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US, Japan & others to fund Indonesia’s transition to clean energy

Just Energy Transition Partnership’s $20 bn finance can help freeze the country’s per capita emissions at 2.4 tonnes by 2030

Most of the ‘developed’ western countries and Japan have come together to wean Indonesia away from polluting coal as a power source. The Just Energy Transition Partnership is co-led by the United States and Japan and was developed during the Group of Twenty (G20) summit.  

G20 summit commenced November 15, 2022, in Bali, Indonesia, even as the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change is trudging through its second week in Sharm El-Sheikh, Egypt.

The deal will provide $20 billion (Rs 1,62,481 crore) to help Indonesia move towards cleaner sources of electricity. The European Union and countries like Canada, Denmark, France, Germany, Italy, Norway and the United Kingdom are also part of the partnership.  

The $20 billion to Indonesia will be an equal mix of public and private funds and involve instruments such as “grants, concessional loans, market-rate loans, guarantees, and private investments” according to an official press release.


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Developing Southeast Asian economies such as Indonesia are rapidly industrialising. A large amount of foreign direct investment in developing Southeast Asian countries supports industries such as coal-fired power plants and steel and cement manufacturing, all of which are pillar industries with low investment risks and high rates of return. 

An August 2022 report had found some 41 of the 50 cities with the most severe increase in PM2.5 were found to be in India and nine in Indonesia.

The country is also the fourth most populous country in the world, following close behind China, India and the US. 

Indonesia and Norway had also recently agreed to start a new partnership in an effort to reduce carbon emissions from deforestation. The two countries had signed a memorandum of understanding September 12, 2022 to provide fiscal contributions based on verified emission reductions from deforestation and forest degradation.

The JETP is a model that was first announced at COP26 in Glasgow, first initiated as a pilot to help South Africa wean off coal power with $8.5 billion worth of funds from developed countries. Critics of JETP highlighted the fact that only 4 per cent of funds were offered in the form of grants to South Africa, while the rest was in the form of loans and guarantees. 

Indonesia aims to limit its power sector emissions to no more than 290 megatonnes (or million tonnes) of carbon dioxide (CO2) in 2030, conditional to receiving the funding. It will also aim to have 34 percent of power generated from renewable sources by 2030. 

The deal will also help the country achieve Net Zero emissions in the power sector by 2050. 

In 2021, Indonesia sourced 61 per cent of its power from coal. CO2 emissions from the power sector increased from 149 million tonnes in 2010 to 256.84 million tonnes in 2019. 

Capping its power sector emissions at 290 million tonnes in 2030 would result in 0.97 tonnes per capita of power sector emissions in 2030. The power sector comprised 41 per cent of total emissions, excluding land-use change in 2019, according to data platform Climate Watch. 


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Assuming the same for 2030, the JETP could cap per capita CO2 emissions for Indonesia at about 2.4 tonnes. Comparatively, if the US achieves its current nationally determined contributions, its per capita CO2 emissions will be 9.42 tonnes, while the same for Japan will be 5.94 tonnes.

Indonesia

2019

JETP – 2030

Population

270625567

299198000

CO2 emissions from power sector (in tonnes)

256840000

290000000

Per capita CO2 emissions for power sector (in tonnes)

0.95

0.97

Source: Compiled by CSE, data from Climate Watch and World Bank

Funding arrangements will be mostly private-to-private financial arrangements, a COP27 negotiator who did not wish to be named told Down to Earth. 

The Indonesian government will mostly be the facilitator. Any financial trouble for these companies could endanger the country’s energy security and needs, the negotiator added.

The negotiator agreed that a very small percentage of the finance would be grants. “The share of grants in the whole finance may range between 5 and 10 per cent,” they said. 

If this turns out to be true, the trouble would be that a very small percentage of the finance could be spent on the social impacts of this transition, which do not promise a return necessarily.

Yet Indonesia can benefit from the deal in ways that set it apart from South Africa. It has newer coal plants that need more money to phase down compared to South Africa, which has comparatively older power plants.

An eventual phase-out of coal would also affect the government’s revenue and the people associated with the supply chain (which includes the informal sector) and the JETP could be helpful for this, according to sources.


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Increasing pressures for climate mitigation are being placed on large developing countries like Indonesia, China and India. A phase-down of coal-based power will be inevitable, yet the finance needed for this transition is currently sparse. 

Indonesia should thus use this opportunity to fund the transition now rather than in the future, the negotiator added. 

“Indonesia is committed to using our energy transition to achieve a green economy and drive sustainable development”, said President Joko Widodo in an official statement. 

“We are grateful for the cooperation and the support from our international partners to realize its full implementation that will accelerate this transition. This partnership will generate valuable lessons for the global community and can be replicated in other countries to help meet our shared climate goals through concrete collaborative actions,” Widodo added.  

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