After clinching one of the largest-ever climate finance deals to shutter its coal-fired power plants early, Indonesia needs to work out how to make sure communities that will be impacted by the shift to renewable energy do not lose out, analysts said.
A coalition of rich nations pledged $20 billion of public and private finance to help Indonesia retire its coal power plants sooner than planned, the United States, Japan and other partners said this week.
The Indonesia Just Energy Transition Partnership (JETP), which involves providing grants and concessional loans over a three- to five-year period linked to cuts in emissions from the power sector, is based on a similar deal made with South Africa last year.
Tommy Pratama, executive director of Indonesian policy think-tank Traction Energy Asia, said a “just transition” that benefits local communities is vital for the green deal’s success.
“The key decisions about how the funding is spent must be open and transparent with the full involvement of acknowledged experts, affected local communities and civil society groups,” said Pratama in an interview.
“(It must) improve the quality of life for many communities impacted for decades by Indonesia’s coal industry,” he added.
This would include restoring mining sites, modernising existing coal plants to reduce the negative health impacts on locals and compensating fishing communities whose livelihoods have been impacted by the coal industry, Pratama explained.
Under the Paris Agreement to tackle global warming, Indonesia – one of the world’s biggest carbon polluters – has committed to cut its emissions by about 32% by 2030 versus business-as-usual levels, and hopes to reach net-zero by 2060.
But nearly 85% of electricity in the Southeast Asian archipelago is generated from fossil fuels, the bulk of it coming from coal-fired plants, energy experts say.
Under the new finance deal – split about equally between public and private sources of money – Indonesia set a goal to reach net-zero emissions in its power sector by 2050, a decade before its current target.
Alessandro Gazzini, a Jakarta-based partner at management consultancy Kearney, said with the added incentives and greater international scrutiny, Indonesia would hopefully be able to make the structural reforms needed to accelerate its exit from coal power and boost the share of renewables in the sector.
They include creating an independent power grid manager and an independent regulator for the power market, he said.
As the world’s largest exporter of thermal coal, Indonesia aims to increase the proportion of renewables in its energy mix to 23% by 2025, but has only reached about 12% so far, most of it from hydropower.
More details on the newly agreed green energy deal are expected in the coming months, said Pratama at Traction Energy Asia.
It should improve fiscal and financial incentives for moving to clean energy and support policies to drive the growth of renewables such as solar, wind and geothermal – including switching subsidies from fossil fuel and industrial agriculture to encourage clean energy choices, he said.
Indonesia also needs to develop robust governance systems for disbursing funds and monitoring and reporting carbon emissions, to counter corruption and minimise political influence from the fossil fuel industry, Pratama said.
The JETP should avoid supporting biofuels, biomass, carbon capture and storage, hydrogen and nuclear – energy options “that risk deforestation, are very expensive and unproven or … very dangerous and impractical”, he said.
Indonesia – home to the world’s third-largest tropical forest area but also its biggest producer of palm oil – has steadily increased the share in its biodiesel mandate derived from palm oil, a major driver of deforestation, since 2018 to boost demand.
The best renewable energy sources for Indonesia are solar, hydropower and geothermal power, energy experts said.
But the country has yet to begin exploiting renewable energy at scale, they added, despite the fact it has good renewable resources, especially solar.
Sandeep Pai, senior research lead at the Center for Strategic and International Studies (CSIS), said the new energy deal would help Indonesia brainstorm ideas for investments required to achieve net-zero emissions and a “just transition”.
It will also spark debate among industry, unions and other groups on what that transition should look like, he said.
But he raised concerns at the lack of details in the deal – which was more than a year in the making – on how the finance would be delivered to Indonesia and then spent.
Traction Energy Asia’s Pratama said it was important that the majority of financing for the JETP comes in the form of grants rather than loans and credit guarantees, which would add to Indonesia’s debt burden.
The Indonesian government will need to make an investment plan in consultation with communities and workers, identify specific projects and then seek agreement with donors, said Pai at CSIS.
“This might be a long and thorny negotiation. But I hope it doesn’t take years,” Pai added.
Alloysius Joko Purwanto, an energy economist at the Economic Research Institute for ASEAN and East Asia in Jakarta, said Indonesia’s new green deal should not only help people who are now employed in coal-related sectors.
It also needs to help train the workforce – especially women – with new skills to make the most of the opportunities that will come with the renewable energy rollout, he added.
Ensuring coal workers can move into the renewables industry without hurting their livelihoods is important, said Sisilia Nurmala Dewi, Asia managing director at climate campaign group 350.org.
“It’s the biggest climate finance deal that has been made so far globally, and it shows the seriousness of the pledge,” she said.
“The challenges will be in the implementation.”