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Writer's pictureGeni Buana Nusantara

Indonesia’s Pathway to Net-Zero: Strategies for a Sustainable Energy Transition



The Indonesian government has shown a strong commitment to achieving net zero emissions (NZE) by 2060, or even sooner, and a roadmap is currently being developed to deal with the challenges and risks of climate change in the future. To realize the zero emission target, the government is implementing five main strategies, namely accelerating the adoption of new renewable energy (NRE), reducing the use of fossil energy, expanding the use of electric vehicles in the transportation sector, encouraging the use of electricity in households and industries, and developing Carbon Capture and Storage (CCS) technology.

 

By 2027 LPG imports will be halted, and by 2030 renewable energy will make up 42% of national electricity needs, with solar power as the main contributor. The government targets the gas network to reach 10 million households. There are 2 million electric cars and 13 million electric motors in operation, and electricity consumption per capita reaches 1.548 kWh. Another important step is the early retirement of all subcritical power plants by 2031, followed by inter-island electricity interconnection from 2035. In 2040, the renewable energy mix will reach 71%, diesel power plants will no longer operate, 70% of lighting will use LED, conventional motor sales will be stopped, and electricity consumption per capita will reach 2.847 kWh. By 2050, renewable energy is expected to reach 87%, with no more sales of fossil fuel cars, and electricity consumption per capita increasing to 4.299 kWh. Towards 2060, the target renewable energy mix reaches 100% with the dominance of solar and hydropower, the gas network reaches 23 million households, 52 million electric stoves are used, and electricity consumption reaches 5.308 kWh per capita.

 

Moving towards zero carbon by 2060 or sooner, Indonesia faces a number of major economic, social and technological challenges. Dependence on fossil energy, especially coal, still dominates, while the transition to renewable energy requires substantial costs and new infrastructure. In addition, funding and investment for renewable energy projects, carbon capture technologies, and infrastructure development are challenging, with investment risks often hampering. Technology development, such as solar PV and biomass, requires higher efficiency and reliance on imported components. Infrastructure limitations, such as networks and interconnections between islands, as well as a lack of local experts, also hinder acceleration. Appropriate regulatory support, education and public acceptance are key factors in the success of this transition. In addition, environmental adaptation challenges, such as natural disasters, also affect the sustainable management of renewable resources.

 

Indonesia continues to strengthen its commitment in the energy sector by developing various mitigation strategies, such as implementing Energy Efficiency, increasing the use of New and Renewable Energy, developing Low Carbon Fuels, and implementing clean technology in power generation. These steps are taken to significantly reduce carbon emissions. By mid-2020, Indonesia managed to reduce emissions by 63 million tons of CO₂e from the target of 67,5 million tons of CO₂e. Future ambitions are even higher, with plans to achieve reductions of 198,27 million tons by 2025 and 314 million tons by 2030. These targets are aligned with the International Maritime Organization's (IMO) vision to reduce greenhouse gas (GHG) emissions from the maritime sector by 30 percent from 2008 levels by 2030, and achieve an 80 percent reduction by 2040.

 

Carbon Capture and Storage (CCS) is a key technology in global warming mitigation efforts that aims to reduce CO₂ emissions into the atmosphere. It involves a continuous process of capturing CO₂ from flue gas at the source of emissions, transporting it to a storage location, and safely storing it underground. The CO₂ capture process uses the absorption method, which has long been recognized in industry, and is commonly used in hydrogen production on both laboratory and commercial scales. Transportation is carried out using pipelines or tankers similar to the transportation of other gases (such as LPG and LNG), while storage is carried out in underground rock layers that are able to hold the gas from returning to the atmosphere or even injected into the sea at a certain depth. According to the International Energy Agency (IEA), fossil fuel combustion accounts for about 56% of total global emissions, with about 7.500 large installations emitting more than one million tons of CO₂ per year. Of these, coal-fired power plants are the largest contributor, accounting for more than 60% of total emissions, followed by gas-fired power plants with 11%, and diesel power plants with 7%. Therefore, capturing CO₂ from power plant flue gases makes sense for massive emissions reductions. However, these flue gases are generally low-pressure with low CO₂ concentrations, requiring additional high-energy processes for separation. While CCS holds great promise for application to fossil fuel power plants and other large industries, several challenges still need to be overcome, such as technological improvements, legal regulations and funding. This solution can have a major impact on emissions reductions, but its success depends on improving the efficiency and effectiveness of available technologies.

 

The Indonesian industry associations listed below are committed to supporting the achievement of Indonesia's net-zero emissions target for the industrial sector by 2050, through various climate mitigation and adaptation efforts. As a contributor to 18,67% of Indonesia's GDP in 2023 and the largest energy user, the industrial sector plays a key role in the transition to a low-carbon economy. Reducing emissions is no longer an option, but a necessity, especially as international markets increasingly emphasize the importance of low-emission practices for competitiveness. Demand for disclosure of emissions information and sustainability criteria is increasing, and at the national level, industries are also encouraged to follow government policies on emissions reduction. To survive in this environment, the industry needs to be prepared for the risks of an accelerating market transition. While the transition to a low-carbon economy poses new challenges for the industry, it can also be seen as a great opportunity. With a commitment to decarbonization comes the need for adequate capital and ecosystem support. It is important for the industry to be proactive in mitigating these risks to support the transition agenda. To advance climate action and strengthen the industry sector's strategic role in supporting Indonesia's climate commitments, there are four key action steps:


  1. Action 1: Emissions Reduction and Transparency

    Understanding that the first step to decarbonization is knowing the amount of emissions and their sources. Therefore, the association is committed to supporting members to:

    - Develop industry capacity to measure and reduce emissions across the supply chain.

    - Set impactful emission reduction targets to achieve net zero by 2050, while supporting Enhanced Nationally Determined Contribution (ENDC).

    - Promote transparency and accountability in decarbonization through reporting progress on credible platforms with applicable standards.


  2. Action 2: Support Diversification of Renewable Energy and Clean Technologies

    Industry will play a major role in increasing the demand for renewable energy for electricity and thermal energy with the following actions:

    - Increase the adoption of renewable energy through options such as renewable energy certificates, renewable energy technologies, and Green Energy as A Service (GEAS).

    - Make technology adjustments or updates to support decarbonization initiatives as per the industry roadmap, and seek to gradually replace them with low-carbon technologies.

    - Advocate for high-quality climate solutions and technology options that meet sustainability standards.


  3. Action 3: Deliver a Reliable Financing Mechanism for Decarbonization

    The high cost challenge of decarbonization requires financial support.

    - Fiscal and non-fiscal incentives to facilitate decarbonization investment in the industry, to make it more attractive and affordable.

    - Development of innovative financial instruments with lower interest rates and in line with industry capabilities, including MSMEs, to encourage wider participation.


  4. Action 4: Promote Policy and Market Ecosystem for Low Carbon Products

    The success of low-carbon products depends heavily on regulation and market demand.

    - Harmonize emission reduction standards across ministries with international practices, and require phased emissions reporting for industry.

    - Encourage emissions trading by setting emissions limits for selected industries, as well as carbon offset incentives tailored to each sector's progress.

    - Improve the competitiveness of low-carbon products in the domestic market through government-led policies.

    - Assist national industries to respond to emissions-related cross-border trading policies (such as EU CBAM, Australia BCA) to ensure industry readiness in the global market.

 


Role of International Cooperation in Accelerating the Transition



The role of international cooperation is critical in accelerating the transition to a sustainable future. Countries around the world face similar environmental and energy challenges, and only by working together across borders can we achieve faster and more effective solutions. Through international partnerships, countries can share knowledge, technology and resources to accelerate the adoption of renewable energy, improve energy efficiency and mitigate the impacts of climate change. The Government of Indonesia continues to strengthen its commitment to address the challenges of climate change and sustainable development. One of the strategic steps taken is by launching the Green National Medium-Term Development Plan (RPJMN 2020-2024) in 2020, which sets Low Carbon Development and Climate Resilience as national priorities, in line with the Sustainable Development Goals (SDGs). There is a national Platform Partnering for Green Growth and the Global Goals (P4G), launched in 2020, supporting the national agenda through creative financing and multi-stakeholder collaboration, particularly through the SDGs Financing Hub.


On November 16, 2022, the Government of Indonesia and the International Partners Group (IPG) launched the JETP (just energy transition partnership) on the sidelines of the G20 Summit in Bali. The IPG consists of Japan, the United States as the lead, as well as Canada, Denmark, the European Union, Germany, France, Norway, Italy, the United Kingdom and Northern Ireland. With an initial commitment of US$20 billion of which US$10 billion is from the IPG and another US$10 billion will be leveraged from private finance by the Glasgow Financial Alliance for Net Zero (GFANZ)- Indonesia's JETP is the largest energy transition financing package in the world today. The aim is to develop a Comprehensive Investment and Policy Plan (CIPP), which will be led by the JETP Secretariat as a “living document” that is continuously updated as markets and policy priorities evolve.

 

In addition to the JETP, there is the Energy Transition Partnership (ETP), which is funded by contributions from various international organizations and governments, including the European Union and global financial institutions. This funding aims to help countries in Southeast Asia accelerate the renewable energy transition, improve energy efficiency, and strengthen policies that support the energy transition. In the energy transition sector, Indonesia and Australia strengthen cooperation through the Climate, Renewable Energy and Infrastructure Partnership (KINETIK) program. This program was established through the signing of the Exchange of Letters for the Indonesia-Australia Economic Partnership Program (Prospera), as part of the Climate and Infrastructure Partnership (CIP) Agreement agreed in 2022. Australia has provided a USD 200 million grant to KINETIK, with the aim of accelerating investment in the energy transition sector through policy reform in Indonesia. Indonesia is also active in a range of international collaborations to support clean energy and environmental conservation, including through REDD+ (Reducing Emissions from Deforestation and Forest Degradation) which focuses on reducing emissions through forest conservation with the support of partner countries and global institutions. A number of international funding initiatives are also working together in Indonesia to accelerate the energy transition.

 

Case Study of Industry’s Pathway to Net-Zero

This commitment is a strategic step to support the low carbon transition in Indonesia's industrial sector, strengthen competitiveness and ensure sustainability. By 2022, PT Multi Bintang Indonesia (MBI) set an ambitious target to achieve net zero emissions in its production process. To achieve this, the company maximizes the circularity of products and production processes, and focuses on improving the quality of local watersheds. Based on MBI's 2023 annual report, the company managed to reduce CO2 emissions by 17% compared to 2018, as part of the company's commitment to reducing greenhouse gas emissions.


Source: Annual Report PT Multi Bintang Indonesia (MBI), 2023


According to the same report, by 2023, biomass plants account for 28% of the total energy used for production. To support the energy transition, MBI follows HEINEKEN's global vision, adapted locally for Indonesia, with a focus on carbon and water circularity. The company's internal energy transition roadmap in Indonesia has been developed based on the global vision and supported by government regulations that help drive this transition process. The company's vision and mission are consistently aligned with HEINEKEN's targets, which have been implemented and reported on.

 

Internally, the company's initiatives have been adapted to the specific conditions in Indonesia, especially in terms of carbon and water management. In terms of carbon emission reduction, government regulation is an important factor that also addresses emission reduction in scope 1 to scope 3. Ultimately, the main goal remains to achieve significant emission reductions. The role of government regulation is expected to become more centralized in supporting this energy transition.

 

The impacts of MBI's efforts towards net zero include achieving carbon neutrality, sustainable water circulation in the production process, and preserving healthier watersheds. MBI's Brew a Better World (BaBW) 2030 strategy is based on three main pillars: environment, social, and responsibility. One of the key initiatives related to the environmental pillar is the implementation of low-carbon microgrids. MBI set nine sustainability-related ambitions, including:

1.Achieving Net Zero Carbon

  • Achieve net zero across our entire value chain by 2040.

  • Achieve net zero in scopes 1 and 2 by 2030.

  • Reduce scope 3FLAG (forest, land and agriculture) emissions by 30% and non-FLAG by 25% by 2030.

2.   Maximizing Circularity

  • 43% of volumes sold in reusable formats by 2030.

  • 50% recycled content of bottles & cans by 2030.

  • 99% of all packaging recyclable by design by 2030.

3.   Towards Healthy Watersheds and Nature

  • Offset water use in water stressed areas by 2030.

  • Reduce average water use to 2.6 hl/hl in water stressed areas, and 2.9 hl/hl globally by 2030.

  • Ensure 100% of raw materials, such as hops and barley, come from sustainable sources by 2030.

 

In developing sustainability projects, MBI receives support from the local government. For example, local residents help collect raw materials which are then delivered to MBI's facilities, and biomass combustion products, such as ash, are distributed to farmers' cooperatives as fertilizer. Although this project cannot yet be fully measured through the company's KPIs, MBI remains committed to making a positive impact, both economically and environmentally, through its corporate social responsibility (CSR) program.

 

Multi Bintang Indonesia (MBI) has operated two biomass facilities in Sampangagung and Tangerang that use rice husk as fuel. In addition, the company managed to increase renewable energy consumption to 64% in its production process by 2022, which also supports efforts to reduce CO2 emissions. As part of its commitment to sustainability, MBI also managed to reduce CO2 emissions by 17% by 2022 compared to 2018, demonstrating concrete steps in reducing the environmental impact of the company's operations.

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