@The Jakarta Post
Kevin Rudd, Ban Ki-moon and Muhamad Chatib Basri
Kevin Rudd, a former Australian prime minister, is the global president of the Asia Society and convener of the High-Level Policy Commission on Getting Asia to Net Zero, where Ban Ki-moon, a former United Nations secretary-general, and Muhamad Chatib Basri, a former Indonesian finance minister, are members.
In September, Indonesia joined the small list of countries that actually responded to a formal call to strengthen their Paris Agreement targets in 2022. Then, as host of the Group of 20 Leaders’ Summit in November, the country announced a series of new targets, including its aim to reach 34 percent renewable-energy generation by 2030, as well as peak its power sector emissions by the same date and bring them to net zero by 2050.
President Joko “Jokowi” Widodo clearly spoke from the heart when he remarked in his G20 opening speech: “We do not just talk, but we take concrete steps.”
Why is Indonesia acting now? One reason is because the economics make sense. In a new report released this week, we on the independent High-Level Policy Commission on Getting Asia to Net Zero unpack why this is the case.
Research we commissioned from Cambridge Econometrics shows implementing Indone- sia’s official long-term strategy for achieving net zero emissions by 2060 could boost the country’s mid-term gross domestic prod- uct (GDP) by 5 percent and cre- ate up to 2 million new jobs by the 2030s. Indonesia’s trade balance could also ultimately improve by US$48 billion.
What’s more, Indonesia’s concrete step forward on climate have already attracted concrete resources.
To help the country achieve its newest goals, a group of developed nations committed during the G20 last November to mobilizing $20 billion over the next three to five years in what is known as the Just Energy Transition Partner- ship (JETP). This newest influx of finance complements at least four other schemes that aim to help Indonesia transition to clean energy, including a plan backed by the Climate Investments Funds that could potentially provide $4 billion, as well as other efforts managed by Indonesia’s state-owned infrastructure financing company PT SMI, national utility PLN and the Indonesian Investment Authority.
But the crux is this: Now that money to support Indonesia’s energy transition is suddenly flowing, the country faces key decisions in the next few months about how exactly it should chart its course of decarbonization. Making the right choices at this critical juncture could save Indonesia trillions of dollars, help its most vulnerable populations thrive as it decarbonizes and reduce emissions more quickly and efficiently.
The evidence suggests Indonesia could significantly benefit from taking more ambitious climate action, sooner. The research we commissioned shows Indone- sia could avoid $3.8 trillion in in- vestment requirements and peak its overall emissions by 2027 if it targets net zero by 2050 while focusing on low-cost solar and wind energy. Adverse impacts on household spending could also be reduced by half in comparison to Indonesia’s current net-zero pathway, which relies heavily on fossil fuels paired with expensive carbon-capture technology.
Luckily, the climate finance earmarked for Indonesia created a window of opportunity to seize these benefits, if Indonesia continues apace.
As part of the JETP agreement, Indonesia committed to developing an investment plan by mid 2023. It will also outline a program to support workers and industries affected by the transition. Getting these plans right, along with adopting consistent and transparent policies to support them, will be essential for the money to have the desired impact.
So, what concrete steps could Indonesia consider as it looks to maximize the positive economic, social and climate outcomes of its path to net-zero emissions?
Foremost is to continue reform- ing Indonesia’s energy markets to favor lower-cost renewables like solar and wind while putting an end to new coal power. One of the highest-impact measures would prioritize using electricity from intermittent renewables in real- time, while phasing out ineffi- cient subsidies for coal and other carbon-intensive fuels.
Indonesia might also temporarily relax regulations that mandate solar components be produced within its borders. This would ac- celerate deployment in the near- term while domestic suppliers ramp up their capacity to meet Indonesia’s renewable energy needs. Together, these reforms could lower investment risk while enhancing long-term GDP.
At the same time, Indonesia could leverage its energy transition to address more immediate development challenges like poverty and inadequate infrastructure. Revenues from the country’s nascent emissions trading scheme and any repurposed fossil fuel subsidies could be channeled toward social policies, such as through conditional cash trans- fers to vulnerable households. This could shift incentives to ben- efit people rather than entrenched fossil fuel interests, relieve pressure on government budgets and buttress popular support for the green transition.
To make its transition more equitable, Indonesia could also go “all in” on green industries. An ambitious vision could take ad- vantage of Indonesia’s critical resource endowments to expand production of technologies needed for decarbonization. For a nation widely expected to become the world’s fourth-largest economy by 2050, this would create attractive opportunities to reemploy former fossil fuel industry workers while benefiting Indonesia economically.
As one example, Indonesia already intends to capitalize on its vast deposits of nickel, a key component of electric vehicle (EV) batteries, to onshore EV supply chains. This could reduce Indonesia’s emissions by creating a local EV industry while enabling Indonesia to profit from EV exports (that, in turn, help other nations decarbonize).
As manufacturing capacity expands, these so-called green industries can be powered with non-fossil energy and grow, while ensuring critical habitats are protected. This will position Indonesia favorably to attract the growing market of global customers who want to ensure their clean technologies are produced cleanly, too.
Indeed, 2023 is a crucial year for Asia and Indonesia to lead on climate. All eyes will be on Asia as the region hosts the Group of Seven, G20 and the 28th United Nations Climate Conference, and many developing economies in Asia will turn to Indonesia as chair of the ASEAN summit.
The conditions are ripe for Indonesia’s leadership to build on its global leadership as G20 host in 2022 by using its own domestic example to demonstrate how green growth can enhance prosperity and livelihoods.
Last year, President Jokowi spoke of taking concrete steps. If Indonesia continues to act decisively on climate this year, these concrete steps could instead become tangible leaps and bounds.