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Our coal conundrum

Jakarta Post - July 11, 2022

Jakarta – As much as the world wants to quit fossil fuels, it will not happen anytime soon.

With the war in Ukraine still raging, there has been a global movement, led by the West, to ban coal and other energy supplies from Russia as sanctions against its military offensive on its neighbor.

The European Union, which gets more than 40 percent of its coal supplies from Russia, is set to fully ban imports by September while the United Kingdom will follow suit by the end of this year. Japan and South Korea have announced similar plans.

The mass cancelation of Russian coal has caused supply shocks and put the world into an energy crisis, proving how – despite a global call to transition to renewable energy to fight climate change – countries both rich and poor are still heavily dependent on coal.

Indonesia, as the world's largest exporter by tonnage according to the International Energy Agency (IEA), is feeling the most heat in the global scramble for coal.

Spain, Italy and the Netherlands have joined Germany in exploring options to purchase a larger amount of coal from Indonesia, the Energy and Mineral Resources Ministry has said. Previously, Germany was said to have asked for around 150 million tons of coal from Indonesia, but the ministry said there was no formal agreement on that request.

India, which is Indonesia's second-largest coal export destination, has also approached Indonesia to acquire more coal to meet its domestic needs.

Indonesian coal shipments to Germany, the Netherlands, Spain, Italy, Poland and Switzerland have increased tremendously over the first five months year-on-year, Statistics Indonesia (BPS) data shows.

The rising demand for our coal may look like a good opportunity for Indonesia, which has also battled inflation caused by the energy crisis. It would ensure more than enough revenue to help the Finance Ministry cover subsidies for the poor and tame inflation in the country.

But catering to the global demand may also bear some disadvantages. The country will be forced to increase production and exports while running its economy, more than 60 percent of which is still steamed by coal-fired power plants.

Coal producers have doubted that they could meet EU demand. Bad weather and the challenges of opening new coal mines will not make it possible for Indonesia to fulfill that demand in such a short time. The government has set a 2022 coal production target of 663 million tons, but producers expect to see a shortfall.

Even if they could meet the target, exporting more at the expense of the domestic economy may also endanger the country's recovery from a pandemic-induced recession.

Cutting domestic coal consumption is also hard amid the country's slow progress in its energy transition. Renewable energy financing has been troubled due to a lack of clarity in regulations and the high costs of starting projects.

IEA reported that the financing costs of renewable energy in developing countries, including Indonesia, are up to seven times higher than in the United States and Europe, with higher levels of risk.

With all these troubles, in spite of its noble intentions of ending Indonesia's coal dependence and transitioning into renewable energy, the government should prioritize the welfare of the people.

Source: https://www.thejakartapost.com/opinion/2022/07/10/our-coal-conundrum.htm