Can the Indonesian Just Energy Transition Partnership (JETP) succeed?

Phasing out coal is essential to Indonesia’s decarbonization goal: coal is the second largest contributor to its greenhouse gas emissions, after deforestation. According to the International Energy Agency, Indonesia generates more than 60% of its electricity by burning coal, accounting for more than 200 MtCO2 (metric tons of carbon dioxide equivalent), about 80% of emissions from electricity production. It is timely that global initiatives are emerging to help the country solve its serious coal problem.

The Just Energy Transition Partnership (JETP) was announced at the 26^e Conference of the Parties (COP26) as a financing mechanism provided by developed countries to help emerging coal-dependent economies achieve just energy transitions. To date, South Africa, Indonesia and Vietnam have been pledged respectively $8.5 billion, $20 billion and $15.5 billion in financing consisting of concessional and debt-based loans. market, subsidies, guarantees and investments from public and private entities. . Basically, Indonesia, the third coal producer in the world, takes the lion’s share of the JETP pie. In February, the Indonesian JETP secretariat was facility to the Ministry of Energy and Mineral Resources (Kementerian ESDM) with the support of the Asian Development Bank to coordinate stakeholders and coordinate the development of the JETP project.

While serving as a new model for climate finance, the JETP has drawn criticism. Some are concerned about the willingness of recipient countries to deliver their self-defined courses coal disposal. In the case of South Africa, many raise the issue of energy security. South Africa has experienced blackouts and blackouts daily, and transitioning to new energy sources is much more difficult than keeping existing coal-fired power plants running. Additionally, the coal industry employs 200,000 workers, roughly equivalent to 1% of formal employment in South Africa. In Indonesia, coal remains an economic heavyweight coal exports are projected reach 465 million tonnes (Mt) in 2023 at 70-78 USD/Mt. The industry too contributes tens of trillions of rupees in non-tax government revenue.

Despite these criticisms, enthusiasm for Indonesia’s energy transition remains high.

In Indonesia, the concern over the implementation of JETPs is mainly about timing and clarity on exactly how the phasing out of the use of coal for power generation is to occur. Although the country immediately committed to stop building new coal-fired power plants after the announcement of JETP in 2023, Indonesia will continue 117 buildings new coal-fired power plants already planned. In addition, the pledge does not include stop the construction of so-called captive plants or coal-fired power plants that are not connected to the grid but are used to power factories. Under current policies, coal is expected to still dominate Indonesia’s energy mix and climb more carbon emissions in the coming decades.

Despite these criticisms, enthusiasm for Indonesia’s energy transition remains high. Unlike South Africa, which is still struggling with its energy security, Indonesia has better energy prospects. Perusahaan Listrik Negara (PLN), a public company which monopolizes the distribution of electricity, risks producing more power than needed as demand growth slows and construction of the aforementioned new factories is underway. For example, Indonesia plans to export some of its electricity to neighboring countries, identify new centers of economic demand and improve transmission and distribution networks. The security of its energy supply should give Indonesia leeway to experiment with its renewable energy policies as an alternative to coal.

Another promising factor is the importance of JETP to Indonesia’s overall climate ambition. Major developments in the form of a net zero target and the submission of his Long-term strategy for low carbon and climate resilience 2050 (LTS-LCCR) took place shortly before COP26. The LTS-LCCR committed to peaking greenhouse gases by 2030 and outlined low-carbon scenarios for various sectors. Given the main contributions of the electricity sectors to emissions (accounting for 13.1% of emissions in 2019), the JETP is essential for Indonesians to obtain the necessary climate finance. In fact, the JETP is aligned with Indonesia’s long-term plans: one of its deliverables Peaking electricity sector emissions by 2030 is also a milestone in the LTS-LCCR low-carbon scenario. This synergy with Indonesia’s long-term plans and high-level political will bodes well for the eventual success of JETP.

Indonesia is also rich in alternative energy resources such as geothermal, solar, hydropower and wind. These have been under-explored because the investment capital needed for the initial adoption of these alternatives is high. Unlocking private investment requires government to provide incentives and clear prospects for attractive financial returns. To this end, the Regulation of new energies and renewable energies (RUU EBT) should be launched this year in order to provide legal certainty for an increase in the use of renewable energy resources. Kementerian ESDM, through the RUU EBT, must eliminate red tape in the form of overlapping regulations for renewable energy projects such as business licenses, location permits and required social and environmental impact assessments by various government agencies.

Finally, the JETP is a valuable opportunity to exercise Indonesia’s climate diplomacy. Many are skeptical of Indonesia’s reputation in international environmental diplomacy due to conflicts such as its protests against the EU palm oil ban and controversies such as the Omnibus Act, widely criticized for having deregulated environmental protection. Besides launching its JETP, Indonesia, as G20 Chair in 2022, has been keen on cultivating an image of sustainability, providing electric two-wheelers for the participants and the greening of toll roadshas a visit of the Ngurah Rai Forest Park where world leaders have planted mangroves. While clearly part of a diplomatic window dressing, these gestures signal Indonesia’s desire to reverse negative perceptions of its environmental and climate record.

The above analysis shows that Indonesia may have favorable conditions to eliminate coal from its energy mix, but implementation will remain difficult. Going forward, developed countries must deliver on their promises to provide clear and attractive financing mechanisms, including offering better interest rates than commercial loans to Indonesian stakeholders. Indonesia needs to show that its path to phasing out coal is achievable, by passing tougher renewable energy laws and making greater investments.

2023/131