Encourage Just Energy Transition in Coal-Producing Regions

Jakarta, November 21, 2023 – The Institute for Essential Services Reform (IESR) believes that mitigating the impact of energy transition in coal-producing areas needs to be a concern of the central and regional governments. The involvement of affected communities by prioritizing justice in the energy transition process is crucial to moving from a fossil-intensive economic system to a sustainable economy.

IESR has conducted a study entitled Just Transition in Indonesia’s Coal Producing Regions, Case Studies Paser and Muara Enim, with research locations in Paser Regency, East Kalimantan Province, and Muara Enim Regency, South Sumatra Province. The study found that coal-producing regions can contribute to the economic transition to clean energy. Some factors that can potentially aid in this transition are the emergence of awareness to not solely rely on one source of regional income, such as the coal sector, a company’s initiative to diversify its business beyond coal, and the implementation of corporate social responsibility (CSR) which can act as a source of funding for community empowerment. However, several obstacles hinder the optimization of this potential, such as the limited authority of local government, lack of financial capacity, and inadequate health and education infrastructure.

“The government needs to pay attention to the energy transition phenomenon in coal-producing regions to mitigate its impact. Indonesia still has time to prepare for the energy transition process, but the time is insufficient. We cannot let the coal industry end abruptly, as the regions are not yet ready to transform. The central government needs to properly understand the context of energy transition in these regions so that it can make active interventions in coal-producing regions,” said Fabby Tumiwa, Executive Director of IESR at the media dialogue entitled “Equitable Transition in Coal Producing Regions in Indonesia: Case Study of Muara Enim Regency and Paser Regency.”

The study also found insufficient economic diversification and industrial development in coal-producing regions. Most of the coal produced in Paser and Muara Enim is exported to other regions, which has not led to any significant industrial development. Industrial development is also slow in both regions, particularly in Paser, where the manufacturing industry’s gross regional domestic product (GRDP) is still lower than agriculture. In Muara Enim, the lack of viable economic opportunities is also due to limited agricultural land, especially rubber plantations, due to land use change from plantations to mining concession areas.

“Therefore, we encourage the central and regional governments to focus on economic transformation by developing sectors of excellence in each coal-producing region. For instance, in Paser Regency, East Kalimantan, the education and financial services sectors have shown promising growth. Similarly, Muara Enim Regency, South Sumatra, has performed better in the accommodation and food services sector than its neighboring regions. Therefore, we suggest that the authorities prioritize these sectors of excellence to boost economic development in these areas,” explained Martha Jesica, Social and Economic Analyst at IESR. 

Rusdian Noor, Secretary of the Regional Development Planning Agency (Bappeda) of Paser Regency, East Kalimantan, hopes that the acceleration of energy transition in coal-producing areas will be accompanied by support from the central government for investment and technological innovation.

“The Gross Regional Domestic Product (GRDP) of Paser Regency in 2022 is expected to fund around 75% of the regional development, and the primary contributor to this is the mining sector. To ensure sustainable development, the energy transition process must focus on diversifying the economic sector and generating at least 75% of the PDR. This will help the region maintain its power and progress towards sustainable development,” said Rusdian. 

Similarly, Mat Kasrun, Head of Bappeda Muara Enim Regency, expressed that his party should be involved in all policy-making related to energy transition and has the authority to develop new and renewable energy. He also hopes for support from the central government in granting discretion in authority or licensing for developing new economic sectors in the regions.