Message to Global Leaders for COP 28

Jakarta, 3 November 2023 – The Conference of the Parties (COP 28) will soon be held in Dubai, United Arab Emirates. One of the agendas for this annual meeting is to see the progress of global actions to deal with the climate crisis. In a public discussion held by the Foreign Policy Community Indonesia (FPCI) on Friday 3 November 2023, Marlistya Citraningrum, Sustainable Energy Access Program Manager, Institute for Essential Services Reform (IESR), explained that in anticipation of this annual meeting of world leaders, the new Indonesian Government just released the Comprehensive Investment and Policy Plan (CIPP) document and plan to announce the investment plan officially at the COP 28.

“Bluntly speaking, this document is quite disappointing because even though it promises a list of renewable energy projects, it is still very focused on large-scale renewable energy (base-load renewables) such as hydro and geothermal. Variable Renewable Energy (VRE) such as solar and wind is considered a high-risk project,” explained Citra.

Apart from the lack of support for VRE, Citra also highlighted the low commitment to early retirement of coal power plants. In the CIPP document, which is currently in the public consultation process, IPG countries are only willing to facilitate early retirement of 1.7 GW coal. In a draft document last year, the United States and Japan were initially willing to finance 5 GW of early retirement coal-fired power plants.

“In fact, to achieve the net zero emission target, Indonesia needs to retire around 8 GW of coal,” emphasized Citra.

The Director of the Environment at the Ministry of National Development Planning/Bappenas, agreed on the importance of increasing climate commitment and action, not only as climate action but also as part of development.

“In the draft RPJPN which is currently progressing, we are targeting our emission reduction target to increase to 55.5% in 2030 and 80% in 2045. This is a necessity to increase climate targets and ambitions,” said Medril.

How Important is it to Allocate State Funds to Early Retirement of Coal-Fired Power Plants?

Jakarta, October 24, 2023 – Accelerating the early retirement of coal-fired power plants (CFPPs) and establishing renewable energy-based power plants is crucial to achieving our energy transition targets. The government has released financing guidelines outlined in the Regulation of the Minister of Finance (PMK) Number 103 of 2023 to facilitate this process. This regulation aims to provide fiscal support for the energy transition in the electricity sector. It was put into effect on October 13, 2023. According to this regulation, the energy transition platform’s funding can come from the State Budget (APBN) and other legally recognized sources.

The Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, has expressed appreciation for a recent regulation. However, the issuance of the regulation was not unexpected, as the Energy Transition Mechanism (ETM) was established last year, with PT SMI appointed as the ETM Country Platform Manager by the Indonesian government. Additionally, the ETM framework stipulated that the state budget would provide the funding for the early retirement of coal-fired power plants.

“I think the PMK confirms it legally. Legally, this is possible, so it must be budgeted in the APBN. Referring to the PMK, there is also a clause stating that it is following the ability of the APBN. Matters regarding budget priorities and funding sources and others,” said Fabby Tumiwa at the “Energy Corner” event on CNBC Indonesia on Tuesday (24/10/2023).

Furthermore, Fabby Tumiwa emphasized the significance of early retirement of coal-fired power plants due to the threat of climate change. Indonesia is the seventh largest emitter in the world, releasing 1.24 Gt CO2e in 2022. Therefore, Indonesia needs to participate in reducing emissions. The energy sector is one of Indonesia’s significant emissions sources, with the majority coming from CFPP. Fabby hopes that by phasing out CFPP, Indonesia can contribute to the commitment to reduce emissions.

“Funding from APBN sources is required to make the termination of CFPP operation financially feasible. We aim to minimize debt, and using APBN funds can help keep the debt low and make the transaction more visible. However, funding for the retirement of a single CFPP is not limited to just APBN; other options are available depending on the transaction type. The inclusion of APBN funds can help reduce the cost of early retirement of coal-fired power plants,” said Fabby Tumiwa.

According to Fabby Tumiwa, terminating the operations of CFPP is a process that requires proper planning. The guidelines for the early retirement of coal power plants have been outlined in Presidential Regulation (Perpres) 112 of 2022. Fabby emphasized that not all CFPPs will be retired early, as some will end their contract period or economic lifespan.

“When deciding which CFPPs to retire early, several factors should be considered. These include high emissions, low efficiency levels, and an age of over 15 years. If a plant is younger than 15, it may take a long time to see a return on investment, and negotiations may be necessary. It is also important to note that retiring CFPP requires blended finance from various funding sources, not just the state budget. This funding should be structured to make the CFPP financially and technically feasible to stop its operation early,” said Fabby.

Besides the state budget, said Fabby, Indonesia still has funding commitments from developed countries, such as the G7, through the Just Energy Transition Partnership (JETP) framework. However, it is unclear how these commitments will be realized. One obstacle discussed in the JETP is the difference between the market value and book value of PT Perusahaan Listrik Negara (PLN) assets. This issue involves many things, and regulatory changes will be necessary to address it. Moreover, G7 countries are currently focusing on renewable energy funding. Fabby assessed that these two things can be combined to increase renewable energy generation capacity and investment. For instance, if CFPP’s economic age is reduced from 30 to 20 years, 10 years can be dedicated to renewable energy generation. Unfortunately, there is no such regulation in Indonesia. If the government regulates this, Indonesia can benefit from lower costs due to early retirement and increased renewable energy generation capacity.

Anticipate the Impact of Decreasing Coal Consumption to Prepare for Economic Transformation

press release

Jakarta, September 27, 2023 – Indonesia has established various energy transition policies that will affect domestic coal consumption. Apart from that, Indonesia still relies on 75-80 percent of its coal production for exports to several coal export destination countries such as China, India, and Vietnam, which have also set targets for reducing coal consumption to align with their net-zero emission (NZE) marks. The Institute for Essential Services Reform (IESR) views that Indonesia needs to anticipate the potential decline in Indonesian coal exports by ensuring that the energy transition somewhat takes place, achieving sustainable economic transformation, and collecting data on the impact of reduced coal consumption on various aspects of life such as financial, social and environmental.

The Executive Director of IESR, Fabby Tumiwa, in the seminar “Sunset CFPP and the Coal Industry: Reviewing Multisectoral Direction and Impact in a Just Energy Transition” organized by IESR, estimated that the demand for coal in the country will peak between 2025 and 2030. After that, the market is expected to decrease significantly. Furthermore, the data suggests that coal exports will follow a similar trend and are expected to decline after 2025.

“If domestic demand and coal exports fall, production will fall. IESR estimates that Indonesia has 5-10 years to make adjustments by carrying out economic transformation in coal-producing regions in Indonesia in line with the decline in coal production, which has an impact on reduced demand for coal-producing countries and regions,” said Fabby.

Fabby emphasized that in ensuring a just energy transition, it is necessary to consider at least three factors: assessing the connection between the local economy and coal, the readiness of existing human resources, and developing mitigation plans considering alternative economic options that can be implemented in the area.

Ilham Surya, Environmental Policy Analyst of IESR, mentioned that the energy transition would impact coal-producing areas in Indonesia, such as Muara Enim Regency, South Sumatra, and Paser Regency, East Kalimantan. Based on the IESR report entitled Just Transition in Indonesia’s Coal Producing Regions, the Paser and Muara Enim Case Study found that the Gross Regional Domestic Product (GRDP) has contributed approximately 50% and 70% to Muara Enim and Paser over the last decade. Moreover, the coal mining taxes and royalties profit-sharing funds, known as DBH, have contributed significantly to the government’s revenue (APBD), up to 20 percent in Muara Enim and an average of 27 percent in Paser.

“Our input-output modeling analysis in Kab. Muara Enim shows that coal only provides added value in compensation of around 20 percent for workers, compared to 78 percent used for the coal company. Despite the mining sector’s high contribution towards GRDP (50-70%), locals do not receive an equitable share, leading to an imbalanced distribution of benefits and no significant multiplier effect,” explained Ilham.

Ilham emphasized that coal-producing areas require economic transformation to reduce dependence on the coal-based economy. The IESR study found several leading sectors that could be developed, such as in Paser Regency, which could create Financial Services, Manufacturing, and Education. Meanwhile, Muara Enim Regency can focus on developing manufacturing capabilities and providing accommodation, food, and beverages.

To monitor the impact of the energy transition on the coal sector, IESR has developed a coal impact tracking platform, or Coal Impact Tracker, which creates three scenarios for the future of coal. The Coal Impact Tracker platform tracks the impact of coal from various sectors such as population, employment, health, and others. The three scenarios are the BAU (Business as Usual) scenario, the Best Practice Policy (BPS) scenario, and the System Dynamic scenario in collaboration with the Bandung Institute of Technology. The platform is still in progress and is expected to be released in February 2024.

“The platform, which will be called radarbatubara.transisienergi.id is a form of IESR’s contribution in educating relevant stakeholders through visualization of information on important economic, social, environmental and health indicators. Regional governments, communities at coal industry locations, and coal industry workers can use this platform to anticipate the impact’s magnitude and prepare in advance,” explained Deon Arinaldo, Program Manager of Energy Transformation, IESR.

Arrange a Strategy to Get Around the Impact of Coal Power Plant Shutdown

Jakarta, 27 September 2023 – Indonesia’s increase in climate commitments in the Enhanced Nationally Determined Contribution (E-NDC) brings a number of implications, including plans to stop coal-fired power plant operations early to reduce emissions. This plan has several impacts, including a decrease in the income of coal-producing regions as well as national income, the potential for massive layoffs, as well as other socio-economic impacts.

In a hybrid seminar, entitled “Sunset CFPP and the Coal Industry: Reviewing Multisectoral Direction & Impact in a Just Energy Transition” (27/9), Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR) explained that the energy transition agenda for both Indonesia and the destination countries for Indonesian coal exports will have an impact on a number of aspects in Indonesia.

“There are three factors that can be seen from the energy transition in coal producing areas: the link between the local economy and coal, the readiness of existing human resources, and alternative economic options that can be developed in that area, and how mitigation plans can be prepared,” said Fabby.

In the presentation material delivered by Ilham Surya, IESR Environmental Policy Analyst, it was explained that the role of the coal industry in the economy of coal-producing regions is quite significant.

“The GRDP contribution is between 50% and 70% in Muara Enim and Paser, but the multiplier effect is not that big,” said Ilham.

Within the scope of national policy, the Ministry of PPM/Bappenas is currently preparing a Long Term Development Plan (RPJP), one of the points  is economic transformation.

“The energy transition is part of the green economic transformation, so in the latest draft of RPJP, what we meant by transition is not only seen from the energy sector,” explained Nizhar Marizi, Director of Energy, Mineral and Mining Resources, Bappenas.

Grita Anindarini, Deputy Director for Programs, Indonesia Center for Environmental Law (ICEL), emphasized the important role of the policy framework and implementation of various existing regulations.

“A just energy transition requires a very big policy transformation on employment, environment, energy, and financing. Currently there are several policy regulations regarding the energy transition, but their implementation still faces various obstacles,” explained Grita.

Haris Retno Susmiyati, Lecturer at the Faculty of Law, Mulawarman University, admits that economic dependence on coal commodities is not a good thing. She said that in 2015, when coal prices fell drastically, the economy of East Kalimantan also slumped.

“By regulation, the company’s obligation to pay royalties to the government is only 13.5% of that figure. The regional government only gets 5%, so it is not the coal producing regions that actually enjoy the profits from coal,” said Retno.

Having a similar context to East Kalimantan, Jambi province is also starting to prepare for transition. Ahmad Subhan, Head of Economy and Natural Resources, Bappeda Jambi, said that even though it is not the main coal producing area, the contribution of the coal sector to GRDP is quite significant.

“Coal is indeed significant for supporting the economy, but if there are substitutes that are more relevant to regional conditions, they can be explored further. For this transition, we in Jambi province are supportive but not drastic. We are also waiting for substitutions for economic transformation,” said Ahmad.

IESR and Ford Foundation Call for Centering Justice on Energy Transition Partnership

press release

Jakarta, September 19, 2023 – The Institute for Essential Services Reform (IESR) and Ford Foundation in Indonesia are calling on the government of Indonesia to emphasize the significance of centering justice in energy transition in Indonesia, especially through the Just Energy Transition Partnership or JETP. 

The JETP is an innovative financing mechanism intended to accelerate country-led energy transition from fossil fuels to renewable energy sources. A JETP essentially links the financial package of concessional finance and grants from donor countries with energy transition initiatives in the global South.

In a report digitally launched today by IESR and Ford Foundation, it is mentioned that the pledged JETP funding is not sufficient to cover the cost of the whole transition process. Instead, it serves as an initial source of funding to catalyze and mobilize other funding sources. 

The report highlights the results and recommendations from the JETP Convening, Exchange and Learning event for South Africa, Indonesia, and Vietnam that was held on 25-28 June 2023 in Jakarta. The event was collaboratively hosted by IESR, Ford Foundation, and African Climate Foundation (ACF).

“Since the initial JETP funding is time-limited, it is crucial to set reasonable and achievable milestones and projects within the agreed period and develop a strategy to leverage other funding sources to cover the costs of meeting the 2030’s target,” said Fabby Tumiwa, Executive Director for IESR. 

Fabby also added that financing instruments such as concessional loans, commercial loans, equity, guarantee funds, grants, and any other instrument must be assessed carefully to hinder the ‘debt trap’ in the future. 

“Governments must continue to advocate the greater demand of grants and concessional finance  in order to achieve the agreed target without adding burden to the recipient countries,“ says Fabby.

This was confirmed by Edo Mahendra, Head of JETP Indonesia Secretariat when he served  as speaker in a panel discussion on ‘Safeguarding the “Just” in Just Energy Transition Partnerships (JETP) and Other Emerging Climate Finance Models’ on September 18, 2023, during the Climate Week event in New York, United States.  

“The highest component of the funding will still derive from commercial loans and investments that carry non-concessionary interest rates. Consequently, it is essential to build partnerships and collaborations between governments, philanthropic organizations, and the private sector, “ said Edo.  

Philanthropies have a critical role in supporting the just principle both through the government and  directly to the impacted communities. Their capital can act faster than the government and bridge the gap between the government and the community. Philanthropy could also support human resource development by giving technical assistance, capacity building, training, and knowledge exchange.

The just principle should also be applied to mitigate the impacts of energy transition on the communities. It is essential to support alternative socio-economic initiatives in these areas to adequately wrestle with the idea of justice for who? This includes providing skill improvements to transition from fossil fuels to renewable energy sources, educating and assisting local governments to adapt their economic development strategy and plan for the long-term, as well as creating funding dedicated to address the impacts of transitioning away from coal.

The transition from fossil fuels to low-carbon resources may affect  not only the economy at the local level but also at the regional or even national level. People who live in regions dependent on fossil fuel will have to adapt to the new environment, as well as adjust their skills and knowledge that might be difficult to do in a short period of time.

Alexander Irwan, Regional Director of the Ford Foundation in Indonesia, said that the JETP implementation should meet the basic principles of the ‘justice’ element.

“Social justice elements should be included in the discussion and transition plans. The concept of fairness has to be at the center, ensuring the just transition is inclusive for all groups or communities, particularly to workers, children, women and local communities who are very reliant on fossil fuel supply chains,” said Alex.