Can Indonesia ‘detox’ coal?
Immediately after Indonesia announced to reduce its dependence on coal to achieve its goal of becoming carbon neutral within the framework of the COP26 conference on climate change, many rich countries volunteered to support billions of dollars in exchange for commitment of the world’s largest coal exporter.
US and European officials also expect an agreement to be reached soon at the right time when Indonesia holds the Group of 20 summit of the world’s top economies (G20) in Bali this coming November, thereby creating an important premise for efforts to reduce emissions globally. This is also the driving force for the United Nations COP27 Conference to easily come to a consensus.
AMBITIOUS
However, for many experts, this is an ambitious goal. In fact, coal generates about 60% of Indonesia’s electricity. This type of fossil fuel has for many years also brought a huge source of revenue for domestic coal-exporting enterprises. In addition, supply disruptions and tensions following the Russia-Ukraine geopolitical conflict also increased demand for “black gold”, thereby pushing up share prices and profits for a variety of mining giants. .
Indonesia announced to reduce dependence on coal to achieve carbon neutrality goal within the framework of COP26 conference on climate change
Of course, this will make Indonesia less motivated to transition completely to renewable energy, but many rich countries are still betting that the upcoming agreements called the Energy Transition will help. Fossil fuel-dependent countries like South Africa and Indonesia have enough capital to accelerate the transition.
However, the country itself is divided, due to a backlog of demand for coal. Some are hoping to close coal plants; Others want to continue to invest and grow them, according to Jake Schmidt, senior director of strategy at the international climate program.
“That is not what the donor countries want. They want to stop coal production and gradually reduce production, but a part of the Indonesian government is not really enthusiastic about that,” Schmidt said.
Earlier, during the COP26 conference, Indonesia pledged to cut emissions by 29% unconditionally by 2030. The country also adopted the Strategy for Climate Change and Low Carbon Adaptation to 2050. . into renewable energy sources. Accordingly, no new coal-fired power plants will be approved by the government.
A Wayang Windu geothermal power station in West Java
That said, these goals will be difficult to achieve if Indonesia does not reach agreements with rich countries and lacks mandatory regulations on the transition to clean energy.
One study found that Indonesia would need to invest between $150 and $200 billion a year in low-carbon programs between now and 2030 to achieve its net zero emissions target. Without a comprehensive strategy, It is very difficult for this transition to happen, according to Stephan Garnier, a leading expert on energy at the World Bank.
“HEART” OF THE ECONOMY
According to experts, Indonesia is among the few countries that can make a big difference in the fight to limit climate change. Southeast Asia’s major economy now has the world’s fourth-largest population and second-largest global coal producer. Coal production began to soar in the 1990s, when Indonesia predicted a boom in demand and increased investment in “black gold”. By 2020, electricity production has increased more than fivefold in nearly two decades thanks to new capacity coal plants.
By 2020, Indonesia’s electricity production has increased more than 5 times after nearly two decades thanks to new capacity coal plants
However, according to the National Reform Institute, because demand growth has not kept pace with supply, Indonesia’s electricity surplus is up to 40%. This makes the domestic cost of coal power much lower than the market price and gradually depletes the renewable energy source.
Indonesia’s 2030 target is to reduce emissions by 29% to 41%. To do this, the government needs to shut down old power plants as soon as possible and reduce subsidies. Support from rich countries is also essential for this goal to be easily realized.
However, even if all goes well, Indonesia still has its own problems to overcome. The government requires coal mining companies to sell at least a quarter of the domestic supply at a maximum price of 70 USD/ton, while the market price falls around 400 USD/ton. That means companies like Perusahaan Listrik Negara (PLN) can generate electricity from coal very cheaply, much less than the cost of generating electricity from clean energy. With a maximum price of 70 USD/ton, PLN can import more coal when demand is high without fear of input price increase. No matter how cheap solar power is, it can’t be compared to coal.
Solar energy no matter how cheap it is, it can’t be compared to coal
Therefore, coal is still considered the “heart” of the Indonesian economy, when the output is exploited at a record level. Even with the suspension of new projects, active coal-fired power plants will still add 14 GW of capacity from 2021-2030.
In the East Kalimantan coal mining region, coal contributes nearly half to the economy, according to Tumiwa at IESR. Rising demand after the Russia-Ukraine conflict sent mining companies’ shares soaring, with miner PT Adaro Minerals Indonesia seeing a galloping gain of more than 1,500% since the start of the year.
“Countries have always relied on available resources to increase electrification rates and promote economic growth. In Indonesia, that resource is coal,” said Caroline Chua, analyst at Bloomberg NEF.
Indonesia has the potential to meet the world’s electricity demand from renewables, according to an IESR study last year, but it doesn’t have many solar panels and has barely begun harnessing wind energy. and geothermal.
Indonesia announced it would shut down some power plants earlier than expected
Instead, the Asian Development Bank said it has outlined a multi-billion dollar plan to help Indonesia and the Philippines decommission 50% of coal plants within the next 10 to 15 years. Indonesia also announced that it will shut down some power plants earlier than scheduled as its previous commitments.
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