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Joining the Renewable Energy Era Needs Supporting Policy Packages

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Jakarta, 21 September 2021– Achieving Indonesia’s carbon-neutral target in Indonesia by 2060 or sooner as the Indonesian government has targeted, requires clear policies and strategies, including in the energy sector as one of the largest emitting sectors in Indonesia. The pack of the energy sector decarbonization policy is being prepared by the Indonesian government to realize a smooth and just energy transition.

Arifin Rudiyanto, Deputy for Maritime Affairs and Natural Resources at the Ministry of National Development Planning, Bappenas, said that there are several strategies that Bappenas has prepared to achieve low-carbon development and climate resilience. These include the development of sustainable energy, waste management, circular economy, and the development of green industries. Moreover, he explained that there are three important things in realizing energy transition, they are political will, solid legal basis, and a comprehensive strategy.

“Political will has been obtained, a good strategy has been outlined in the Medium-Term National Development Plan (RPJMN) to transform towards green energy, while a strong legal basis has been prepared through the new and renewable bill,” said Arifin on the second day of the Indonesia Energy Transition Dialogue (IETD) 2021 organized by Indonesia Clean Energy Forum (ICEF) and Institute for Essential Services Reform (IESR), Tuesday (21/09/2021).

Responding to the statement, Sugeng Suparwoto, Chairman of Commission VII the House of Representative of Republic Indonesia (DPR RI) promised that the New Renewable Energy Bill would be ratified in 2021.

“The era of renewable energy has become a necessity. In the new renewable energy bill, there are incentives for developing new renewable energy and disincentives for energy development, which still contributes the largest carbon contribution,” he explained.

Herman Darnel Ibrahim, a Member of the National Energy Council, warned that the implementation of energy system decarbonization should also mitigate economic risks, as well as maintain national energy security, in particular, to keep energy prices affordable. Furthermore, it needs to create a level playing field between renewable energy and fossil energy, such as by utilizing carbon tax instruments.

Knowing that needed the higher funding to achieve carbon neutrality with renewable energy, Febrio N. Kacaribu, Head of the Fiscal Policy Agency (BKF), Ministry of Finance of the Republic of Indonesian analyzed that at least needs IDR 3500 trillion to achieve the NDC target in 2030.

“Our state spending planning budget is only 40% of the need, so it must involve the local government, the private sector, and international support,” he said.

Febrio revealed that the government has prepared financial instrument green bonds with low-interest rates in which the global market has responded well. The Ministry of Finance is also currently conducting tax harmonization to support the principle of reducing carbon emissions.

“So we need a carbon market mechanism to connect sectors that have not implemented net zero emissions with those carried out,” said Febrio.

Febrio added, if the carbon market mechanism in Indonesia has been established, the carbon tax signal for coal actors will be stronger as well. Therefore, Indonesia will be recognized by the global new energy market. It will certainly help the process of funding renewable energy projects in Indonesia to accelerate the achievement of Indonesia’s decarbonization targets.

Dewa Putu Ekayana, Policy Analyst, Ministry of Finance of Indonesia stated that now Indonesia is almost in the final process for the draft presidential regulation related to the economic valuation of carbon.

“The fiscal aspect of the economic valuation of carbon is not a carbon tax but a levy on carbon. This expansion of meaning is expected to include not only taxes but also other instruments. The next consideration is the balance of central and sub-national government finances. Our suggestion from the Ministry of Finance is that the financing mechanism will be paid for with carbon credits or carbon certificates,” explained Dewa.

On a different occasion, responding to the carbon economic value policy, Fabby Tumiwa, Executive Director of IESR said that the government needs to set emission reduction targets and determine targets in each sector, as well as assess the value or effective carbon price that can support the achievement of these targets.

“The price of carbon should be linked to emission reduction targets and should promote economic actors to change their technology choices. If the carbon price is too low, it is worried that it will not provide an adequate signal to encourage substantial emission reduction efforts,” explained Fabby.

Regarding the implementation of the carbon tax, Fabby said that the government needs to openly communicate the importance of carbon tax instruments to restrain the growth of carbon emissions, determine the mechanism and instruments, as well as the economic sectors that will be affected by the implementation of the carbon tax.

IETD 2021 runs for five days, from 20-24 September. This event is in collaboration with Clean, Affordable, and Secure Energy for Southeast Asia (CASE), a partnership project from several countries in Southeast Asia and is funded by the Federal Government of Germany. Further information can be accessed at ietd.info

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