Report Launching and Discussion : 1.5°C-aligned coal power transition pathways in Indonesia: additional strategies beyond the Comprehensive Investment and Policy Plan (CIPP)

Background

Indonesia has ratified the Paris Agreement through Law no 16/2016. As a result, Indonesia is legally bound to contribute to the global struggle to mitigate the climate crisis through ambitious efforts and action in reducing Greenhouse Gas (GHG) emissions and limiting the increase of the average global temperature below 1.5 0C. In one of the IPCC climate model results of a 1.5 0C compatible pathway, the global Greenhouse Gas (GHG) emission must decrease by 45% in 2030 compared to 2010 and reach net zero emission by 2050. As of now, Indonesia is among the top 10 greenhouse gas (GHG) emitters and is still projected to increase its emissions, with the energy sector as the highest GHG contributor by 2030.

In November 2023, the Government of Indonesia published the first version of the Comprehensive Investment and Policy Plan (CIPP), outlining the country’s power sector emissions reduction roadmap and strategies. While the plan was expected to detail how the emissions reduction and renewable targets envisioned by the JETP will be delivered with investment and policies, we find that critical elements of a successful coal power transition are absent from the current version. 

According to the CIPP report, the investment required to achieve the 2030 targets proposed in the plan is estimated at 97 US$ billion.8 These resources will cover over 400 priority projects22, including grid development, phase-out of coal power plants, and the deployment of renewable energy. Overall, 50% of the resources are allocated for investment in dispatchable clean technologies such as geothermal and hydropower, while 26% is designated for variable renewable plants, and 20% for transmission infrastructure. The early retirement of coal plants represents just 2% of the entire plan8.

Join the Institute for Essential Services Reform (IESR) and the Center for Global Sustainability (CGS) at the University of Maryland on (insert date) to learn about new research into achieving a successful coal power transition in Indonesia. This event will launch two new reports, followed by a discussion session to disseminate key findings and recommendations to Indonesian stakeholders.

  1. To address the gaps in investment and subsequent resources, IESR and CGS assessed existing and pipeline coal power plants to determine retirement priority using a muti-criteria framework under a 1.5 0C compatible emission pathway for Indonesia. The research develops a comprehensive, high-ambition pathway for Indonesia’s coal power transition by combining a global integrated assessment model (GCAM), a power system dispatch model (PLEXOS), and bottom-up analyses. It expands the existing version of the CIPP in several dimensions, including (1) assessing the pathway that is 1.5°C aligned through 2050, (2) covering both on-grid plants and off-grid captive plants, (3) exploring a larger set of transition options for different coal plants, and (4) conducting plant-by-plant assessments to better understand the technical and economic suitability for individual plants, using the best available data. Further analysis is done to determine the costs and benefits of the early coal retirement scenario from economic, social, and environmental aspects, for a wider set of stakeholders. 
  2. The Center for Global Sustainability’s new report and database, the first of its kind on industrial parks, which is a pivotal element of the broader CIPP initiative aimed at bolstering regional economies. This launch highlights the importance of enhanced data availability, essential for understanding demand and making informed decisions about captive coal development. It also emphasizes the need to balance environmental objectives with economic growth and explores the potential for developing renewable energy sources within industrial estates.

Objective

The objectives of these seminars and workshops are:

  1. Disseminate the IESR-UMD study on transition strategies and 1.5°C -aligned pathway for on grid and captive power plants
  2. Discuss and identify aspects to consider for Indonesia to implement its coal-to-renewables strategy.
  3. Identify and propose a holistic framework for Indonesia beyond JETP CIPP to assess its transition strategies and 1.5°C -aligned pathway

Workshop and Capacity Building for Media Phase 1

Background

Indonesia, the world’s largest archipelago, is faced with two major crises: climate change and the energy crisis. The impact of climate change is increasingly felt with the increasing frequency of natural disasters, such as floods, landslides and droughts. On the other hand, the energy crisis is characterized by a high dependence on fossil fuels that are depleting and not environmentally friendly.

An energy transition towards renewable energy or clean energy is the solution to overcome both crises. Renewable energy such as solar, wind and water have great potential to meet Indonesia’s energy needs, while reducing greenhouse gas emissions and the impacts of climate change.

Civil Society Organizations (CSOs) and the media have an important role in encouraging the government to achieve clean energy targets in Indonesia. CSOs can act as agents of advocacy, education, and community mobilization to support clean energy. Although CSOs have an important role, there are still capacity gaps in understanding and communicating energy transition issues. Meanwhile, mass media can act as agents of education and persuasion to support clean energy. Although the mass media has an important role, there is still a capacity gap in understanding and communicating energy transition issues, especially in local mass media. This is due to the complexity of energy transition issues that require in-depth knowledge and understanding. Moreover, there are many differences of opinion and challenges on new renewable energy (NRE) as a solution for clean energy sources in the future.

To achieve the impact of CSO pressure on government policies in line with the Net Zero Emission (NZE) target in 2060 or sooner, it is important to increase CSO capacity so that advocacy and information dissemination are more targeted. To that end, IESR created a capacity building program designed to increase the capacity of CSOs in understanding and communicating energy transition issues in Indonesia.

The capacity building program is expected to benefit CSOs in improving their ability to promote energy transition through advocacy, education, and community mobilization. This capacity building program is an important step to improve the capacity of CSOs in supporting the energy transition in Indonesia. By increasing the capacity of CSOs, it is expected that the energy transition in Indonesia can be implemented more effectively and sustainably.

Prior to the capacity building program, IESR has conducted an in-depth analysis of the condition of mass media coverage in Indonesia and conducted mass media mapping. These results were used to create a capacity building concept that adapts to the needs. Needs that IESR considers important enough to be followed up will be selected as the basis for the capacity building concept.

The capacity building program will be held in two phases in 2024. In the workshop that will be held at the end of May 2024 (stage 1), climate change, the introduction of energy transition, and also the energy transition roadmap in Indonesia will be presented. Regarding climate change, it will be presented how the condition of Indonesia with current government policies will impact the NZE target. It will also explain how Indonesia’s environmental conditions and the effect of carbon emissions on climate change are occurring. The introduction to energy transition is given with material that is already structured and relevant to current conditions. The general public can access it freely and learn about the energy transition more easily. As well as the energy transition roadmap that needs joint commitment so that the NZE target can be achieved. Phase 2 will discuss more technical issues such as solar and wind power generation technologies as well as nuclear and CSS technologies. This phase will be conducted at the end of June or sooner.

About Climate Action Tracker (CAT)

The Climate Action Tracker (CAT) is an independent scientific analysis that assesses a country’s climate action and measures its conformity with the Paris Agreement to pursue efforts to limit global temperature rise to 1.5oC.

CAT is the product of a consortium of two organizations, Climate Analytics and New Climate Institute, in collaboration with several other institutions. CAT has been providing its independent analysis to policymakers since 2009.

In 2022, the Institute for Essential Services Reform (IESR) officially joined as a collaborator in CAT. IESR provides assessments of other countries’ mitigation targets, policies and actions and reviews Climate Analytics’ assessments of Indonesia’s mitigation targets, policies and actions.

About the Energy Transition Academy

The Energy Transition Academy by transisienergi.id is a digital learning portal on energy transition. The materials provided in this program are reliable and up to date sources. Also relevant to Indonesia’s current conditions.

The Energy Transition Academy is an educational solution for students, civil society organizations, journalists to deepen their understanding of energy transformation in Indonesia and the world. In addition, the Energy Transition Academy also targets and develops skill building, so that the younger generation can contribute and be active in the energy transition process.

Objective

  1. Providing knowledge related to energy transition issues and renewable energy in Indonesia
  2. Understand the complexity of energy transition issues that occur
  3. Can identify and analyze energy transition policies
  4. Develop effective advocacy and communication strategies
  5. Build a common perception among mass media in the field of climate change or renewable energy in encouraging the energy transition
  6. Build networks and cooperation with various parties

 


Presentation

CAT Indonesia Assessment – Delima Ramadhani

1.-CAT-Indonesia-Assessment-Media-Delima-Ramadhani

Download

Introduction to Energy Transition- Abraham Octama

2.-Pengenalan-Transisi-Energi-Abraham-Octama

Download

Indonesia Energy Transition Roadmap – Raditya Wiranegara

3.-Peta-Jalan-Transisi-Energi-Indonesia-Raditya-Wiranegara

Download

Workshop and Capacity Building for Civil Society Organizations (CSO) Phase 1

Background

Indonesia, the world’s largest archipelago, is faced with two major crises: climate change and the energy crisis. The impact of climate change is increasingly felt with the increasing frequency of natural disasters, such as floods, landslides and droughts. On the other hand, the energy crisis is characterized by a high dependence on fossil fuels that are depleting and not environmentally friendly.

An energy transition towards renewable energy or clean energy is the solution to overcome both crises. Renewable energy such as solar, wind and water have great potential to meet Indonesia’s energy needs, while reducing greenhouse gas emissions and the impacts of climate change.

Civil Society Organizations (CSOs) and the media have an important role in encouraging the government to achieve clean energy targets in Indonesia. CSOs can act as agents of advocacy, education, and community mobilization to support clean energy. Although CSOs have an important role, there are still capacity gaps in understanding and communicating energy transition issues. Meanwhile, mass media can act as agents of education and persuasion to support clean energy. Although the mass media has an important role, there is still a capacity gap in understanding and communicating energy transition issues, especially in local mass media. This is due to the complexity of energy transition issues that require in-depth knowledge and understanding. Moreover, there are many differences of opinion and challenges on new renewable energy (NRE) as a solution for clean energy sources in the future.

To achieve the impact of CSO pressure on government policies in line with the Net Zero Emission (NZE) target in 2060 or sooner, it is important to increase CSO capacity so that advocacy and information dissemination are more targeted. To that end, IESR created a capacity building program designed to increase the capacity of CSOs in understanding and communicating energy transition issues in Indonesia.

The capacity building program is expected to benefit CSOs in improving their ability to promote energy transition through advocacy, education, and community mobilization. This capacity building program is an important step to improve the capacity of CSOs in supporting the energy transition in Indonesia. By increasing the capacity of CSOs, it is expected that the energy transition in Indonesia can be implemented more effectively and sustainably.

Prior to the capacity building program, IESR has conducted an in-depth analysis of the condition of mass media coverage in Indonesia and conducted mass media mapping. These results were used to create a capacity building concept that adapts to the needs. Needs that IESR considers important enough to be followed up will be selected as the basis for the capacity building concept.

The capacity building program will be held in two phases in 2024. In the workshop that will be held at the end of May 2024 (stage 1), climate change, the introduction of energy transition, and also the energy transition roadmap in Indonesia will be presented. Regarding climate change, it will be presented how the condition of Indonesia with current government policies will impact the NZE target. It will also explain how Indonesia’s environmental conditions and the effect of carbon emissions on climate change are occurring. The introduction to energy transition is given with material that is already structured and relevant to current conditions. The general public can access it freely and learn about the energy transition more easily. As well as the energy transition roadmap that needs joint commitment so that the NZE target can be achieved. Phase 2 will discuss more technical issues such as solar and wind power generation technologies as well as nuclear and CSS technologies. This phase will be conducted at the end of June or sooner.

About Climate Action Tracker (CAT)

The Climate Action Tracker (CAT) is an independent scientific analysis that assesses a country’s climate action and measures its conformity with the Paris Agreement to pursue efforts to limit global temperature rise to 1.5oC.

CAT is the product of a consortium of two organizations, Climate Analytics and New Climate Institute, in collaboration with several other institutions. CAT has been providing its independent analysis to policymakers since 2009.

In 2022, the Institute for Essential Services Reform (IESR) officially joined as a collaborator in CAT. IESR provides assessments of other countries’ mitigation targets, policies and actions and reviews Climate Analytics’ assessments of Indonesia’s mitigation targets, policies and actions.

About the Energy Transition Academy

The Energy Transition Academy by transisienergi.id is a digital learning portal on energy transition. The materials provided in this program are reliable and up to date sources. Also relevant to Indonesia’s current conditions.

The Energy Transition Academy is an educational solution for students, civil society organizations, journalists to deepen their understanding of energy transformation in Indonesia and the world. In addition, the Energy Transition Academy also targets and develops skill building, so that the younger generation can contribute and be active in the energy transition process.

Objective

  1. Providing knowledge related to energy transition issues and renewable energy in Indonesia
  2. Understand the complexity of energy transition issues that occur
  3. Can identify and analyze energy transition policies
  4. Develop effective advocacy and communication strategies
  5. Build a common perception among mass media in the field of climate change or renewable energy in encouraging the energy transition
  6. Build networks and cooperation with various parties

 


Presentation

CAT Indonesia Assessment – Shahnaz Nur Firdausi

4.-CSO-Indonesia-Assessment-CSO-Shahnaz

Download

Introduction to Energy Transition- Abraham Octama

2.-Pengenalan-Transisi-Energi-Abraham-Octama

Download

Indonesia Energy Transition Roadmap – Raditya Wiranegara

3.-Peta-Jalan-Transisi-Energi-Indonesia-Raditya-Wiranegara

Download

Road to Youth Climate Conference Webinar: Children, Youth and Climate Change

Background

The impacts of climate change have become a serious threat to the lives of children and youth. A study conducted by Save the Children in 2020 found that children born in 2020 experienced disasters 3.4 times more often than their grandparents born in 1960. The disasters involved climate change such as heatwaves, droughts, forest fires, floods and crop failures, putting additional pressure on the environment necessary for children’s growth and protection. Another study conducted by UNICEF highlighted that climate change is the biggest threat to children’s health, nutrition, education and future.

Given the devastating impact of the climate crisis on the lives of children and young people, IESR together with Yayasan Madani Berkelanjutan, Wahana Visi Indonesia, Yayasan Indonesia Cerah, and Save the Children Indonesia, will organize the Youth Climate Conference – a youth conference on climate change. The event will be held in June, 2024. To ensure meaningful participation of children and young people in this event as well as to promote the upcoming Youth Climate Conference agenda plan, we are inviting several environmental volunteer organizations/communities initiated by or consisting of children and young people. The participation of children and young people in this agenda is expected to also become a momentum to bring together the aspirations of children and young people on climate change issues and concrete actions to tackle climate change. In addition, this event is also expected to be a medium for socializing the upcoming Youth Climate Conference.

Objectives

  • Discuss the impacts of climate change on children, youth, women and indigenous peoples.
  • To discuss the role of children and youth in mitigating the negative impacts of climate change.
  • To promote the Youth Climate Conference to the public, especially children and youth.

Making the Global Stocktaking Process More Relevant to Southeast Asia

Jakarta, 25 April 2024 – Global efforts to halt climate change by reducing emissions are entering a phase of global consolidation. Since 2023, the Independent Global Stocktake (iGST), a consortium of civil society actors gathered to support the first Global Stocktake in order to assess the progress of the Paris Agreement (2015).

In a webinar entitled Navigating the Outcomes of the First Global Stocktake in Southeast Asia, Arief Rosadi, Climate Diplomacy Coordinator of the Institute for Essential Services Reform (IESR) stated that the results of the first GST had not had much influence on the energy transition process in the Southeast Asia region.

“The most important thing about this GST process is that it must be able to be translated into more ambitious climate policies. Energy transition is the low hanging fruit for Southeast Asia, increasing renewable energy targets and climate ambitions will not only contribute to reducing emissions but provide a positive signal to encourage transformation towards a low carbon economy in the region,” said Arief.

Arief emphasized that efforts to double energy efficiency and triple renewable by 2030 (Double Down,Triple Up Initiative) are crucial stages for encouraging the energy transition in the Southeast Asia region. He also added that the next two year period is a crucial moment for Southeast Asia considering that ASEAN is currently preparing ASEAN Post Vision 2025 and the latest APAEC (ASEAN Plan of Action on Energy Cooperation) energy policy document. The first GST point regarding doubling and tripling of renewable energy efficiency needs to be reflected in both documents.

At the planning, implementation and policy evaluation levels, the role of experts or independent research institutions is important to provide alternative views and input for policy makers. It is necessary to ensure that there is meaningful participation by all parties involved and potentially affected by the policy.

Danize Lukban, climate policy analyst at the Institute for Climate and Sustainable Cities (ICSC), reminded the importance of (climate) policies based on scientific data in this transition process.

“In the policy planning process (iGST derivative), the role of climate experts and institutions conducting research is crucial to provide alternative views and input for policy makers,” she said.

ASEAN as a consolidated body of countries in Southeast Asia is expected to become a consolidation forum for its member countries to produce more ambitious and collaborative climate action within the scope of the Southeast Asia region.

Encouraging Industrial Decarbonization Starting from Consumer Lifestyle

Jakarta, 22 March 2024 – The increase of the earth’s temperature is an inevitable phenomenon as a result of various natural events and human activities and lifestyles which produce greenhouse gas (GHG) emissions as the cause of the rise in the earth’s temperature.

The invention of the steam engine in 1880 made monumental changes to human life with the beginning of industrialization. The development of industry has been accompanied by increasing greenhouse gas (GHG) emissions.

The Intergovernmental Panel on Climate Change (IPCC) in 2022 recorded an increase in earth temperature of 1.1 degrees Celsius. This is a warning for humanity to immediately take steps to control temperature rise to prevent the temperature increase from reaching no more than 1.5 degrees Celsius.

Faricha Hidayati, Coordinator of the Industrial Decarbonization Project, Institute for Essential Services Reform (IESR) explained that rising earth temperatures could trigger hydrometeorological disasters, one of which will be at an increasingly high frequency.

“Apart from environmental problems, another side impact is health costs which will rise along with the increase in disease, especially those that attack vulnerable groups such as the elderly, children and poor households,” explained Faricha.

Even though it is one of the sectors causing increased GHG emissions, the industrial sector has a significant economic contribution. So strategic steps and efforts are needed to decarbonize the industrial sector.

In 2021, industrial sector emissions will be the second largest emitting sector after electricity generation. If we continue to use the business as usual scheme without any intervention, the value of emissions in the industrial sector will double by 2050.

“The industrial sector contributes to emissions of more than 300 million tons of CO2 in 2021, with the highest source of emissions from the use of fossil fuels as an energy source,” added Faricha.

Even though there are regulations that encourage industry to practice sustainable principles, their implementation is not yet mandatory. Even for industries that independently have the initiative to implement sustainable principles, there is no incentive system for them.

Faricha continued, apart from through policy advocacy to the government, consumers can contribute, one of the ways is by choosing products that are produced with sustainable principles. Consumers can also demand that producers or industries start implementing sustainable principles in their production processes.

Renewable Energy Must Reign Supreme in Southeast Asia

Jakarta, March 27, 2024-Southeast Asia is a world’s fifth-largest economy region in 2022. However, this economic growth comes with a concerning projection: greenhouse gas (GHG) emissions in the region are expected to soar by 60 percent by 2050. Curbing these emissions is pivotal for global efforts to combat climate change. Unfortunately, current endeavors to promote renewable energy in Southeast Asia fall short of aligning with the Paris Agreement, which aims to limit global warming to below 1.5 degrees Celsius.

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), stated at the Revision 2024 International Conference in Tokyo (14/3) that ASEAN countries have set a target to achieve a renewable energy mix of 23 percent by 2025. However, he emphasized that this target doesn’t align with the Paris Agreement’s objectives.

“To align with the Paris Agreement, the renewable energy mix needs to account for 55 percent, with variable renewable energy (VRE) contributing 42 percent. Except for Vietnam, Cambodia, and the Philippines, others have yet to reach 5 percent VRE penetration. The good news is that in 2023, ASEAN countries will have over 28 GW of operating utility solar and wind capacity, a 20 percent increase in operating capacity since last year. Currently, they make up 9 percent of ASEAN countries’ total electricity capacity. But in order for ASEAN countries to meet the goal, they need to install more renewable energy,” Fabby remarked.

Fabby further highlighted the relatively abundant renewable energy resources in Southeast Asia, which are estimated to be 40-50 times greater than the region’s current energy needs. He suggested that utilizing floating solar power plants could be a strategic move towards decarbonizing the energy system. He elaborated on the technical potential, with reservoirs boasting 134 to 278 GW and natural water surfaces such as rivers, lakes, and seas holding 343 to 768 GW. However, he stressed the importance of conducting detailed calculations of the technical, market, and economic potential, as well as site-specific assessments to develop floating solar power plants.

Additionally, he highlighted the need for Southeast Asian countries to adopt more ambitious policies, provide robust budget support and incentives, and enact policies that attract investment. The average annual investment in renewable energy capacity should be increased by five times to USD 73 billion per year.

Fabby emphasized that Southeast Asian countries must elevate their ambitions to meet the Paris Agreement targets. As an immediate step, ASEAN should aim for a 23 percent renewable energy mix by 2025 and 40 percent by 2030.

“Various studies have shown that decarbonizing the energy system with renewable energy in Southeast Asia is feasible; however, current policies and actions are insufficient to achieve significant decarbonization by 2050. While renewable energy resources are abundant and ample, substantial investment is needed. Each country must reform policies and manage risks associated with renewable energy projects to attract and mobilize investors further,” Fabby added.

He also cautioned against perpetuating a narrative that prioritizes fossil energy as a baseload generator under the guise of maintaining energy security, while sidelining renewable energy. Such a narrative, he argued, is counterproductive and contradicts the spirit of the Paris Agreement.

Embarking on the Decarbonization Journey of the Steel Industry

Jakarta, 20 March 2024 – The industrial sector is one of the important sectors for reducing emissions. The large energy consumption and its significant contribution to the economy in 2022 amounting to 16.48 percent of Gross Domestic Product (GDP), are strong reasons to make this sector more sustainable. Industries with high energy needs, such as the iron and steel industry, require strategic preparation to carry out decarbonization.

Indonesia is one of the largest steel producing countries in Southeast Asia, and ranks number 15 steel producers in the world. In 2023, Indonesia’s steel production capacity will reach 16 million tonnes and is estimated to reach 33-35 million tonnes in 2030.

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), in the webinar “Accelerating the Transformation of the Steel Industry in Southeast Asia: Indonesia Chapter” stated that Indonesian steel production still has high emissions.

“Indonesia’s projected steel demand is predicted to increase. If we don’t take serious decarbonization steps, emissions from the steel industry will also continue to increase,” said Fabby.

We also face international market demands to produce lower carbon steel. For example, the European Union has implemented the Carbon Border Adjustment Mechanism (CBAM), which, effective in 2026, will have a negative effect on the exports of the Indonesian steel industry. For this reason, the steel industry needs to undergo transformation.

Farid Wijaya, Senior Analyst at IESR, explained that decarbonization for the steel industry will bring prospects for economic growth, although currently there are still quite a lot of challenges.

“Green industrial standards can be one way to encourage environmentally friendly industries. Green standards for steel have only recently been established and are still limited to sheet steel per layer. “Currently there is no steel industry that has received a green certificate due to implementation limitations,” said Farid.

Kajol, Program Manager for Climate Neutral Industry Southeast Asia, Agora Industry, added that currently almost 80% of steel production is carried out through blast furnace technology.

“We have to start thinking about better and modern technology to replace blast furnaces. “When the blast furnace facilities currently operating start to become less efficient in 2030-2040, we must replace them with more modern technology and no longer invest in blast furnaces,” she explained.

One of the technologies Kajol refers to is Direct Reduced Iron (DRI) which can produce primary steel using natural gas or clean hydrogen. Iron ore is reduced to produce DRI, which can then be melted in an electric arc furnace (EAF) to produce primary steel.

Viable strategies for decarbonizing the steel industry include direct and indirect use of renewable energy, resource efficiency and circular economy, and closing the carbon cycle.

Helenna Ariesty, Sustainability Manager of PT Gunung Raja Paksi (GRP) as an industry player emphasized the importance of regulatory certainty in encouraging industrial decarbonization.

“We face several challenges to navigate the inconsistent policy direction. Apart from that, access to funding is affordable considering the initial investment required is significant,” Helenna said.

Joseph Cordonnier, Industrial Policy Analyst, OECD agrees that policy and access to funding will be key framework components for building a supporting ecosystem for industrial decarbonization.

“As part of this framework we also have to really look at how to maximize the utilization of existing assets based on engineering variables, energy efficiency and emission reduction of these assets,” said Joseph.

Fausan Arif Darmaji, Infrastructure Development Analyst, Green Industry Center, Ministry of Industry said the government is aware of the need to reduce emissions from Indonesian steel production.

“The steel sector is also our current focus. “While we are waiting for the policy regulations that are currently being made, we are providing training on GHG calculations for the steel sector, as well as calculating the economic value of carbon,” said Fausan.

Deon Arinaldo, IESR Energy Transformation Program Manager closed this webinar by underlining the need for industrial decarbonization as an effort to remain relevant to the demands of industrial development.

“Currently decarbonization in the industrial sector is still considered a challenge. Not only in Indonesia, but also a global phenomenon. “We must anticipate this trend because decarbonization is inevitable,” said Deon.

Small and Medium Enterprises (SME) Emissions are not Small

Dekarbonisasi emisi UKM

Jakarta, 14 March 2024 – The industrial sector has become the backbone of the Indonesian economy. Not only large industries, Small and Medium Enterprises (SMEs) are also the driving force of the national economy, including creating employment opportunities and contributing 60.5% to GDP.

However, this economic contribution figure is also accompanied by large, haunting emissions. Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform, in his opening remarks for the Webinar on Decarbonization Opportunities for Small and Medium Enterprises in Indonesia and Learning from Global Experience, said that currently emissions from the SME industrial sector in 2023 are 216 million tons of CO2e.

“This figure is equivalent to one third of national industrial sector emissions. So, we need to seriously strive to decarbonize the SMEs industry because by prioritizing the sustainability aspect, SMEs will level up,” said Fabby.

As much as 95% of the SME sector’s emissions come from burning fossil fuels, the remaining 5% from burning waste. Large economic contributions need to be anticipated as a result of emissions output. If significant steps are not taken to reduce SME sector emissions, there is a possibility that SME emissions will increase in the future.

Abyan Hilmy Yafi, IESR Energy Data Analyst, explained in a survey carried out by IESR on 1000 SMEs throughout Indonesia that to start decarbonizing the SME industry there are several approaches from increasing understanding to technical solutions such as switching technology.

“For cross-sectors, there is a need to increase the understanding of SMEs about energy consumption and the emissions they emit. Active outreach is also needed to promote renewable energy. By sectoral approach, there are several technical recommendations such as the use of electric boilers in the textile and apparel industry,” he explained.

Bo Shen, Energy Environmental Policy Research, LBNL explained that globally, challenges to decarbonizing the SME industry include gaps in the knowledge of SME owners or managers regarding emissions, energy, or furthermore climate change and its relevance to their business.

“When SMEs already have sufficient knowledge and awareness to carry out decarbonization or reduce emissions from their business, finance becomes the next obstacle. The current upfront costs for, for example, looking for technology vendors or energy service providers (Energy Service Company – ESCO), are still quite high for the financial scale of SMEs,” explained Bo Shen.

Each country will use a different approach to encourage the decarbonization of their SMEs. In the United States, for example, governments are collaborating with universities to build industrial assessment centers.

“Apart from being useful for decarbonizing the SMEs industry, this approach also prepares skilled workers who have direct training opportunities in the SME industry,” explained Bo Shen.

Bo also added an interesting case from China which formed an initiative called Green Growth Together (GGT). This initiative encourages decarbonization of SMEs that are part of established product supply chains.

The established brands they supply require their entire supply chain network to implement emission reduction or decarbonization practices. This demand also comes with required financial assistance or technical assistance.

Ahmad Taufik from the Green Industry Center of the Ministry of Industry (Kemenperin) stated that Indonesian is currently experiencing challenges in the industrial sector. The contribution of the industrial sector to GDP continues to decline.

“Structurally, we are still continuing to improve various things, from industrial development, SME development, to ensuring the availability of environmentally friendly jobs (green jobs) and professional staff (green professionals),” said Taufik.