Indonesia is the world’s biggest producer of coal, and the world’s 5th largest consumer of the dirtiest fossil fuel. Since 2001, according to figures from the International Energy Agency (IEA), coal production in Indonesia has climbed by 558%, domestic coal consumption has risen 494%, and coal exports have skyrocketed by a whopping 608%. Weaning Indonesia off of coal is therefore not only of integral importance to the Southeast Asian nation’s own climate goals, it is critical to combating catastrophic climate change the whole world over.
The Indonesian government has pledged to reach net-zero emissions by 2060, but achieving this target will be extremely difficult and will require a concerted and coordinated effort from the national government, industry, financial institutions and communities. Despite these ambitious targets, however, “only a limited number of coal-powered plants have been planned for early retirement,” East Asia Forum reports. “This is due to the need for more political will, stringent criteria, and financial support from financial institutions and donors.”
In addition to fostering stronger domestic governance, weaning Indonesia off of coal will require a whole lot of cold hard cash. Reuters reports that Indonesia will need $94.6 billion by 2030 to adequately build out clean power transmission and production infrastructure to be able to phase down its prodigious coal power production and consumption rates.
It has been widely recognized that meeting the international goals set out in the 2016 Paris Agreement will require richer countries, who have spent decades developing their economies with indiscriminate fossil fuel consumption, to channel funds to poorer countries to help them move away from cheaper and more accessible fossil fuels and develop sufficient clean energy alternatives without derailing their own economic development trajectories. This approach is known as ‘climate finance’ and has received broad support – in theory.
In practice, climate finance has been characterized by years of delays and broken promises. Back in 2009, at the COP15 United Nations climate summit in Copenhagen, rich nations made a promise to send US$100 billion per year to less wealthy nations by 2020 as part of the global imperative to lower greenhouse gas emissions. They never made good on that promise.
Today, Indonesia is plagued with a continued failures of the climate finance system. “The Southeast Asian nation of more than 275 million had been promised $20 billion in funds as part of the G7's Just Energy Transition Partnership (JETP), unveiled in 2022,” Reuters reported earlier this week, “but very little money has been disbursed.”
According to a senior minister overseeing mining in Indonesia, Luhut Pandjaitan, the current climate financing mechanism has major pitfalls which have led to its inefficiency and inefficacy. Namely, he says that it does not include any grants, and did not fix pressing issues such as the high cost of retiring existing coal plants.
"If you push us to retire our coal plants early, how do we finance it? The interest on the finance needs to be attractive," Luhut was quoted at the Coaltrans Asia conference, which took place in Bali this week. "If they give a commercial (rate of) interest, what's the point?"
A broader Reuters analysis has found that climate financing mechanisms around the world have been marred with similar flaws. The report found that “a program meant to help developing nations fight climate change is funneling billions of dollars back to rich countries,” including Japan, France, Germany, the United States and other wealthy nations. Instead of offering low- or no-interest loans, as initially promised at COP15, these nations are offering market-rate interest for their own financial gains, ultimately deepening the disparities between the developed and developing world and pushing progress on climate change action farther down the timeline while the clock is running out.
In the words of Septian Hario Seto, an Indonesian deputy minister for investment affairs, "Too many promises, nothing delivered.”
By Haley Zaremba for Oilprice.com
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