Preparing for the Energy Transition in South Sumatra

Palembang, May 29, 2024 – The climate crisis has increased natural disasters, including floods, droughts, and more frequent extreme weather. Addressing the root cause, dependence on fossil fuels, particularly coal, is essential to mitigating these disasters. According to an IEA study, over 95% of global coal consumption occurs in countries committed to reducing emissions.

Marlistya Citraningrum, Program Manager for Sustainable Energy Access, Institute for Essential Services Reform (IESR), explained that fossil energy produces significant emissions. These emissions trap heat in the atmosphere, which causes the earth’s temperature to rise over time. Given these conditions, it is necessary to transition to renewable energy to replace fossil energy. 

“In the transition process, there will automatically be a shift in the use of fossil energy, including coal. This will impact coal-producing regions, considering that the coal sector drives the energy sector and the economy. This means that we need to anticipate the impact of the energy transition in the coal sector so as not to make people miserable,” said Marlistya in the Palembang Morning Dialogue on Energy Transition in Coal Producing Areas at RRI Pro1 Palembang on Wednesday (29/5/2024).

Marlistya emphasized that when encouraging energy transition in coal-producing areas, diversification and transformation of the economy are also necessary to anticipate the social and economic impacts of the coal industry’s decline. According to IESR’s study, Marlistya confidently stated that the leading sector in Muara Enim Regency, South Sumatra, is accommodation and food services, demonstrating superior performance compared to surrounding areas and playing a pivotal role in encouraging economic transformation.

“When planning for energy transition, it is also inseparable from the renewable energy potential of a region. For example, the potential for renewable energy in South Sumatra is high, especially biomass, because many agricultural and plantation wastes can be utilized. For example, the utilization of rice husks to generate electricity, so no rice husk waste can potentially disturb the environment,” Marlistya said. 

In addition, Marlistya mentioned solar energy is also a potential renewable energy to be utilized in South Sumatra because solar power plants (solar PV) are easy to install. Large-scale solar PV (above 10 MW) requires a large area of land. However, there are also solar PV that do not require large areas of land, such as rooftop solar PV with a capacity of several kWp to as small as a table lamp and power bank. 

Aryansyah, Head of the Energy Division, Energy and Mineral Resources Agency (ESDM) of South Sumatra Province, said that around 20 percent of local revenue in South Sumatra depends on the coal sector, so the implementation of energy transition needs to be done carefully. Aryansyah stated that the community’s right to energy is also its right. For this reason, the delivery to the community must also be done clearly so as not to cause panic.

“To socialize this energy transition, the government also collaborates with non-governmental institutions such as IESR through the Jelajah Energi South Sumatra program held some time ago. We invite young people, academics, and journalists to see renewable energy plants firsthand. We also collaborate with incoming investors to encourage the utilization of renewable energy. Based on data from the Energy and Mineral Resources Office of South Sumatra, South Sumatra Province has the technical potential for renewable energy reaching 21,032 MW,” said Aryansyah.

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.

Mitigate the Impact of the Energy Transition in Coal-Producing Regions with Economic Transformation

press release

Jakarta, September 1, 2023 – The Institute for Essential Services Reform (IESR), a leading energy and environmental think tank based in Jakarta, Indonesia, released a report on the potential impact of the energy transition on coal-producing regions in Indonesia. This report, entitled Just Transition in Indonesia’s Coal Producing Regions, Case Study Paser and Muara Enim, finds that economic diversification and transformation must be immediately planned to anticipate the social and economic impacts of the decline in the coal industry along with plans to end coal-fired power plants (CFPP) operations and increased commitments to energy transition and emissions mitigation, from countries that have become coal export destinations so far.

IESR recommends that the central and regional governments realize the potential impact of the energy transition on the economy and development of coal-producing areas and start planning for economic transformation as soon as possible in these coal-producing areas.

A recent study conducted in Paser Regency, East Kalimantan Province, and Muara Enim Regency, South Sumatra Province, has recommended the utilization of coal’s revenue sharing (dana bagi hasil, DBH) CFPP and corporate social responsibility (CSR) programs to plan and support economic transformation. The study also highlighted the importance of expanding public access and participation to ensure a just transition. In 2023, Coals’ revenue sharing fund (DBH) is projected to account for 20% of the total revenue budget of the Muara Enim government. Similarly, between 2013-2020, it accounted for 27% of the total revenue of the Paser government.

“The importance of prioritizing economic activities that benefit local communities and have a greater multiplier effect towards post-coal mining economic transformation. It is equally important to factor in the potential impact of a decrease in coal production on the informal economy sector, which has not yet been included in macroeconomic analysis,” mentioned Executive Director of IESR, Fabby Tumiwa.

According to a recent study, the coal mining industry has contributed 50% to 70% of GRDP in Muara Enim and Paser over the last ten years. However, despite this significant economic contribution, coal industry workers earn little. Only around 20% of the added value is allocated to workers, while as much as 78% becomes company surplus. This means that the enormous economic value generated by the coal mining industry contributes little to the income of its workers.

“The coal mining industry has also caused significant social and environmental impacts on the surrounding communities. These impacts include degradation of air and water quality, changes in people’s livelihoods, economic inequality, and increased consumerism and rent-seeking,” stated Julius Christian, the leading author of this study and also the Research Manager of IESR.

According to him,  different parties in the region are responding to the trend of energy transition in various ways based on their interests, knowledge, and access to information. Coal companies are more aware of the energy transition risks posed to their businesses than governments and ordinary citizens.

“Both companies and local governments are starting to carry out various economic transformation initiatives. However, local people are more skeptical about the potential decline in coal because they have seen increased production recently,” said Martha Jesica, Social and Economic Analyst at IESR.

However, according to her, changes in perspective are occurring in both society and coal industry companies. The local community has called for economic diversification, and coal companies have started branching into other fields. She hopes that various stakeholders and the government can work towards raising awareness and implementing structural changes to drive economic transformation efforts.

The report “Just Transition in Indonesia’s Coal Producing Regions: Case Studies Paser and Muara Enim” by IESR suggests that to achieve sustainable development in coal-producing regions, firstly, there needs to be a comprehensive plan for economic diversification and transformation that involves stakeholders and community participation. Secondly, utilizing DBH funds and CSR programs to finance the financial transformation process, which can attract more investment into sustainable economic sectors. Thirdly expanding access to education and training to prepare a competitive workforce in the sustainable industry and increasing financial literacy for the community. Fourthly, expanding the participation of all elements of society, especially vulnerable groups, in regional planning and development.

“All matters related to the transition in coal-producing areas should be included in the respective central and provincial governments’ Medium Term Development Plan (RPJM). This will provide clear support and direction for local governments,” said Ilham Surya, Environmental Policy Analyst IESR.

Study Launch: Just Transition in Coal-Producing Regions in Indonesia Case Study of Muara Enim Regency and Paser Regency

Background

Coal holds significant importance for Indonesia, both as a consumer and as one of the world’s largest producers. As of 2022, Indonesia stands as the world’s third-largest coal producer, trailing only behind India and China. It also ranks among the globe’s leading coal exporters, having exported a total of 360.28 million tons, marking a 4.29% increase from the previous year. Looking ahead to 2023, the Indonesian government maintains ambitions for even higher coal production. The coal industry plays a pivotal role in the national economy. In 2022 alone, it contributed approximately 3.6% to the national GDP, accounted for 11.4% of the total export value, generated 1.8% of the national state revenue, and provided employment to 0.2% of the population.

On the other hand, coal demand is expected to decline due to the ongoing trend of transitioning towards renewable energy and the commitments outlined in the Paris Agreement, aimed at limiting temperature rise to below 1.5°C. According to IESR (2022) estimates, Indonesia’s total coal demand—both domestic and for export—is projected to decrease by approximately 10% after 2030, considering the country’s existing commitments. Furthermore, the Government of Indonesia has enacted Presidential Regulation No. 112 of 2022, which focuses on expediting the development of renewable energy sources for electricity generation. This regulation explicitly imposes a ban on the construction of coal-fired power plants, effective from 2030 onward. This national commitment is reinforced by the endorsement of the Just Energy Transition Partnership (JETP) agreement between Indonesia and the International Partners Group (IPG), as well as the Glasgow Financial Alliance for Net-Zero (GFANZ). This alliance aims to mobilize a substantial USD 20 billion in funding to facilitate an just transition to clean energy, which includes provisions for the early retirement of coal power plants.

Indonesia possesses coal reserves totaling 33.37 billion tons, distributed across several provinces including East Kalimantan, South Sumatra, South Kalimantan, Central Kalimantan, and various other areas. While these regions reap benefits from the coal industry sector, they also endure significant drawbacks.

IESR’s study, “Redefining Future Jobs,” conducted in 2022, illustrates that the advantages accruing to coal-producing regions are disproportionate to the hardships faced by their inhabitants. Furthermore, many communities in the surrounding areas bear the brunt of injustices, encompassing unequal economic impacts, land degradation, and health risks. Addressing these inequities must be a central focus for the government as it formulates plans for future energy transition.

IESR conducted a study on the coal industry’s impact within coal-producing regions in Indonesia, focusing on two major coal-producing districts: Muara Enim and Paser. The study unveiled various forms of injustice experienced by communities residing near coal mining sites, encompassing economic, social, and environmental dimensions

Among the observed injustices in coal-producing areas are income disparities between residents, workers, and capital owners, local community asset loss, and a decline in quality of life around coal mines. Addressing these issues necessitates comprehensive solutions aimed at mitigating these injustices and fostering opportunities for positive change within communities, ensuring an just energy transition.

By proactively tackling these injustices, the government can ensure that the transition process remains just for all stakeholders. With the Indonesian government’s commitment to a greener energy transition, the need arises for comprehensive development planning that promotes inclusivity and participation, particularly in each of Indonesia’s coal-producing regions.

Therefore, IESR intends to host a launch event for the study results of the Just Energy Transition in Coal Producing Areas in Indonesia. This event will bring together the national government, various experts from academia, civil society organizations, and international organizations to engage in a dialogue about the impact of the coal industry and the necessary preparations for an just energy transition in Indonesia.

Objective

The launch of the study results has several objectives:

  1. Delivering the findings of IESR’s Just Energy Transition in Coal Producing Regions’ study to the public.
  2. Gathering input on the outcomes of the study ‘Just Energy Transition in Coal Producing Areas’ to create practical recommendations for relevant parties.
  3. Collecting inputs and recommendations from various stakeholders concerning just energy transition and the mapping of potential economic sectors in coal-producing areas.

Enhancing understanding by providing practical recommendations to key policymakers to support the achievement of an just energy transition in coal-producing regions in Indonesia.