This is the latest piece in a series on the COP26 climate summit and the danger Asia faces from global warming. Previous articles can be viewed here.
Asia’s efforts to reach international targets for greenhouse gas emissions cuts have come under pressure from powerful industrial lobbies, fossil fuel dependence and lack of investment in renewable energy sources in poor countries.
The trilogy has escalated as the region struggled with energy shortages and price increases in the run-up to last week’s COP26, the crucial United Nations climate conference in Scotland.
While many of the obstacles facing Asia are also seen in other parts of the world, their problems are extremely diverse. The region’s size, energy – intensive industries and large prosperity gaps make it a clockwork for the action needed to achieve decarburization targets.
Nikkei Asia looks at how the story of Indonesia’s coal dependence highlights a structural bloc for change in climate policy in Asia.
Indonesian miner Bukit Asam is trapped between a rock and a hard place. The 102-year-old state-owned company is facing increasing calls to shake off the core of its business: coal. But its renewable energy venture has hit a roadblock that is hampering greater efforts to make the world’s fourth-most populous nation greener.
Bukit Asam says he is eager to harness solar power, to take advantage of abundant loans available on favorable terms for renewable projects. But Bukit Asam could not get the state utility company Perusahaan Listrik Negara (PLN) to agree to buy its planned solar power production. This is a seemingly insurmountable obstacle as PLN monopolizes Indonesia’s power distribution network.
This article is from Nikkei Asia, a global publication with a unique Asian perspective on politics, economics, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 division provides in-depth coverage of 300 of the largest and fastest growing listed companies from 11 economies outside Japan.
The stalemate is hampering Indonesia’s pursuit of its promise under the 2015 Paris Climate Agreement to reduce its carbon emissions by 29 percent by 2030 using its own resources, or 41 percent if there is international support. The Ministry of Environment and Forestry claims Indonesia has achieved 24 percent of its total emission reduction target of 834 million tonnes of CO2 equivalent in 2017. No newer figure is available.
Bukit Asam’s switch to solar power should be an important part of the drive for further emission reductions. The company has already built several micro-solar power plants and is planning large-scale plants at large former mining sites on the islands of Sumatra and Borneo. China’s announcement in September that it would stop financing coal – fired power plants outside the country apparently strengthened the Indonesian company’s strategic logic.
Bukit Asam’s frustration is all the greater because PLN still has not agreed to buy the solar power. This is despite PLN’s latest 10-year procurement plan unveiled on October 5, in which renewable energy accounts for half of the additional 40.6 GW of power generation capacity to be added nationwide by 2030. This is a big jump from the 29 , 6 percent target in the previous iteration of the plan released in 2019. Under the new targets, solar capacity is supposed to increase fivefold to 4.7GW. The government has promised to achieve carbon neutrality by 2060.
PLN’s slow uptake of solar power stems in part from overambitious predictions in its previous power plant procurement programs. This led to a redevelopment of coal-fired facilities and consequent oversupply of Indonesia’s power grid.
The situation was further exacerbated by the economic slowdown in the coronavirus pandemic. This limited the demand for energy and thus the space for Bukit Asam to sell its solar power.
“[Bukit Asam] is quite ambitious with our targets for the development of solar power plant; we have included them in the company’s long-term plans until 2050, ”said Suryo Eko Hadianto, the company’s president. “But the declining growth projections for electricity demand are quite challenging.”
Indonesia’s dependence on coal power contributes to other obstacles facing its efforts to meet its Paris commitments. These include PLN’s opaque procurement processes, Indonesia’s low renewable technology capacity, and tariff and local content rules that are considered the cost of cleaner energy sources.
PLN has insisted it is committed to the government’s promise to be carbon neutral by 2060. President and CEO Zulkifli Zaini said last month that the company’s latest 10-year plan was the “greenest” to date. But he added that the acceptance of renewable energy had to take into account the supply and demand, readiness of infrastructure and the economy of the market. He also pointed to Indonesia’s limited domestic capacity to produce renewable energy and said the country should not remain a mere importer of renewable energy in the future.
The big picture is that Southeast Asia’s largest economy is a serious regional lag in solar power. It has only 154MW of total installed capacity: less than 1 percent of Vietnam’s 19GW, according to a report published in September by BloombergNEF and Jakarta-based energy think tank, the Institute for Essential Services Reform. The research attributes Vietnam’s solar boom over the past few years to favorable price guarantees for both large and small-scale producers – something Indonesia has not done.
Coal is expected to dominate Indonesia’s power mix after 2030, when PLN’s older plants will gradually begin to withdraw. Furthermore, the fuel remains a major export commodity: the country overtook Australia to become the world’s largest exporter in 2017.
The Asian Development Bank, with Indonesia and the Philippines, has partnered with a mechanism to accelerate the retirement of coal-fired power plants in Southeast Asia at COP26 on 3 November.
Indonesian Finance Minister Sri Mulyani Indrawati said the country needed an estimated investment of $ 5.7 billion a year to get the necessary amounts of renewable energy into operation. This will include compensation for coal-based independent power producers who have already signed long-term contracts with PLN.
Indrawati said Indonesia could not rely on the government’s budget alone to finance the transition, given other urgent needs such as infrastructure, education and health care. It seeks to raise the issue of financial shortages during its presidency of the G20, which will begin in December.
“Financing is going to be very critical,” Indrawati told a webinar on September 30, adding that she wants a “fair and affordable” transition. She said she would “convey the voice of countries like Indonesia that need to continue with development”, but at the same time acknowledged that they “can not adopt a development strategy that is heavy with CO2 emissions”.
“If you want to reduce coal, let’s discuss the business [side], “she said.” Because I, as finance minister, am talking about real money. “
But a recent outage between Indonesia and Norway has shown some of the complications when rich countries make large environmental investments in lower-income countries.
In 2010, Oslo committed $ 1 billion to support Indonesia’s efforts to reduce greenhouse gas emissions from deforestation and forest degradation, or REDD. Annual forest and peat fires on Sumatra and Borneo islands were one of Indonesia’s largest sources of carbon emissions. They also send striking atmospheric haze to other Southeast Asian countries.
But the Indonesian government announced on September 10 that it would end the REDD + partnership. It called for a “lack of concrete progress” in receiving unspecified results-based payments from Norway for Indonesia’s “performance” in reducing CO2-equivalent greenhouse gas emissions by 11.2 million tonnes in 2016-17. Norway has responded by saying it plans to pay £ 530m ($ 62m) for the 2016-17 deforestation action to the Indonesian Environmental Fund, a body only set up at the end of 2019. It said talks on the transfer were “ongoing” when Indonesia abruptly announced the termination.
The environmental group Greenpeace has expressed its concern about what the end of the agreement would mean for Indonesia’s commitments to reduce climate change. It said there remained a “serious lack of transparency” in the government’s approach.
“The Norway-Indonesia agreement was supposed to enable the two countries to contribute ‘beyond their fair share’ to ensure that the average global temperature rise is kept below 2C. Judging by progress so far. . . efforts under this partnership have fallen far short of achieving this, ”said Kiki Taufik, global head of Greenpeace’s Indonesian Forests campaign. “We need much more ambitious targets, and more international cooperation, not less.”
A version of this article was first published on October 30, 2021 by Nikkei Asia. © 2021 Nikkei Inc. All rights reserved