Policy Reform and Concessional Finance Needed to Achieve JETP Targets

 

Jakarta, September 6, 2023 – The draft Comprehensive Investment and Policy Plan (CIPP) document of the Just Energy Transition Partnership (JETP) is under review by the Indonesian government. This review is seen as an effort to ensure that the achievement of JETP targets is in line with reality. This was conveyed by Rachmat Kaimuddin, Deputy for Infrastructure and Transportation Coordination, Coordinating Ministry for Maritime and Investment Affairs, at the Bloomberg CEO Forum at ASEAN (6/9).

“The JETP Secretariat has submitted the JETP roadmap, which is the result of work from four working groups which are technical, financing, policy, and just transition. Currently, it is still under review to assess the match between the required energy types and technologies and the emissions reduction goals in Indonesia, and to ensure that the JETP roadmap can be implemented in reality,” Rahmat explained.

On the same occasion, Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), mentioned that the limited availability of data posed one of the obstacles in preparing the CIPP document, particularly concerning captive coal-fired power plants (CFPP) or plants operated by specific companies to supply their own electricity.

“In the last two years, Indonesia has implemented coal downstreaming policies that have led to an increase in the number of industries building mineral processing facilities or smelters. This, in turn, has resulted in an increase in the number of captive coal power plants used to supply energy to these smelters. Meanwhile, when the JETP was agreed upon in 2022, the data used still did not include the captive CFPP,” he said.

Furthermore, Fabby mentioned that to create more opportunities for renewable energy developers, the government needs to evaluate the Domestic Market Obligation (DMO) policy on coal, which artificially lowers coal prices. He believes that this policy reform also needs to be discussed at the legislative level. Additionally, he highlighted that electricity tariffs from coal-fired power plants are relatively lower than those for renewable energy. This means that Indonesia’s utility company, PLN, has limited incentives to promote the utilization of renewable energy. In fact, he added, an equal electricity tariff between fossil fuels and renewable energy would provide utility companies with sufficient capital to invest in renewable energy.

Fabby stated that Indonesia requires substantial investments to expedite the development of renewable energy.

“To attain the JETP target of achieving a 34% renewable energy mix by 2030, Indonesia needs to construct approximately 40 GW of renewable energy capacity. This presents challenges in terms of the supply chain and the procurement process. Therefore, Indonesia truly needs proper financing instruments. Within the JETP framework, concessional financing with low-interest rates is a necessity,” he concluded.

Low Carbon Development Acceleration Requires Target and Strategy Synergy

press release

Jakarta, August 10, 2023 – Sustainable development with minimal emissions is believed to be the key to lifting Indonesia out of the middle-income trap it has been in for 30 years (1993-2022) and transitioning towards a developed country. The Institute for Essential Services Reform (IESR) urges the Indonesian government to set ambitious, measurable emissions reduction targets and include them in the Nationally Determined Contribution (NDC).

Fabby Tumiwa, Executive Director of IESR, in his remarks at the seminar “Bridging the Cross-Sectoral Gap in Pursuing More Ambitious Climate Targets in Indonesia” organized by IESR, mentioned that based on global action Climate Action Tracker (CAT) data, as measured by the current policy base, would lead to a global temperature increase of 2.7°C. However, Indonesia’s latest emission reduction target is categorized as critically insufficient, which means it is far from enough to reduce global boiling. There is a gap between current policies and emission levels compatible with the Paris Agreement. Based on Indonesia’s climate policy and action, emissions will reach 111.4-132.0 GtCO2e/year by 2030 (excluding LULUCF), 351-415% over 1990 levels. To be compatible with the Paris Agreement, emissions must fall to 0.56-0.86 GtCO2e/year in 2030 (excluding LULUCF).

“In addition, we need to look at Indonesia’s NDC shows a gap in action towards meeting the net zero target. The transportation and industrial sectors need to take action, while the energy sector already has a clear strategy to reduce greenhouse gas emissions. A transparent and measurable strategy and plan is needed to achieve the target of the Paris Agreement,” he said.

Furthermore, he alluded to the delivery of different signals from policymakers who adjust the priorities of each sector regarding climate crisis mitigation. This has slowed progress toward achieving emission reduction targets per the Paris Agreement.

“The lack of a clear strategy leads to inconsistent climate action and policymaking across sectors and inadequate budget allocations for adaptation and mitigation. It is crucial to integrate climate action into the National Long‐Term Development Plan (RPJPN) and National Medium Term Development Plan (RPJMN) planning processes,” he said. 

He also emphasized that Indonesia’s chairmanship in ASEAN should be seen as an opportunity to encourage other ASEAN countries to adopt more ambitious climate policies and actions. Indonesia’s climate policies are considered among the most ambitious in ASEAN.

Medrilzam, Director of the Environment for the Ministry of National Development Planning/Bappenas, on the same occasion, explained that his party had completed the 2025-2045 National Long-Term Development Plan (RPJPN) document, which prioritized the principles of sustainable development. One of the main targets is reducing greenhouse gas (GHG) emissions by up to 95% in 2045. He says lowering emissions is closely related to developing a greener economy. In particular, in Indonesia in 2025-2045, RPJPN targets Indonesia’s per capita income to be equivalent to developed countries of around US$30,300 and enter the 5 (five) most significant economies globally.

“Reducing emissions should not be seen as just reducing emissions, and must consider economic development. Green economic interventions with low-carbon development will increase the environment’s carrying capacity and reduce GHG emissions while encouraging Indonesia’s average GDP growth in 2022-2045 to reach 6-7%,” said Medrilzam.

However, Medrilzam highlighted the amount of investment required on average of IDR 2.377 trillion per year from 2025-2045 to implement green economic policies.

“To meet this need, policies are needed to strengthen green innovative financing, such as blended finance, impact investment, carbon taxes, and others. The green investment will also provide job creation benefits of up to 1.66 million jobs/year in 2045,” he said.

Ferike Indah Arika, Young Expert Policy Analysis Center for Climate Change and Multilateral Financing Policy, Fiscal Policy Agency, Ministry of Finance, explained it is crucial to have innovative financing to support climate mitigation and adaptation beyond the State Budget. He compared the accumulated funding for climate change mitigation needed in the 2018-2030 range to reach IDR 4.002 trillion, which is still far less than the investment required for green economy policies.

“The state revenue and expenditure budget (APBN), whose allocation is monitored for mitigation and adaptation activities, is still far between what we have and what is needed. This huge disparity in funding needs, of course, cannot only be met by the limited state budget,” said Ferike.

Nurcahyanto, Associate Policy Analyst, Directorate of Energy Conservation, Ministry of Energy and Mineral Resources of the Republic of Indonesia, explained that from the energy sector, to encourage the acceleration of GHG emission reduction, the termination of coal-fired power plants operation is one of the main contributions in reducing emissions in the power generation sector. Nurcahyanto emphasized that the draft roadmap for the early termination of coal-fired power plant operations with a target of retiring a total capacity of 4.8 GW of coal-fired power plants in 2030 has been completed and submitted to the Coordinating Ministry for Maritime Affairs and Fisheries, the Ministry of Finance, the Ministry of State Owned Enterprises (BUMN), and PT PLN (Persero) for comments.