The Decline of Indonesia’s Climate Policy and Action Rating in 2023

Delima Ramadhani, Climate Policy Project Coordinator, IESR presents the results of the CAT assessment of Indonesia’s climate policies, targets and actions

Jakarta, January 31, 2024 – According to the Climate Action Tracker (CAT) report, the climate policies, actions, and targets outlined in Indonesia’s 2023 Nationally Determined Contribution (NDC) document as “critically insufficient” to limit global temperatures  to below 1.5 degrees Celsius. This represents a decline from 2022 when Indonesia was rated as “highly insufficient.”

The Institute for Essential Services Reform (IESR), a collaborator with CAT, has disclosed that Indonesia, rated as “critically insufficient” under the Enhanced NDC target, could potentially release greenhouse gas emissions of 1,800 million tons of carbon dioxide equivalent for the unconditional target and 1,700 million tons of carbon dioxide equivalent for the conditional target by 2030. This estimation excludes emissions from the forestry and land sectors.

Fabby Tumiwa, Executive Director of IESR, attributed Indonesia’s downgrade to “critically insufficient” to the escalating use of coal in downstream mining. He stressed that the lowest CAT rating implies that the existing climate targets and policies would result in global emissions surges surpassing 4 degrees Celsius.

“Indonesia requires concrete and measurable actions to transition from fossil energy and expedite the shift to renewable energy in the coming decade,” Fabby stated during his remarks at the launch of the Climate Action Tracker Assessment Indonesia and Climate Transparency Implementation Check reports, organized by IESR on January 30. 

Throughout the 2022-2023 period, the Indonesian government has made progress in climate mitigation actions, notably by promoting the development of renewable energy through Presidential Regulation (Perpres) No. 112/2022 concerning the Acceleration of Renewable Energy Development for Electricity Supply. Additionally, the government has made positive commitments to achieving the 2030 net zero and FOLU net sink targets. Ambitious policies are needed to realize them.

The rise in emissions in 2022 amounts to approximately 200 million tons of carbon dioxide equivalent, with increased coal consumption being a contributing factor. Emissions from captive power plants, those operated by utility companies outside of PLN, are anticipated to contribute to a further increase of around 100 million tons by 2030. Indonesia’s current climate policy would result in the country reaching an emissions level of 1,487-1,628 MtCO2e (excluding the forest and land sector) by 2030.

Moreover, Indonesia has committed to the Just Energy Transition Partnership (JETP), aiming for a renewable energy mix exceeding 34% by 2030. However, it is noted that the JETP falls short of aligning Indonesia with the targets set in the Paris Agreement.

Delima Ramadhani, Climate Policy Project Coordinator at IESR, explained that to meet the Paris Agreement standards, emissions from the electricity sector must decrease to 140-150 million tons of carbon dioxide equivalent by 2030, ultimately reaching zero emissions by 2040.

“Indonesia needs to adopt key reforms as outlined in the comprehensive investment planning and policy (CIPP) document of the Just Energy Transition Partnership (JETP) and formulate and implement an ambitious decarbonization pathway for off-grid (captive) power plants,” explained Delima.

Considering the significance of the electricity sector and its potential for strategic decarbonization, IESR also assessed the implementation of the National Electricity General Plan (RUKN) policy. This policy serves as Indonesia’s primary reference for domestic electricity development and can be utilized for monitoring and evaluating renewable energy progress. Akbar Bagaskara, IESR’s Electricity System Analyst, explained that the overall assessment of the RUKN is “medium,” indicating that while it has a clear legal basis, namely MEMR Regulation No. 143/2019, there are numerous implementation challenges, including the consistent failure to achieve the annual renewable energy mix target.

“Indonesia’s challenges in meeting the annual targets for the renewable energy mix should prompt the government to conduct a thorough evaluation and address this issue with a sense of urgency. It is crucial for the government to formulate progressive strategies and innovations aligned with the Paris Agreement,” stated Akbar.

He elaborated on several actions the government should take to enhance the implementation of renewable energy development in Indonesia. Firstly, there is a need to increase the presence of supportive laws to foster a more conducive environment. Secondly, clear and comprehensive instruments should be provided, covering the entire spectrum from planning and procurement to reporting processes, especially for entities beyond PLN. Thirdly, a new revenue model for PLN should be established. Lastly, there is a necessity to refine PLN’s sustainable finance framework to attract a broader range of financing sources.

Webinar: Sunset of Coal-Fired Power Plants and the Coal Industry – Reviewing Direction and Multisectoral Impacts in a Just Energy Transition

Background

Indonesia has ratified its commitment to keeping global temperatures below 1.5 degrees Celsius, in line with the Paris Agreement, through Law No. 16 of 2016. The Indonesian government has set climate commitment targets through its enhanced Nationally Determined Contributions (NDCs): a 31.89% reduction in greenhouse gas emissions compared to business-as-usual scenarios and a 43.20% reduction with international assistance by 2030. However, these targets are still insufficient to meet the goals of the Paris Agreement. Based on business-as-usual scenarios, the energy sector is projected to dominate Indonesia’s emissions in the future. The electricity sector can be the first sector to be decarbonized considering the availability of low-emission technologies, such as renewable energy, which are becoming increasingly competitive. However, the Indonesian electricity system is currently dominated by coal-fired power plants.

On November 15, 2022, at the peak of the G20 High-Level Conference, President Joko Widodo and the International Partner Groups (IPG) led by the USA and Japan, including Canada, Denmark, the European Union, France, Germany, Italy, Norway, and the United Kingdom, agreed to the Just Energy Transition Partnership (JETP) agreement. As a follow-up to this agreement, the Indonesian government needs to prepare a Comprehensive Investment and Policy Plan (CIPP) to achieve the target of peak emissions in 2030 and a 34% renewable energy mix in the electricity sector by 2030, as well as support for affected communities. The targets to be achieved are a peak emission of 290 million tons of CO2 in the electricity sector by 2030, net zero by 2050, and a 34% renewable energy mix in the electricity system. As a concrete step, the Indonesian government is currently preparing the CIPP investment plan document, which was originally scheduled to be launched on August 16, 2023, but has been postponed to the end of 2023. This delay is due to the unclear funding framework of the JETP from the IPG countries and the need for further refinement of some analyses in the document. In addition, the government also expects a more inclusive document and opens the opportunity for public consultation in the coming months.

Energy transition in various funding schemes, both JETP and Energy Transition Mechanism (ETM), is expected to prioritize justice aspects, especially for vulnerable and affected groups. The energy transition process should be seen as a comprehensive process that includes the creation of environmentally friendly jobs, social protection for vulnerable groups, as well as skills enhancement and retraining driven by employer programs to address these issues.One of the focuses of JETP is the effort to early retire coal-fired power plants (CFPP) which still contribute about 60% of the overall electricity generation. JETP also recognizes the importance of a fair transition principle for workers and communities affected by the early retirement of PLTU, including the domestic coal industry which will weaken and have an impact on the economy, especially in coal-rich areas. The JETP program in Indonesia must develop a fair transition roadmap that includes the creation of environmentally friendly jobs, social protection for vulnerable groups, as well as skills enhancement and retraining driven by employer programs to address these issues.

The impacts of this coal transition are identified and analyzed in several scenarios to study the relevant outcomes under various future conditions. These outcomes are presented so that stakeholders can make policies that anticipate the impacts that will occur. Therefore, the Institute for Essential Services Reform (IESR) will hold a public discussion to discuss the financing and investment scheme strategies, particularly in relation to the plans and anticipation of the multi-sectoral impacts of the early retirement of coal-fired power plants (PLTU) in efforts to achieve a just energy transition.

Objective:

To present and discuss the impacts resulting from the coal transition process in Indonesia.

To discuss how CIPP JETP supports a just energy transition.

To discuss the role of stakeholders in anticipating these impacts.

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.