Phasing-Out Coal in Indonesia
Phasing-Out Coal in Indonesia
Phasing-Out Coal in Indonesia
REMIND model results and bottom-up extrapolation for coal in South-East Asia.
Left: CO2 emissions for different scenarios (1.5C, 2C, NDC and Reference). “NDC” represents the first-round Nationally Determined Contributions, “Reference” the currently imple-
mented national policies. The grey area shows bottom-up extrapolation assuming no new coal project proposals. Right: coal phase-out in 2030 in percentage of the 2020 generation
for different scenarios and bottom-up extrapolation with varying assumptions on completion rates of new coal plant projects and lifetimes of existing plants. Extrapolation is con-
ducted using the Global Coal Plant Tracker January 2021 release and the IEA World Energy Balances 2017 edition.
Political economy Solutions
Analyzing the political economy of coal in Indonesia outlines Achieving a coal phase-out requires policies that consider
a number of key challenges for a rapid coal phase-out. political economy factors. Only recently, Indonesia has start-
ed discussing the goal of achieving carbon neutrality by mid-
Expanding the electricity infrastructure while sustaining low century. We propose three policy mechanisms to phase-out
electricity prices is a key policy objective. Despite the reduc- coal and foster renewables:
tion of electricity subsidies in recent years, political levy to
increase tariffs remains limited, despite the state owned util- i) Improve incentives for renewable energy projects: The
ity PLN being a loss-making entity. ramp-up of renewable energies requires regulatory cer-
tainty for investors. Specifically, it needs an adjusted
Providing public infrastructure, including power plants, is a power market structure that favors renewable energies
priority of President’s Joko Widodo administration. Of 35 GW by reducing regulatory barriers and avoiding frequently
envisaged power capacity additions, approximately 20 GW changing regulations. This would reduce financing costs
have been planned to be coal-fired power plants. In Indone- by lowering risk premiums, and thus the total costs of
sia, coal electricity is competitive, given that capital-intensive renewable electricity deployment. Energy companies in
renewable energy projects suffer from high interest rates. Indonesia would then obtain the opportunity to diversify
their business models towards renewable energies, and
Coal royalties are an important source of fiscal revenues. thereby compensate eventually decreasing coal profits.
That is true on the national, as well as on the sub-national
level, including resource-rich provinces, such as South and ii) Consider regional structural change: A fiscal reform that
East Kalimantan and South Sumatra. Strong financial incen- directs public funds towards affected coal-provinces is
tives exist to sustain coal mining as a key economic activity crucial. This applies, in particular, for coal-endowed re-
and source of public revenues. gions such as South- and East Kalimantan, and to a minor
extent South Sumatra, whose public revenues currently
Oligarchic structures and blurry lines between the political stem from coal production. Fiscal coal revenues could
and the economic elite related to coal and natural resources also be compensated by income from a carbon pricing
are widespread in Indonesia, with key political functionaries scheme, which may thereby increase the political sup-
at national and local level owning coal assets. In a context of port of sub-national governments for a coal phase-out.
decreasing coal exports this results in a strong bias of PLN
towards continuing and expanding domestic coal use. iii) Reform institutions: The Ministry of Forestry and Envi-
ronment needs to become a regulator of PLN, while PLN
Climate and environmental protection is framed as a forestry itself should be reformed to reduce its propensity for
issue. Politically, the responsibility lies mainly with the Minis- political capture. For such reforms to be implemented
try of Forestry and Environment, which has no possibility to successfully, they should be part of larger efforts to in-
address the high growth of carbon emission in the energy crease the institutional capacity of regulating bodies that
sector. control Indonesia’s energy policy and its power sector in
general. Furthermore, efforts to curb corruption and
mitigating vested interests in the coal sector are pivotal.
IMPRINT
Mercator Research Institute on Global Commons and Climate Change (MCC) gGmbH
MCC was founded jointly by Stiftung Mercator and the Potsdam Institute for Climate Impact Re-
search (PIK). Director: Prof. Dr. Ottmar Edenhofer. www.mcc-berlin.net/en
PEGASOS is a joint endeavor of the Westfälische Wilhelms-Universität (WWU), PIK and MCC.
Editing: Nico Bauer, Stephen Bi, Francesca Diluiso, Niccolò Manych, Nils Ohlendorf, Jose Antonio
Ordonez, Jan Steckel. Content derived from expert interviews analyzed by Ordonez et al. (2021):
‘Coal, Power and Coal-Powered Politics in Indonesia’. Environmental Science & Policy 123
(September): 44–57. https://doi.org/10.1016/j.envsci.2021.05.007
November 2021