Anticipate the Impact of Decreasing Coal Consumption to Prepare for Economic Transformation

press release

Jakarta, September 27, 2023 – Indonesia has established various energy transition policies that will affect domestic coal consumption. Apart from that, Indonesia still relies on 75-80 percent of its coal production for exports to several coal export destination countries such as China, India, and Vietnam, which have also set targets for reducing coal consumption to align with their net-zero emission (NZE) marks. The Institute for Essential Services Reform (IESR) views that Indonesia needs to anticipate the potential decline in Indonesian coal exports by ensuring that the energy transition somewhat takes place, achieving sustainable economic transformation, and collecting data on the impact of reduced coal consumption on various aspects of life such as financial, social and environmental.

The Executive Director of IESR, Fabby Tumiwa, in the seminar “Sunset CFPP and the Coal Industry: Reviewing Multisectoral Direction and Impact in a Just Energy Transition” organized by IESR, estimated that the demand for coal in the country will peak between 2025 and 2030. After that, the market is expected to decrease significantly. Furthermore, the data suggests that coal exports will follow a similar trend and are expected to decline after 2025.

“If domestic demand and coal exports fall, production will fall. IESR estimates that Indonesia has 5-10 years to make adjustments by carrying out economic transformation in coal-producing regions in Indonesia in line with the decline in coal production, which has an impact on reduced demand for coal-producing countries and regions,” said Fabby.

Fabby emphasized that in ensuring a just energy transition, it is necessary to consider at least three factors: assessing the connection between the local economy and coal, the readiness of existing human resources, and developing mitigation plans considering alternative economic options that can be implemented in the area.

Ilham Surya, Environmental Policy Analyst of IESR, mentioned that the energy transition would impact coal-producing areas in Indonesia, such as Muara Enim Regency, South Sumatra, and Paser Regency, East Kalimantan. Based on the IESR report entitled Just Transition in Indonesia’s Coal Producing Regions, the Paser and Muara Enim Case Study found that the Gross Regional Domestic Product (GRDP) has contributed approximately 50% and 70% to Muara Enim and Paser over the last decade. Moreover, the coal mining taxes and royalties profit-sharing funds, known as DBH, have contributed significantly to the government’s revenue (APBD), up to 20 percent in Muara Enim and an average of 27 percent in Paser.

“Our input-output modeling analysis in Kab. Muara Enim shows that coal only provides added value in compensation of around 20 percent for workers, compared to 78 percent used for the coal company. Despite the mining sector’s high contribution towards GRDP (50-70%), locals do not receive an equitable share, leading to an imbalanced distribution of benefits and no significant multiplier effect,” explained Ilham.

Ilham emphasized that coal-producing areas require economic transformation to reduce dependence on the coal-based economy. The IESR study found several leading sectors that could be developed, such as in Paser Regency, which could create Financial Services, Manufacturing, and Education. Meanwhile, Muara Enim Regency can focus on developing manufacturing capabilities and providing accommodation, food, and beverages.

To monitor the impact of the energy transition on the coal sector, IESR has developed a coal impact tracking platform, or Coal Impact Tracker, which creates three scenarios for the future of coal. The Coal Impact Tracker platform tracks the impact of coal from various sectors such as population, employment, health, and others. The three scenarios are the BAU (Business as Usual) scenario, the Best Practice Policy (BPS) scenario, and the System Dynamic scenario in collaboration with the Bandung Institute of Technology. The platform is still in progress and is expected to be released in February 2024.

“The platform, which will be called is a form of IESR’s contribution in educating relevant stakeholders through visualization of information on important economic, social, environmental and health indicators. Regional governments, communities at coal industry locations, and coal industry workers can use this platform to anticipate the impact’s magnitude and prepare in advance,” explained Deon Arinaldo, Program Manager of Energy Transformation, IESR.

Arrange a Strategy to Get Around the Impact of Coal Power Plant Shutdown

Jakarta, 27 September 2023 – Indonesia’s increase in climate commitments in the Enhanced Nationally Determined Contribution (E-NDC) brings a number of implications, including plans to stop coal-fired power plant operations early to reduce emissions. This plan has several impacts, including a decrease in the income of coal-producing regions as well as national income, the potential for massive layoffs, as well as other socio-economic impacts.

In a hybrid seminar, entitled “Sunset CFPP and the Coal Industry: Reviewing Multisectoral Direction & Impact in a Just Energy Transition” (27/9), Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR) explained that the energy transition agenda for both Indonesia and the destination countries for Indonesian coal exports will have an impact on a number of aspects in Indonesia.

“There are three factors that can be seen from the energy transition in coal producing areas: the link between the local economy and coal, the readiness of existing human resources, and alternative economic options that can be developed in that area, and how mitigation plans can be prepared,” said Fabby.

In the presentation material delivered by Ilham Surya, IESR Environmental Policy Analyst, it was explained that the role of the coal industry in the economy of coal-producing regions is quite significant.

“The GRDP contribution is between 50% and 70% in Muara Enim and Paser, but the multiplier effect is not that big,” said Ilham.

Within the scope of national policy, the Ministry of PPM/Bappenas is currently preparing a Long Term Development Plan (RPJP), one of the points  is economic transformation.

“The energy transition is part of the green economic transformation, so in the latest draft of RPJP, what we meant by transition is not only seen from the energy sector,” explained Nizhar Marizi, Director of Energy, Mineral and Mining Resources, Bappenas.

Grita Anindarini, Deputy Director for Programs, Indonesia Center for Environmental Law (ICEL), emphasized the important role of the policy framework and implementation of various existing regulations.

“A just energy transition requires a very big policy transformation on employment, environment, energy, and financing. Currently there are several policy regulations regarding the energy transition, but their implementation still faces various obstacles,” explained Grita.

Haris Retno Susmiyati, Lecturer at the Faculty of Law, Mulawarman University, admits that economic dependence on coal commodities is not a good thing. She said that in 2015, when coal prices fell drastically, the economy of East Kalimantan also slumped.

“By regulation, the company’s obligation to pay royalties to the government is only 13.5% of that figure. The regional government only gets 5%, so it is not the coal producing regions that actually enjoy the profits from coal,” said Retno.

Having a similar context to East Kalimantan, Jambi province is also starting to prepare for transition. Ahmad Subhan, Head of Economy and Natural Resources, Bappeda Jambi, said that even though it is not the main coal producing area, the contribution of the coal sector to GRDP is quite significant.

“Coal is indeed significant for supporting the economy, but if there are substitutes that are more relevant to regional conditions, they can be explored further. For this transition, we in Jambi province are supportive but not drastic. We are also waiting for substitutions for economic transformation,” said Ahmad.