Indonesia weakens coal ban due to lack of climate financing

Indonesia has scaled back its plans to close coal-fired power stations more quickly after calls for rich countries to help with subsidies fell on deaf ears.

At the G20 summit on Bali island in December last year, Indonesia and a group of wealthy countries announced a $20 billion deal to phase out coal in favor of clean energy.

Just transition

But the details of the plan remained rather vague. Indonesia insists that the financiers of that transition provide subsidies instead of loans. The latter would further increase the country’s debt burden.

Last week, Indonesia published its investment plan, which showed that the Southeast Asian country had weakened some of its climate commitments.

According to Fabby Tumiwadirector of the Institute for Essential Services Reform (IESR) and member of a working group advising the Indonesian government, the reason for this was that funding from international partners was insufficient.

“I am disappointed because we expected that the plan could be aligned with the goals of the Paris Climate Agreement,” says Tumiwa. ‘This pushes the just energy transition further away from that.’

“It is very clear that Western countries are not eager to provide financing to accelerate the phase-out.”

Goals watered down

An earlier draft plan said Indonesia would close a sixth of its coal-fired power plants by 2030. But that objective was removed from the final version. Instead, Indonesia now wants to close coal-fired power stations by 2035 at the earliest.

The country is planning a large-scale expansion of renewable energy sources and will reduce the capacity of existing coal-fired power stations to meet its 2030 emissions reduction target.

In September, an Indonesian government official told the news agency Reuters: ‘It is very clear that Western countries are not eager to provide financing to phase out more quickly.’

The government has also dropped a target for energy sector emissions to peak at 290 million tonnes of CO2 per year by 2030.

Self-managed power stations

Although the new target of 250 million tonnes seems more ambitious, Tumiwa says it is not because it excludes coal-fired power stations known as “captive plants”. These are sector-specific power stations that do not supply electricity to the general public, but supply specific industries, such as the rapidly growing nickel sector in Indonesia.

The plan unveiled last week completely ignores these specific power stations. The text states that ‘more work is needed to develop a viable decarbonisation plan’ for these plants.

It was this issue that previously delayed the plan’s publication. The problem is that wrong assumptions were used in the models to calculate the feasibility of the objectives.

‘The number of captive plants is much higher than previously thought,” Tumiwa said.

As a result, achieving the important peak emissions target promised in the original commitment is “extremely difficult”, as the document now acknowledges.

“The Indonesian energy sector, taking into account the full extent of off-grid electricity, is likely to exceed this target,” it said.

Subsidies make up only 2.5% of the financing.

Loans, not subsidies

Despite Indonesia’s complaints, the investment plan reveals that the vast majority of financing is in the form of loans. Subsidies make up only 2.5% of the money.

About three-fifths of the money consists of loans on better than commercial terms, while the rest consists of bank guarantees and ordinary loans at commercial interest rates.

The US is the largest lender, but financing is dominated by commercial loans and a guarantee from a multilateral development bank.

The European Union and member states such as France and Germany – as well as Canada – provide grants and loans on favorable terms.

The investment plan can still be consulted publicly and is not yet final.

This article originally appeared at IPS partner Climate Home News.