The Just Energy Transition Partnership (JETP) between Indonesia and its major trading partners risks stifling Indonesia's progress in phasing out coal if it does not provide a clear definition of green projects. The JETP must ensure that all projects funded under the agreement meet the globally agreed goals of achieving net zero emissions by 2050.
The JETP Foundation has committed to phase out all coal-fired power plants by 2040, to reach net zero by 2050. Indonesia plans to abandon approximately 5.5 gigawatts of electricity . However, in the same period, Indonesia will build 12.8 GW of new coal-fired power plants in its industrial parks, which will result in huge carbon pollution, according to Trend Asia research.
Coal-fired power plants located in industrial parks are called "captive" coal-fired power plants. It makes no sense for Indonesia and the world's climate goals to allow coal-fired power plants under current regulations.
The International Energy Agency says no new coal-fired power plants can be approved after 2021 if the world is to have a chance of limiting global warming to 1.5 degrees and avoiding climate catastrophe.
Just a few days ago, a new coal-fired power plant was financed. The Adaro coal-fired power plant is being financed by five Indonesian banks, including Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia, to power a giant aluminum plant in North Kalimantan.
Presidential Regulation 112/2022 , which was originally intended to accelerate the deployment of renewable energy by limiting the development of new coal projects, ironically targets the development of captive coal power plants. The regulation allows new coal-fired power plants to pollute as long as they are connected to an industrial facility.
Investments in renewable energy are increasing, but must be made more urgent if companies want to implement large green industry projects. There is increasing evidence that renewable energy is economically viable.
The global energy transition is accelerating due to the rush to build solar and wind farms. As the International Energy Agency notes , the demand for minerals needed for renewable energy is growing rapidly .
To achieve net zero emissions by 2050, it is critical for Indonesia to meet its growing energy demand through clean and fair energy sources. Currently, most of Indonesia's energy needs are still met by dirty fossil fuels.
The Just Energy Transition Association emphasizes that the development of coal-fired power plants should be limited by an Indonesian presidential regulation that allows the construction of new coal-fired power plants.
The partnership agreement between Indonesia and its major trading partners commits to "finding and implementing potential zero-emission and renewable electricity generation solutions." However, JETP's public and private investors have no clear limits on new coal plants in favor of renewable energy alternatives.
As Indonesia moves towards a renewable energy future, it is important that JETP sets a clear definition of green projects that excludes new coal-fired power plants connected to industrial facilities. It is completely unacceptable that smelter projects that produce and recycle raw materials for electric cars or solar panels can be called "green" when working with new coal-fired power plants.
Adaro Energy's aluminum smelter in an industrial park in North Kalimantan has recently come under fire from a broad coalition of environmental organizations for using a green label on the company's new coal-fired power plant . The coal company recently clarified that its green label will only apply after the hydroelectric plant for the Kalimantan Industrial Park is ready for operation in 2030.
It makes no sense that JETP can finance smelters and build new coal-fired power plants under the guise of a green economy. Indonesia risks moving in the wrong direction as governments around the world grapple with rampant climate change. Clear safeguards must be in place to exclude any new coal plant fed smelters. The cost of neglecting coal plants is too high for the economy and the environment. Important progress made by closing coal-fired power plants is at risk. At stake are the reputations of key international treaties, JETP and the International Partners Group.
The same rules will apply to members of the Glasgow Finance Alliance for Net Zero (GFANZ), which is expected to provide half of JETP's $20 billion in financing . The alliance consists of the world's leading banks such as MUFG, Standard Chartered, HSBC, Bank of America, Citi and Deutsche Bank. These banks must refrain from new coal-fired power plant-based smelting projects to comply with the JETP principles.
If IPG and GFANZ do not have a clear position on new coal-fired power plants, it will send a message to the Indonesian government that such polluting events are acceptable and in line with the net zero emissions targets of the Paris Agreement. For example, HSBC's financing policy makes clear that the bank will not finance new coal-fired power plants, providing a benchmark for public and private JETP investors.
Indonesia must make a decision in the long-term interest of its economy and climate.
Strict safeguards must be put in place to achieve net zero emissions by 2050; Otherwise, JETP funds could be misused to harm development and jeopardize progress towards global climate goals before it is too late.
