Galvanizing Mining Business Actors for a Just Energy Transition

From left to right Wira Swadana, Green Economy Program Manager, Yulfaizon, General Manager, PT Bukit Asam Tbk Ombilin Mining Unit, Farah Vianda, Sustainable Financing Coordinator, and Y. Sulistiyohadi, Associate Mining Inspector/Coordinator of Civil Servant Investigator Mineral and Coal

 

Jakarta, January 25, 2024 – Mitigating the impact of the declining demand for coal in Indonesia is crucial, particularly in regions heavily dependent on coal production, amidst the global push for a robust energy transition. The Institute for Essential Services Reform (IESR) emphasizes that companies and business entities within the coal industry can play a pivotal role in revitalizing post-mining areas and facilitating economic development within communities once coal operations cease.

Wira Swadana, the Green Energy Program Manager at IESR, asserts that a just energy transition must actively involve various stakeholders, with a special focus on companies and business actors.

“While private entities and coal industry actors are often perceived as adversaries due to the negative impacts on mining areas, in the context of an inclusive and just transition, these mining companies assume a significant responsibility for post-mining endeavors and preparing communities for socio-economic activities, steering them away from a reliance on mining,” Wira explained during the Just Transition Dialogue: Identifying the Role of the Private Sector in Socio-Economic Empowerment of Communities (24/1/2024), an event organized by IESR.

Wira Swadana emphasized the need for business actors to fulfill their responsibilities in land reclamation and post-mining activities, as mandated by Law No.3/2020. He underscored that the government must actively oversee the implementation and take decisive action against mining companies neglecting their obligations in reclamation and post-mining endeavors.

Sulistiyohadi, Associate Mining Inspector/Coordinator of Civil Servant Investigator Mineral and Coal, elucidated the distinction between mining reclamation and post-mining activities. Functionally, reclamation involves enhancing the quality of the environment and ecosystem to restore their intended functionality. On the other hand, post-mining activities focus on the comprehensive restoration of the natural environment and social functions, tailored to the specific conditions of the mining area.

“Reclamation becomes obligatory during the exploration stage, and as production operations commence, a post-mining plan is formulated after meeting the economic and technical feasibility criteria,” Sulistiyohadi explained. He noted that both reclamation and post-mining plans require guarantees for their respective activities.

Moreover, PT Bukit Asam Tbk Ombilin Mining Unit has carried out reclamation and post-mining processes. The post-mining activities are concentrated on establishing a sustainable economy by repurposing the former mining area for various purposes, including the creation of an animal protection zone, zones for crop and livestock cultivation, and utilization for tourism, sports, education, and cultural activities.

Yulfaizon, General Manager at PT Bukit Asam Tbk Ombilin Mining Unit, expressed optimism that the completed post-mining activities at the Ombilin mine will serve as a national exemplar. These efforts align with Sawahlunto’s vision and mission, aiming to transform the former mine into a center for study, job training, and a noteworthy destination in the Sawahlunto region.

Study Launch: Just Transition in Coal-Producing Regions in Indonesia Case Study of Muara Enim Regency and Paser Regency

Background

Coal holds significant importance for Indonesia, both as a consumer and as one of the world’s largest producers. As of 2022, Indonesia stands as the world’s third-largest coal producer, trailing only behind India and China. It also ranks among the globe’s leading coal exporters, having exported a total of 360.28 million tons, marking a 4.29% increase from the previous year. Looking ahead to 2023, the Indonesian government maintains ambitions for even higher coal production. The coal industry plays a pivotal role in the national economy. In 2022 alone, it contributed approximately 3.6% to the national GDP, accounted for 11.4% of the total export value, generated 1.8% of the national state revenue, and provided employment to 0.2% of the population.

On the other hand, coal demand is expected to decline due to the ongoing trend of transitioning towards renewable energy and the commitments outlined in the Paris Agreement, aimed at limiting temperature rise to below 1.5°C. According to IESR (2022) estimates, Indonesia’s total coal demand—both domestic and for export—is projected to decrease by approximately 10% after 2030, considering the country’s existing commitments. Furthermore, the Government of Indonesia has enacted Presidential Regulation No. 112 of 2022, which focuses on expediting the development of renewable energy sources for electricity generation. This regulation explicitly imposes a ban on the construction of coal-fired power plants, effective from 2030 onward. This national commitment is reinforced by the endorsement of the Just Energy Transition Partnership (JETP) agreement between Indonesia and the International Partners Group (IPG), as well as the Glasgow Financial Alliance for Net-Zero (GFANZ). This alliance aims to mobilize a substantial USD 20 billion in funding to facilitate an just transition to clean energy, which includes provisions for the early retirement of coal power plants.

Indonesia possesses coal reserves totaling 33.37 billion tons, distributed across several provinces including East Kalimantan, South Sumatra, South Kalimantan, Central Kalimantan, and various other areas. While these regions reap benefits from the coal industry sector, they also endure significant drawbacks.

IESR’s study, “Redefining Future Jobs,” conducted in 2022, illustrates that the advantages accruing to coal-producing regions are disproportionate to the hardships faced by their inhabitants. Furthermore, many communities in the surrounding areas bear the brunt of injustices, encompassing unequal economic impacts, land degradation, and health risks. Addressing these inequities must be a central focus for the government as it formulates plans for future energy transition.

IESR conducted a study on the coal industry’s impact within coal-producing regions in Indonesia, focusing on two major coal-producing districts: Muara Enim and Paser. The study unveiled various forms of injustice experienced by communities residing near coal mining sites, encompassing economic, social, and environmental dimensions

Among the observed injustices in coal-producing areas are income disparities between residents, workers, and capital owners, local community asset loss, and a decline in quality of life around coal mines. Addressing these issues necessitates comprehensive solutions aimed at mitigating these injustices and fostering opportunities for positive change within communities, ensuring an just energy transition.

By proactively tackling these injustices, the government can ensure that the transition process remains just for all stakeholders. With the Indonesian government’s commitment to a greener energy transition, the need arises for comprehensive development planning that promotes inclusivity and participation, particularly in each of Indonesia’s coal-producing regions.

Therefore, IESR intends to host a launch event for the study results of the Just Energy Transition in Coal Producing Areas in Indonesia. This event will bring together the national government, various experts from academia, civil society organizations, and international organizations to engage in a dialogue about the impact of the coal industry and the necessary preparations for an just energy transition in Indonesia.

Objective

The launch of the study results has several objectives:

  1. Delivering the findings of IESR’s Just Energy Transition in Coal Producing Regions’ study to the public.
  2. Gathering input on the outcomes of the study ‘Just Energy Transition in Coal Producing Areas’ to create practical recommendations for relevant parties.
  3. Collecting inputs and recommendations from various stakeholders concerning just energy transition and the mapping of potential economic sectors in coal-producing areas.

Enhancing understanding by providing practical recommendations to key policymakers to support the achievement of an just energy transition in coal-producing regions in Indonesia.

Fossil Energy Subsidies Hinder Energy Transition

press release

Jakarta, 12 November- Despite the commitment to step up climate action and achieve the Paris Agreement target of keeping the earth’s temperature below 1.5 degrees Celsius, the G20 countries, including Indonesia, are still providing significant fossil energy subsidies. The Institute for Essential Services Reform (IESR) views fossil energy subsidies as counterproductive to energy transitions and achieve decarbonization in the middle of this century.

At the early stage of the pandemic, the G20 countries disbursed at least USD 318.84 billion to support fossil energy. Meanwhile, according to Climate Transparency 2021 data, Indonesia has spent USD 8.6 billion on fossil fuel subsidies in 2019, 21.96% of which was for oil and 38.48% for electricity.

Indonesia had succeeded in reforming fuel and electricity subsidies in 2014-2017 but still allocated a fairly large fossil energy subsidy. Energy subsidies increased by 27% in the period 2017-2019.

“The provision of fossil energy subsidies not only hinders plans and efforts to cut greenhouse gas emissions and decarbonization but also results in inefficiency in energy use. It also creates loss due to untargeted subsidies, and makes renewable energy difficult to compete with,” said Fabby Tumiwa, IESR Executive Director.

Ending fossil fuel subsidies will create a level playing field for renewable energy. Moreover, in his opinion, fossil energy subsidy funds will be much more beneficial if they are diverted to the most vulnerable communities, building education and health facilities, developing renewable energy, and accommodating the impact of the energy transition for workers in the affected fossil energy industry. 

“Energy subsidy reform on the consumption side should not be carried out haphazardly so that the poor do not have access to quality energy at affordable prices. On the other hand, financial reforms need to be followed by collecting and applying the poor family databases and targeted subsidy distribution schemes,” explained Fabby. 

Fabby believes that the pricing policy for Domestic Market Obligation (DMO) coal and gas for PLN is a form of subsidy and has made the price of electricity from coal-fired power plants and gas-fired power plants not reflect the actual costs. This policy also makes PLN prioritize the use of coal-fired power plants over renewable energy, which is cheaper.

“The government should review the DMO price benchmark policy for power generation and make a plan to end this policy. This is in line with the government’s decision to not grant permits for the construction of new coal-fired power plants outside the 35 GW program and plans for early retirement of coal-fired power plans before 2030,” said Fabby.

Climate Transparency 2021 analysis shows that to achieve the Paris Agreement targets, all regions of the world must phase out coal-fired power plants between 2030 and 2040. By 2040, the share of renewable energy in power generation must be increased to at least 75%, and the share of unabated coal-fired power plants is reduced to zero. While in the National Energy Policy, Indonesia promised to reduce coal by 30% by 2025 and 25% by 2050. Meanwhile, to be in line with the Paris Agreement, electricity generation from coal must peak in 2020 and stop coal completely by 2037.

Based on IESR calculations in the Deep Decarbonization of Indonesia’s Energy System study, the cost to transform Indonesia’s energy system to achieve zero emissions in 2050 will reach USD 25 billion per year until 2030. It will escalate sharply thereafter to USD 60 trillion per year.

“Fossil energy subsidies increase the negative impact of GHG emissions as well as add the burden on the state due to economic losses and state financial expenditures to overcome disasters caused by climate change. These subsidies can be diverted to help accelerate the energy transition using renewable energy so that we can achieve the renewable energy mix target of 23% by 2025,” said Lisa Wijayani, Program Manager of the Green Economy, IESR.

At the G20 Declaration last October in Rome, the G20 countries agreed to extend their commitment to reducing inefficient fossil fuel subsidies. IESR views that Indonesia can use the opportunity of Indonesia’s leadership at the G20 in 2022 to encourage real action to exit the burden of financing fossil energy.

“The commitment of the G7 countries to provide climate finance of USD 100 billion by 2025 is still not enough. Therefore, G20 countries must contribute, one of which is by carrying out financial reforms towards renewable energy that supports a green economy. Indonesia as the leader of the G20 countries in 2022, can encourage G20 member countries to carry out financial reforms,” ​​said Lisa.

She said every financial policy that leads to support for fossil energy must receive attention and be strictly inventoried by the Global Stocktake (GST) as part of monitoring the climate action of the Paris Agreement. 

According to a report by the Independent Global Stocktake (iGST), a civil society consortium to support GST, the GST can offer a platform for countries to collaborate in reforming fossil fuel consumption subsidies.

“Information that is inventoried into the GST must also include social elements in it so that the objectives of climate finance in achieving economic growth and social inclusion can be achieved. This GST process must include organizations representing economic, environmental, energy, and social elements, especially gender issues and other vulnerable communities, to ensure that the just transition takes place,” said Lisa.