” he said, adding that biofuels were priced around Rp 4,000 per liter at the pump but cost Rp 6,000 a liter to produce.

In March, the government doubled the biofuel subsidy from Rp 1,000 to Rp 2,000 a liter.

However, Paulus said the government also needed to do more to raise public awareness of the benefits of eco-friendly fuels to lift demand.

“The government needs to promote the importance of biofuels. It may be more expensive, but in the long term it’s better for the environment,” he said.

Also slowing the development of renewable energy in Indonesia were land issues that needed inter-ministry coordination to resolve, Paulus said.

“Land sustainability has been the main debate in biofuel production. Several geothermal energy sources are located in protected forests. These are also important problems,” he said.

In 2009, Indonesia fell short of its biofuels target as producers halted operations because of the surging price of crude palm oil, the main raw material for biofuels in Indonesia.

Total biofuel production was just 104,100 kiloliters in 2009, a 96 percent fall from the 2.56 million kiloliters produced in the previous year, according to the Energy Ministry.