CASE IESR: Indonesia Needs to Encourage Stronger Commitment from ASEAN Countries to Reducing GHG Emissions in the Region

press release

Jakarta, 15 August 2023 Holding the Chair of ASEAN in 2023 and possessing significant economic influence within the ASEAN region, Indonesia can foster a joint agreement among other ASEAN member countries to promote the reduction of greenhouse gas (GHG) emissions in alignment with the Paris Agreement. Additionally, Indonesia can mobilize support from other countries as several ASEAN nations aim to phase out coal-fired power plant operations incrementally before 2050. Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), conveyed this message during a media briefing titled “Measuring ASEAN’s Climate Ambition at the Helm of Indonesia’s ASEAN 2023 Chairmanship.”

According to Fabby, while Indonesia prohibits the construction of new coal-fired power plants (PLTU) for general use, allowing their construction for industrial purposes can impede the achievement of a higher renewable energy mix. He emphasized that the Indonesian government should advocate for a stronger commitment to ending the operation of coal-fired power plants throughout ASEAN countries. Furthermore, Indonesia should bolster its renewable energy expansion within ASEAN, particularly in solar energy development. Fabby encouraged discussions on an integrated supply chain to be established during the ASEAN Ministers on Energy Meeting (AMEM) scheduled for August 2023.

“We hope that during AMEM, Indonesia can propose to become a manufacturing hub for solar PV, encompassing technology from polysilicon to solar modules. Although some ASEAN countries have advanced manufacturing capabilities, they are still limited to cells and modules. Moreover, this manufacturing progress lacks integration. Indonesia, endowed with raw materials like silica sand, has the potential, as Chair of ASEAN 2023, to champion an integrated supply chain through a collective agreement,” he stated.

He added that climate threats are escalating for ASEAN nations, significantly impacting the region’s food security, energy security, and developmental progress. Without earnest endeavors to curb global emissions, climate change will compound challenges, making sustained economic growth of over 6% in the Southeast Asian region even more challenging.

Berlianto Pandapotan Hasudungan, Director of ASEAN Economic Cooperation at the Ministry of Foreign Affairs of Indonesia, explained that transitioning to renewable energy and reducing reliance on petroleum is pivotal for Indonesia’s leadership within ASEAN amidst geopolitical, Myanmar, and climate crises.

“Alongside the advancement of electric vehicles, ASEAN is fostering energy interconnections among member countries and embarking on studies for energy interconnections within the region,” he elaborated.

Shahnaz Nur Firdausi, a Researcher on Climate and Energy at IESR, highlighted that Indonesia’s climate policies and commitments do not align with the Paris Agreement’s objective of capping temperature rise at 1.5°C. The Climate Action Tracker (CAT) report underscores the insufficiency of Indonesia’s climate targets and policies. If other countries follow a similar path, global warming could exceed 2°C to 3°C.

“For this reason, Indonesia’s climate policies and actions in 2030 require substantial improvements in line with a temperature limit of 1.5°C. Indonesia should elevate the NDC target to 75% under the NDC business-as-usual (BAU) scenario, excluding land use and land use change and forestry (conditional), and 62% (unconditional). Furthermore, Indonesia’s land use and forestry emissions have accounted for nearly 50% of total emissions over the past two decades,” said Shahnaz.

In concluding remarks, Agus Tampubolon, the Project Manager of Clean, Affordable, and Secure Energy (CASE) for Southeast Asia, emphasized the significance of collaboration among ASEAN member countries to expedite the energy transition.

“Indonesia can serve as a model for the ASEAN region by spearheading the energy transition. ASEAN countries possess tremendous potential for joint efforts in advancing solar PV technologies and crafting policies that facilitate the shift from fossil fuels to renewable energy, thereby amplifying climate targets,” Agus affirmed.

The use of CCS needs careful consideration

Author : Aditya Perdana Putra Purnomo (Research team intern 2022)
Editor: Pamela Simamora

The use of fossil fuels since the beginning of the industrial revolution has been shown to increase anthropogenic1 carbon dioxide emissions that are responsible for an upsurge in the earth’s surface temperature by 1.07 °C from 1850 to 1990.The increase in temperature harms the environment, causing events such as droughts, forest fires, flooding, and erosion of some coastlines. 

Besides using renewable energy, Carbon Capture and Storage (CCS) is considered capable of helping in reducing world carbon emissions. CCS is a technology used to capture carbon dioxide from exhaust gasses, then transport and store the carbon dioxide gas in particular storage locations (usually underground) to avoid its negative impact released into the atmosphere.2 . 

 Figure 1. CCS Schematic Diagram (Choudary,2016)

By 2021, there are 31 CCS projects in commercial operation worldwide, and more than 90 other projects are still under development. This figure continues to increase and is the highest for the last 5 (five) years. Beside being caused by ongoing research, the increase in the number of projects is also inseparable from the support from various countries for CCS technology as an option to reduce carbon emissions.

Indonesia, as one of the largest carbon dioxide emitting countries in the world, has also begun to plan the use of CCS, especially in the electricity sector. This strategy is questionable given that CCS prices are and will remain uncompetitive against renewable energy plus storage. If CCS is installed, supercritical CFPP LCOE will double from EUR 40 per MWh to EUR 80 per MWh (USD 92 per MWh) even if transport and storage costs of CO2 remain low at around EUR 10 per tonne. In this case, the avoided CO2-eq cost is more than EUR 55 per tonne (USD 64 per tonne).

 

Figure 2. CCS Schematic Diagram of a Coal-fired Power Plant (Global CCS Institute, 20213 )

One of the CCS projects in the electricity sector, the Petra Nova project in the United States, is predicted to be the trigger for the development of CCS in the electricity sector around the world. Unfortunately, the CCS at this 240 MW power plant experienced a 30% blackout before it was finally discontinued in 2020. Since its inauguration in 2017, from the target of capturing 4.2 million metric tons of carbon dioxide for 3 years of operation, the Petra Nova project has only succeeded capture 3.54 million metric tons of CO2, or 16% of the target.

Analysis from the Institute for Energy Economics and Financial Analysis (IEEFA) shows the poor performance has cost investors more than $23 million over the project’s three-year operation. In addition, during its lifetime, the Petra Nova project also generated more than 1.1 million metric tons of CO2 through the use of gas turbines for CCS power purposes. Learning from this case, Indonesia needs to reconsider the use of CCS in coal-fired power plants.

Another project, the Boundary Dam coal-fired power plant in Canada, also uses CCS to capture GHG generated from the electricity production of this 160 MW power plant. Equal to the Petra Nova project, the Boundary Dam project has also never operated according to its target of capturing 3200 metric tons of carbon dioxide annually. Judging from the achievement of annual carbon capture, the project is only able to capture carbon emissions of around 40 to 60% of the target. Even in the most productive year, the achievement was still far below the target of 3200 metric tons per year. This record was exacerbated by last year’s sluggish performance caused by a 3-month blackout of the CCS unit. The first outages took place from mid-June to July due to routine maintenance. However, shortly thereafter, a compressor failure4 brought the project to a complete shutdown from August to September 2021.

Figure 3. Achievement of Carbon Capture, Boundary Dam Project 2014-2021 (Schissel, 2021) 

In other sectors, such as industry, CCS is considered one of the most effective solutions to reduce GHG emissions. The use of CCS in the industrial sector started in 1971 when the world’s first commercial CCS was operated at Terrell Gas Processing5 in Texas, United States of America. CCS, which is valued at 7.6 million6 is still operating today. The project with a capacity of 0.4 MTPA7 is operated to capture CO2 emissions from the local gas processing industry and use this catch to increase oil well production through the Enhanced Oil Recovery (EOR)8 . Another CCS project in the United States is at a fertilizer plant called Enid Fertilizer, that has been operating for 40 years. This project utilizes CO2 from the manufacture of fertilizer/ammonia to sell to oil and gas production wells in Oklahoma that carry out the EOR process.

From the case study above, several things need to be considered by policy makers in Indonesia to apply CCS in Indonesia. First, the use of CCS in steam power plants, apart from being expensive, also often experiences technical problems, resulting in not achieving the CO2 capture target promised by the developer. Second, the revenue from the sale of CO2 for EOR is the prime driver of CCS projects in the industrial sector in America. Although there is no publicly available data, CO2 prices for EOR are closely related to oil prices. For instance, with an oil price of US$70 per barrel, the CO2 price for EOR is around US$30/tCO2 (Bliss, et al., 2010). Therefore, the implementation of CCS in the industrial sector (and other sectors) requires a high carbon value which can ensure that the carbon values covers the costs of capturing and transporting CO2.*** 

 

Footnote:

 

Fossil Energy Subsidies Hinder Energy Transition

press release

Jakarta, 12 November- Despite the commitment to step up climate action and achieve the Paris Agreement target of keeping the earth’s temperature below 1.5 degrees Celsius, the G20 countries, including Indonesia, are still providing significant fossil energy subsidies. The Institute for Essential Services Reform (IESR) views fossil energy subsidies as counterproductive to energy transitions and achieve decarbonization in the middle of this century.

At the early stage of the pandemic, the G20 countries disbursed at least USD 318.84 billion to support fossil energy. Meanwhile, according to Climate Transparency 2021 data, Indonesia has spent USD 8.6 billion on fossil fuel subsidies in 2019, 21.96% of which was for oil and 38.48% for electricity.

Indonesia had succeeded in reforming fuel and electricity subsidies in 2014-2017 but still allocated a fairly large fossil energy subsidy. Energy subsidies increased by 27% in the period 2017-2019.

“The provision of fossil energy subsidies not only hinders plans and efforts to cut greenhouse gas emissions and decarbonization but also results in inefficiency in energy use. It also creates loss due to untargeted subsidies, and makes renewable energy difficult to compete with,” said Fabby Tumiwa, IESR Executive Director.

Ending fossil fuel subsidies will create a level playing field for renewable energy. Moreover, in his opinion, fossil energy subsidy funds will be much more beneficial if they are diverted to the most vulnerable communities, building education and health facilities, developing renewable energy, and accommodating the impact of the energy transition for workers in the affected fossil energy industry. 

“Energy subsidy reform on the consumption side should not be carried out haphazardly so that the poor do not have access to quality energy at affordable prices. On the other hand, financial reforms need to be followed by collecting and applying the poor family databases and targeted subsidy distribution schemes,” explained Fabby. 

Fabby believes that the pricing policy for Domestic Market Obligation (DMO) coal and gas for PLN is a form of subsidy and has made the price of electricity from coal-fired power plants and gas-fired power plants not reflect the actual costs. This policy also makes PLN prioritize the use of coal-fired power plants over renewable energy, which is cheaper.

“The government should review the DMO price benchmark policy for power generation and make a plan to end this policy. This is in line with the government’s decision to not grant permits for the construction of new coal-fired power plants outside the 35 GW program and plans for early retirement of coal-fired power plans before 2030,” said Fabby.

Climate Transparency 2021 analysis shows that to achieve the Paris Agreement targets, all regions of the world must phase out coal-fired power plants between 2030 and 2040. By 2040, the share of renewable energy in power generation must be increased to at least 75%, and the share of unabated coal-fired power plants is reduced to zero. While in the National Energy Policy, Indonesia promised to reduce coal by 30% by 2025 and 25% by 2050. Meanwhile, to be in line with the Paris Agreement, electricity generation from coal must peak in 2020 and stop coal completely by 2037.

Based on IESR calculations in the Deep Decarbonization of Indonesia’s Energy System study, the cost to transform Indonesia’s energy system to achieve zero emissions in 2050 will reach USD 25 billion per year until 2030. It will escalate sharply thereafter to USD 60 trillion per year.

“Fossil energy subsidies increase the negative impact of GHG emissions as well as add the burden on the state due to economic losses and state financial expenditures to overcome disasters caused by climate change. These subsidies can be diverted to help accelerate the energy transition using renewable energy so that we can achieve the renewable energy mix target of 23% by 2025,” said Lisa Wijayani, Program Manager of the Green Economy, IESR.

At the G20 Declaration last October in Rome, the G20 countries agreed to extend their commitment to reducing inefficient fossil fuel subsidies. IESR views that Indonesia can use the opportunity of Indonesia’s leadership at the G20 in 2022 to encourage real action to exit the burden of financing fossil energy.

“The commitment of the G7 countries to provide climate finance of USD 100 billion by 2025 is still not enough. Therefore, G20 countries must contribute, one of which is by carrying out financial reforms towards renewable energy that supports a green economy. Indonesia as the leader of the G20 countries in 2022, can encourage G20 member countries to carry out financial reforms,” ​​said Lisa.

She said every financial policy that leads to support for fossil energy must receive attention and be strictly inventoried by the Global Stocktake (GST) as part of monitoring the climate action of the Paris Agreement. 

According to a report by the Independent Global Stocktake (iGST), a civil society consortium to support GST, the GST can offer a platform for countries to collaborate in reforming fossil fuel consumption subsidies.

“Information that is inventoried into the GST must also include social elements in it so that the objectives of climate finance in achieving economic growth and social inclusion can be achieved. This GST process must include organizations representing economic, environmental, energy, and social elements, especially gender issues and other vulnerable communities, to ensure that the just transition takes place,” said Lisa.