Indonesia’s push to reach net zero emissions can help power new phase in economic development

Indonesia has a viable path to reaching its target of net zero emissions by 2060, bringing major benefits to its citizens in the process such as more secure and affordable energy supplies, according to a new IEA report released September. But key policy reforms and international support will be crucial to the success of the clean energy transition in the world’s fourth most populous country as it enters a new phase of its economic development.

The IEA’s Energy Sector Roadmap to Net Zero Emissions in Indonesia – a collaborative project undertaken with the Indonesian Ministry of Energy and Mineral Resources (MEMR) at the request of the Government of Indonesia – was launched at the G20 Energy Transitions Ministerial Meeting in Bali under Indonesia’s first G20 Presidency. 

IEA Executive Director Fatih Birol and Indonesia’s Minister of Energy and Mineral Resources Arifin Tasrif also signed a Joint High-Level Statement that sets out a shared vision of Indonesia’s path to net zero, drawing on the Roadmap’s findings.

Indonesia’s economic development over the past half century has been a remarkable success story, lifting millions of people out of poverty and bringing electricity to almost all citizens across the country’s 17 000 islands. Access to affordable supplies of energy from the country’s abundant resources as well as revenues from fossil fuel exports have been important drivers of this success.

Today, the clean energy transition offers huge opportunities for the next chapter of Indonesia’s development as it seeks to become an advanced economy by 2045. According to the IEA Roadmap, many of the ingredients for reaching net zero emissions and advanced economy status are the same: innovation, knowledge, technology, and economic diversification.

For instance, Indonesia’s export revenues from critical minerals, which are needed for many clean energy technologies, are set to be greater in 2030 than its largest ever export revenues from coal. And even bigger opportunities exist if Indonesia can capture more of the clean energy value chain. At the same time, the clean energy transition and economic diversification will have significant impacts on Indonesia’s coal-producing regions, demanding attention from policy makers to ensure a fair and people-centered transition.

The IEA Roadmap shows that by reaching net zero by 2060, Indonesia would reduce total household energy bills as a share of income from today’s level. For the country’s economy as a whole, the pathway to net zero by 2060 would lower oil import bills by one-third in 2030 compared with a business-as-usual scenario. 

This saving on oil imports would by itself cover the extra cost the transition would require in terms of new investments – meaning that the transition would effectively pay for itself. An even more ambitious transition by Indonesia and other countries around the world, as envisaged in the IEA’s global Net Zero Emissions by 2050 Scenario, would yield even greater savings, the analysis shows.

“Indonesia has the opportunity to show the world that even for a country that relies heavily on fossil fuel exports, a pathway to net zero emissions is not only feasible but also beneficial,” said IEA Executive Director Fatih Birol. “We must be clear-eyed about the challenges, especially in areas that depend on the coal industry, but the economic opportunities more than compensate for the costs.”

“This Roadmap – which reflects the IEA’s status as the global authority and was conducted hand-in-hand with my Ministry – sets out a clear and achievable path forward, based on energy efficiency, renewables and electrification,” said Indonesia’s Minister of Energy and Mineral Resources Arifin Tasrif. “This demonstrates that a transition to net zero in Indonesia can be just, affordable and rich with opportunities.”

The IEA report stresses that the technologies Indonesia needs for the initial steps in its journey to net zero – such as energy efficiency solutions, solar, wind and electric vehicles – are already commercially available today and cost-effective, provided that the right policies are put in place.

Enforcing energy performance standards, especially for air conditioners, and supporting electrification of transport and cooking are essential to lower energy costs and emissions at the same time. Indonesian homes are set to add another 20 million air conditioners by 2030, shifting to the best available technologies could avoid annual electricity demand equivalent to the output of around 10 coal power plants.

Driving rapid expansion of renewables, especially solar, demands an immediate and sustained policy push. Solar projects in Indonesia are currently more than twice as costly as those in similar emerging market countries. But costs can be brought down by introducing transparent and competitive tariffs and a predictable project pipeline. 

At the same time, by allowing coal plants to operate more flexibly and remunerating them for it, Indonesia can reduce power system costs by more than 5% and help free up the space in the power system that needs to go to renewables.

To achieve net zero by 2060, Indonesia will need to almost triple energy investment by 2030 from today’s level. That means an extra USD 8 billion in investment a year by the end of this decade compared with the level in a business-as-usual pathway. 

Mobilizing that additional financing will hinge on policy reforms and international financial support for which Just Energy Transition Partnerships (JET-P), as endorsed by G7 Leaders at their Summit in June, can provide a framework. International cooperation will also be critical to bring technologies such as nuclear power, hydrogen and carbon capture to market in Indonesia and to reduce costs.

“As a long-term and steadfast partner to Indonesia, the IEA is committed to continuing to provide leading analysis and practical solutions to help Indonesia achieve its energy and climate goals,” said Dr Birol. 

“I call on Indonesia’s international partners to do their part by mobilizing clean energy finance through a Just Energy Transition Partnership and ensuring much needed technology transfers. The results will bring major benefits for both Indonesia and the world.”

Photo credit: Pexels/ Nuh Rizqi

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