Stronger ties with Indonesia to boost climate action

By Irwansyah/Conrado M. Cornelius/Martin Baker. This op-ed was originally posted on China Daily.

China has the technological and policy expertise to facilitate Indonesia’s transition from fossil fuel-driven to clean, renewable energy-propelled development, and help it achieve sustainable, more equitable economic growth. Given its expertise, China can also become a key partner of Indonesia as the latter strives to achieve the United Nations’ Sustainable Development Goals and fulfill the Paris Agreement’s requirements.

By strengthening their partnership to refocus on “green economic recovery” from the COVID-19 pandemic, China and Indonesia can achieve win-win results and boost the global fight against climate change in the run-up to the UN Climate Change Conference in Glasgow in October-November and beyond when Indonesia assumes the chair of G20 in 2022.

While Indonesia has made some progress in harnessing clean and renewable energy resources, it needs to further improve the regulatory and policy framework required to attract the investment needed to switch from fossil fuels to clean, renewable energy. In this regard, China and Indonesia can work more closely to ensure Chinese investments, especially in clean energy, sustainable infrastructure development and sustainable mining, in Indonesia provide more benefits for local communities.

China has the technological expertise, policy know-how and rich experience of implementing large-scale clean energy projects, including solar and wind power projects. So Indonesia should redouble its efforts to offer the fiscal incentives necessary to attract investments and expertise from countries such as China.

These are some of the key findings of a study that assessed the impacts of Chinese investments in Indonesia’s energy sector and analyzed the ability of the two countries to achieve the SDGs and meet the Paris Agreement’s requirements. The study’s findings were released earlier this year. The study examined the impacts of Chinese investment on Indonesia’s energy sector, with special focus on coal-fired power plants, by using the SDG indicators, specifically No. 5 on gender equality, No. 7 on affordable and clean energy, and No. 13 on climate action.

As a developing country, it’s understandable that Indonesia relied heavily on cheaper coal-fired power plants for energy generation. Indonesia’s state-owned power utility PLN used to own and operate all the coal-fired power plants in the country, although it outsourced the construction of new plants to private domestic and foreign contractors.

This made investors and companies from China and other countries reluctant to invest in Indonesia’s coal-fired power plants.

But the situation changed in 2016 when Indonesian President Joko Widodo issued a regulation to accelerate electricity infrastructure development, and encouraged private investors to build, own and operate the power plants, with the ownership transferred to PLN at the end of each power purchase agreement term. Since then, much of Chinese investment in Indonesia’s energy sector has extended from finance and construction to power generation.

While China remains committed to achieving and helping Indonesia achieve all the SDGs, it is focused more on the fifth, seventh and 13th SDGs and the Paris Agreement’s requirements. On the other hand, the corporate sector’s focus is on SDG No. 7, partly due to the Indonesian government’s policy direction. Consequently, and with encouragement from the Indonesian government, Chinese investments in the energy sector have been focused on expanding the supply of electricity generated by coal-fired power plants.

But China can better use its technological and operational expertise in renewable energy to increase Indonesia’s capacity to produce clean energy.

Two coal-fired power plants built, operated and/or owned by Chinese companies on Indonesia’s most populous island, Java, were part of case studies, which showed the Chinese companies involved in the Jawa-7 and Indramayu-1 coal-fired power plant projects could make significant contributions to improving gender equality and empowering women.

Given successive Indonesian governments’ policy of prioritizing and subsidizing the extraction, use and export of coal, oil and natural gas, and their collective failure to incentivize and facilitate the development of clean, renewable energy, the Joko Widodo government faces an even greater challenge in achieving the fifth, seventh and 13th SDGs and meeting the Paris accord’s requirements.

The Chinese investors could help overcome this challenge by helping the Indonesian government shift investments from large coal-fired power plants and other unsustainable and carbon-intensive projects to decentralized clean, renewable energy projects.

Over the past year both China and Indonesia have committed to ambitious carbon neutrality targets. The findings and recommendations of the study can serve as a guide to both countries to refocus their strong partnership on harnessing Indonesia’s abundant clean energy resources, and ramp up action to achieve their SDGs and climate goals.

Irwansyah is a senior lecturer in political science at the University of Indonesia, and a senior policy analyst for Traction Energy Asia; Conrado M. Cornelius is an Indonesia-based environmental law expert and legal consultant, and a researcher at the Djokosoetono Research Center of the University of Indonesia; and Martin Baker is the director of Strategy and Communications, Traction Energy Asia.