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.

Indonesia Needs to Increase its Efforts to Transition Towards Green Economy to Achieve NZE

press release

Jakarta, 18 August 2023 – The President of the Republic of Indonesia (RI) Joko Widodo (Jokowi), in his state address for the 78th Indonesian Independence Day, which also served as an introduction to the 2024 state budget bill and 2024 financial note stated that the 2024 state budget is directed toward accelerating economic transformation that is inclusive and sustainable. In his speech, the president mentioned the potential crisis due to climate change. For this reason, the transformation of the economic sector that is sustainable and environmentally friendly is crucial. The president emphasized that the transition to the use of green energy needs to be carried out progressively but remains fair and affordable.

The Institute for Essential Services Reform (IESR) appreciates the direction of the 2024 state budget. It encourages the government to accelerate the development of a green economy and the utilization of renewable energy so that Indonesia can gradually reduce the portion of fossil energy while simultaneously reducing greenhouse gas emissions, which are the cause of global boiling. boiling) and climate change.

Fabby Tumiwa, Executive Director of IESR, stated that to achieve the 23% renewable energy target in 2025, the president must direct his staff to increase the renewable energy mix by 2024. This would require the construction of 11 GW of renewable energy generators in the next 2.5 years. The progressive penetration of renewable energy would necessitate the cessation of coal-fired power plant operations, which are old and inefficient, even under conditions where the PLN electricity system is still overcapacity.

The 2024 state budget should support renewable energy use outside Java-Bali, reform policies hindering its acceleration, prepare for the coal-fired power plant’s early retirement, and offer large-scale renewable energy projects to investors.

Indonesia needs to take more aggressive steps to avoid the climate crisis by showing a more substantial political commitment to reducing the use of coal and confirming the termination of coal-fired power plant operations in 2050. According to Fabby, amid Indonesia’s independence celebrations, the National Capital, Jakarta, was covered in severe air pollution. IESR notes that one of the sources of pollution comes from burning coal in power plants and industries around Jabodetabek.

“Last year, the government and IPG agreed on the Just Energy Transition Partnership (JETP). This agreement is Indonesia’s opportunity to accelerate the transition to increasing green energy before 2030, which is fair and affordable. For this reason, the 2024 State Budget must also be allocated to support the implementation of the Comprehensive Investment and Policy Plan (CIPP),” said Fabby.

During preparing the JETP Comprehensive Investment and Policy Plan (CIPP) until October, Deon Arinaldo, Manager of the Energy Transformation Program, IESR, emphasized the importance of identifying policy changes to accelerate the energy transition. He suggested that policy change should focus on integrating implementation between various ministries and agencies.

“There must be a priority in policy directions, for example ending fossil energy subsidies, especially the coal DMO price policy, building massive solar PV, and developing the solar manufacturing industry. Determining the main strategy is important so that execution can be carried out smoothly in the next 3-5 years or even faster with implementation support from various ministries and agencies. Implementation of this integrated strategy can support achieving the vision of Indonesia Gold 2045,” explained Deon.

IESR hopes that the preparation of state budget (APBN) spending will also include efforts to reduce fossil energy subsidies and anticipate the impact of the energy transition on society. The budget from reducing fossil energy can be used to develop renewable energy, early termination of coal-fired power plant operations, and structured programs to anticipate the impact of the energy transition on communities, workers, and coal-producing areas.