Indonesia signed deals with international lenders and major nations on Tuesday that will bring in billions of dollars in funds to help the country increase its use of renewable energy and reduce its reliance on coal.
The $20 billion deal was announced on the sidelines of the Group of 20 summit in Bali, Indonesia. Called the Just Energy Transition Partnership, or JETP, it is meant to help developing countries reduce their reliance on fossil fuels like coal and gas that cause carbon emissions that contribute to climate change.
It’s an important step for Indonesia, a major coal exporter that has great potential to develop cleaner energy.
“In today’s world, climate change is a global emergency,” said Luhut Binsar Pandajaitan, Indonesia’s Coordinating Minister for Maritime Affairs and Investment. “Indonesia has an important role to play in avoiding the worst impacts of climate change on our countries, our people and the environment.”
Participating governments—the United States, Japan, Canada, Denmark, the European Union, France, Germany, Italy, Norway, and the United Kingdom—will provide a total of approximately $10 billion in concessional loans, grants, and equity. Major private global financial institutions that previously pledged to support climate investment will do the rest, US officials said.
As part of the agreement, Indonesia has pledged to ensure that emissions from the country’s power sector begin to decline by 2030. The country has stepped up its goal of making the entire power generation sector emission-free by 2050.
“Indonesia’s energy transition plans will send a very strong signal not only in Asia-Pacific but also in the world that Indonesia is a world leader in just and affordable transition from fossil fuels to clean energy,” the minister said. of Finance of Indonesia, Sri Mulyani Indrawati.
US climate envoy John Kerry said the US and Indonesia have been laying the groundwork for the deal since the early days of President Joe Biden’s administration.
“We have wrestled with countless issues to arrive at today’s groundbreaking announcement,” Kerry said. The deal “can really transform Indonesia’s energy sector from coal to renewables and support significant economic growth,” she said.
South Africa was the first country to sign a JETP agreement, during last year’s climate conference, COP26, in Glasgow. It calls on the major G7 countries to provide $8.5 billion in concessional loans and grants to help the coal-rich country reduce its use of fossil fuels.
Citing lessons learned from the South African deal, US officials said the package with Indonesia is on tight, short deadlines, will start soon and will keep stakeholders informed.
The Indonesian deal is the biggest yet, reflecting the country’s heavy reliance on coal. Indonesia is the third largest coal producer in the world and the average age of its coal power plants is only 12 or 13 years. These plants can remain operational for up to 45 years.
The effort to form JETP reflects recognition that developing countries are suffering disproportionately from climate change, said Swati D’Souza, an energy analyst at the New Delhi-based Institute of Energy, Economics and Financial Analysis.
“Therefore, we need financing and money from the Global North to help with the transition of the Global South to clean energy,” D’Souza said. “JETPs are a method of providing the required money.”
Other coal-rich developing economies are watching deals with South Africa and Indonesia progress. India, the world’s third-biggest emitter of gases that warm the planet, Vietnam, Senegal and the Philippines are considering signing similar deals.
Putra Adhiguna, an IEEFA energy analyst in the Indonesian capital Jakarta, noted that a transition to alternative energy sources could be “low hanging fruit” for many places in the archipelago of more than 17,000 islands. However, since Indonesia already has excess power generation capacity, there is less incentive to switch to cleaner sources. “This is another problem that energy transition agreements need to address,” Putra said.
The biggest concern is that such fixes may be too little too late.
“Relative to what needs to be done now, when the world is in the middle of a polycrisis, these deals are a blow,” said Sony Kapoor, a professor of climate, geoeconomics and finance at the Florence-based European University Institute. . “It is commendable that these agreements acknowledge the issues at hand but, at the same time, the funding is inadequate and restricted by design to a few countries.”