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Jokowi’s green agenda needs green reform

Financing Indonesia’s programs to mitigate climate change will require US$266 billion, or nearly Rp 3.5 quadrillion, until 2030, but the government is only able to provide between one fifth and one third of that amount.

Winarno Zain (The Jakarta Post)
Jakarta
Thu, September 2, 2021

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Jokowi’s green agenda needs green reform

I

t may not be comforting to hear that in his first remarks on Indonesia on July 17, United States President Joe Biden predicted that Jakarta would sink in the next 20 years because of rising sea levels and that Indonesia would have to move its capital.

Nor is it comforting that United Nations Secretary General Antonio Guterres in comments on the report of the Intergovernmental Panel on Climate Change (IPCC) singled out coal as the culprit that would “destroy our planet”.

Coal is front and center in Indonesia’s battle against climate change, as it is one of the country’s biggest export commodities and the most widespread and cheapest fuel to power the country.

But Biden and Guterres’ remarks, whether we like them or not, are a stark reminder that climate change, caused by carbon dioxide emissions, is spreading fast and the impact threatens to be catastrophic

According to the IPCC report, within the next two decades, world temperatures are likely to rise by more than 1.5 degree Celsius above preindustrial levels, breaching the ambition of the 2015 Paris climate agreement. The burning of fossil fuels and deforestation have led to a level of carbon dioxide in the atmosphere today that is higher than at any time in the past 2 million years.

For Indonesia, climate change is no longer remote. It is getting closer to our archipelago. Extreme weather is becoming more normal, and it is a matter of time before the country suffers more severe flooding and droughts.

According to the World Research Institute (WRI), Indonesia is one of the 10 biggest producers of greenhouse gas emissions in the world and was ranked the eighth worst emitter of greenhouse gases after Brazil.

As one of the 191 countries that signed United Nations Framework Convention on Climate Change (UNFCCC) under the Paris Climate Accord in 2016, Indonesia has the obligation to submit Nationally Determined Contributions (NDSs) to the global fight against climate change. Indonesia has pledged to reduce emissions by 29 percent by 2030 on its own, but with international assistance, it plans to reduce emissions up to 41 percent.

The share of renewable energy (RE) in the country’s energy mix is to increase from the current 11 percent to 23 percent by 2025, to 36 percent by 2030 and to 85 percent by 2060. At that time, Indonesia will reach net-zero emissions.

The problem is that to achieve these targets, the country will need a huge investment in RE. Financing Indonesia’s climate change mitigation programs will require US$266 billion, or nearly Rp 3.5 quadrillion, until 2030, but the government is only able to provide between one fifth and one third of that amount, while the rest is expected to come from aid or the private sector.

There have been some global initiatives to make funds for fighting climate change more available, and Indonesia could make use of them.

Within the UNFCCC framework, the Green Climate Fund (GFC) has been established with the goal of mobilizing $100 billion to assist developing countries in adapting to and mitigating climate change.

Green bonds, which are specifically designed to support climate and environmental projects, have been issued by financial as well as non-financial organizations and sovereign wealth funds. According to the International Monetary Fund, green bonds have been growing rapidly since 2013, and their amount has increased from $164 billion in 2018 to $285 billion in 2020.

And then there is the private entity Global Fund Management, which has pledged nearly half of its $43 billion in assets for green investment. But this can only be accessed by Indonesia if the country can improve its green investment climate.

According to the International Energy Agency, Indonesia is endowed with a wealth of potential RE sources. The agency estimates that the country has the potential to develop 75,000 megawatts of hydropower, 4.80 kilowatt hours per square meter per day of solar power and 32,654 megawatts of biomass energy. The country also holds 40 percent of the world’s geothermal reserves at around 28,000 megawatts.

But progress in RE investment is moving at a snail’s pace. This is because potential investors face a myriad of obstacles, including cumbersome licensing procedures, frequent regulatory changes and communication breakdowns between the Energy Ministry and the Finance Ministry on pricing mechanisms. But the biggest factor that reduces investor appetite for investing in RE is competition from the fossil fuel industry. As long as the government keeps fossil fuel prices low, like capping the coal price, investment in RE will attract little interest.

The fossil fuel industry in Indonesia is immensely powerful. It is the primary source of fuel for energy throughout the archipelago and has played a dominant role in the country’s economy for decades. In an energy market where fossil fuel interests are so powerful, it is not surprising that renewables have struggled to find a foothold.

State electricity company PLN will shut its last coal power generator down in 2056, only four years before the country plans to achieve net-zero emissions.

Three years before his presidency’s end date, President Joko ”Jokowi” Widodo announced that building a green economy would be one of his priority agenda items, alongside the digitalization of micro, small and medium enterprises (MSMEs) and the development of downstream industries.

Jokowi’s green agenda will be modest at best, but it will serve as a small step in the long journey to overcome climate change. His agenda should be continued by whoever is elected president in 2024. And while he is still president in the post-pandemic economy, he has the power to commit himself to green economic reform by overhauling regulations on RE investment to make them more friendly to green and clean investors.

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The writer is an economist and commissioner of a publicly listed company.

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