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Indonesia needs $200bn a year until 2030 for net-zero emissions

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Nikkei Asia - October 20, 2021

Shotaro Tani, Jakarta – Indonesia will need $200 billion per annum in the next decade and over $1 trillion annually in the next four decades to achieve its target of net zero carbon emissions by 2060, a recent government study showed, highlighting the need for massive financing in a country heavily reliant on coal.

The 108-page report was issued by Bappenas, a ministry responsible for national development planning, in light of carbon dioxide reduction development "tak[ing] a backseat following economic and social challenges resulting from the COVID-19 pandemic" despite it being a pillar of the country's mid-term national development plan, the report said.

The study found that significant financing will need to be made to transform Indonesia into a net-zero economy by 2060, both in terms of shifting existing investments and new sources of finance.

From 2021 to 2030, the report said overall investment needs will amount to an average of $150 billion to $200 billion per year, $700 billion to $1 trillion per year in the next decade, $1.3 trillion to $1.6 trillion per year in 2041 to 2050, and $2.1 trillion to $2.2 trillion per year in the two decades after.

Funds to finance the transition can come from the phasing out of fuel subsidies as well as carbon pricing, which could generate savings and new revenues equivalent to 2.2% of gross domestic product in 2030, the report said. Indonesia recently passed an overhaul of tax regulations, introducing a carbon tax scheme.

The report also said that with "appropriate regulatory reforms, as well as de-risking measures such as guarantees, joint operations and public-private partnerships" the country can facilitate private investment as well, especially in this decade and the next, when Bappenas expects investment needs to peak.

The funding need highlights the mammoth task Indonesia faces in shifting away from coal, a key commodity for the country. The archipelagic country is the world's largest thermal coal exporter, bringing valuable revenues to state coffers. It is also the cheapest mode of electricity, with 50% of the country's energy coming from coal.

Indonesia ranked 54th in the World Energy Council's environmental sustainability ranking this year.

Still, with the phasing out of coal becoming a priority around the world to arrest global warming, the Indonesian government is also looking to wean its dependency on the commodity.

State utility Perusahaan Listrik Negara, or PLN, announced a new electricity procurement plan for the next decade in early October, that includes up to 500 trillion rupiah ($35 billion) for the development of renewable energy-based power plants, and company executives stating that there will be no more new thermal power plants in 2028 and beyond.

The procurement plan also said three coal-fired power plants totalling 2,660 megawatts have been "postponed due to adjusting system requirements." That includes the planned, Japan-backed expansion of a power plant in Indramayu regency in West Java, which has come up against staunch opposition from environmentalists saying it will endanger the livelihoods and health of the local population.

Private businesses are also slowly making the transition away from coal, with miners like Adaro Energy and Indika Energy moving into the renewables energy sector, while local media reported that a geothermal subsidiary owned by local petrochemical conglomerate Barito Pacific is looking for an initial public offering.

"With various interventions and investment policies on low carbon development to achieve net zero emissions, we can create up to seven to 10 times more jobs, more than conventional investments," said Arifin Rudiyanto, deputy head of maritime affairs and natural resources at Bappenas, when the report was released mid-October.

"This is driven by jobs created from the development of new and renewable energy, energy efficiency, nature-based solutions, and other low-carbon development activities that are more labor-intensive than gray or brown investments," he added.

Apart from investment, Indonesia will need technology transfer to achieve net zero carbon emissions, said Fabby Tumiwa, executive director at energy and environment think tank Institute for Essential Services Reform. "Currently, green power generation technologies such as solar cells and wind turbines are still from developed countries...[so] the first step can be in green power plants so that we can develop the industry domestically," he said.

"Utilization of the [annual] mobilization of $100 billion in the Paris Agreement can certainly be used in addition to bilateral cooperations, because many are interested in collaborating with Indonesia for this low carbon issue," he added, referring to the commitment made initially in 2009 and reiterated in 2015 by developed countries to help developing nations.

– Additional reporting by Ismi Damayanti

Source: https://asia.nikkei.com/Spotlight/Environment/Climate-Change/Indonesia-needs-200bn-a-year-until-2030-for-net-zero-emission

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