Indonesia, the world’s largest archipelago with over 17,500 islands, is a nation blessed with extraordinary natural beauty and abundant resources. Situated between the Pacific Ocean and the Indian Ocean, Indonesia’s diverse climate and topography make it a ‘biodiversity hotspot,’ with vast tropical forests and marine habitats. However, this very diversity also makes Indonesia highly vulnerable to the impacts of climate change. With an extensive coastline and millions of people living in low-lying areas, Indonesia is among the most exposed countries to sea level rise and various other weather-related disasters.

Indonesia’s geographical location and unique landscape make it susceptible to the adverse effects of climate change.

Rising sea levels threaten coastal communities, and extreme weather events like forest fires, landslides, storms, and droughts have caused significant damage to infrastructure and ecosystems. The recent El Niño weather pattern has resulted in an extended dry season, affecting rice production and causing food price spikes, highlighting the urgency of climate action.

Indonesia’s economic development over the past two decades has been remarkable, with GDP growing from USD 1.65 billion in 2000 to USD 1.19 trillion in 2021. However, this growth has relied heavily on the extraction of natural resources, particularly coal. Land-use change and forestry, energy, agriculture, waste, and industrial processes together contribute to the country’s greenhouse gas emissions. According to the World Resources Institute (WRI), 82% of Indonesia’s total emissions come from these sectors. In 2021, President Joko Widodo (Jokowi) signaled a commitment to a net-zero agenda as part of the national development strategy. The Long-Term Strategy released that year set a 2030 goal of reducing GHG emissions by 30% (or 40% with international support) and achieving net-zero emissions by 2060.

In September 2022, President Jokowi issued a Presidential Decree on Renewable Energy, leading to the early retirement of certain coal plants and implementing a new pricing system to encourage investment in renewables such as geothermal, hydro power, and solar power.

With Indonesia possessing 25% of the world’s geothermal potential, these policies gained support from climate activists and the international community. Indonesia’s vast nickel reserves are critical for electric vehicle (EV) batteries. The government banned the export of unprocessed nickel in 2020, aiming to attract investment into domestic downstream processing. This policy shift has successfully attracted foreign and private investments into the domestic EV industry. Over the past three years, Indonesia has signed deals worth over $15 billion with global manufacturers like Hyundai, LG, and Foxconn, positioning itself as a potential global hub for EV production.

Indonesia’s green transition offers numerous opportunities for sustainable economic growth, climate resilience, and a cleaner environment. The country’s rich natural resources, commitment to renewable energy, and the burgeoning EV industry make it a key player in global efforts to combat climate change. However, challenges remain, including the need for infrastructure development, funding for renewable projects, and addressing social and economic disparities. Additionally, ensuring that the green transition benefits all segments of society and safeguards vulnerable communities will be essential.

In March 2023, the Ministries of Finance and Industry took significant steps by announcing generous subsidies for EV consumers. These incentives include approximately USD 500 for e-motorcycles and a 10 percent reduction in value-added tax (VAT) for electric cars and buses. These measures aim to make EVs more affordable and accessible to a wider range of consumers, accelerating the transition to cleaner transportation options. Furthermore, Indonesia made a commitment on the global stage by participating in the Major Economies Forum on Energy and Climate (MEF). The country agreed to a collective goal of achieving zero-emission vehicles (ZEVs). By 2030, Indonesia aims to electrify over 50 percent of light-duty vehicles (LDVs) and at least 30 percent of medium- and heavy-duty vehicles (MHDVs). This ambitious goal aligns with Indonesia’s broader vision of reducing greenhouse gas emissions and promoting sustainable transportation.

While the government has taken significant steps towards a green transition, the financial requirements for achieving its climate goals are substantial.

According to the Green Climate Fund, the state budget allocated for climate change mitigation is approximately USD 5.7 billion per year. This amount represents only about 30 percent of the financial needs to meet the country’s nationally determined contribution (NDC) targets.

To bridge this funding gap, Indonesia has turned to international investors and its own private sector for support.

Indonesia’s dynamic private sector has responded energetically to the call for green growth. Energy companies, in particular, have taken the lead by establishing their own net-zero agendas and diversifying their investments into various green initiatives. These include clean nickel mining technology, the development of the EV ecosystem, nature-based solutions, and land restoration. This proactive approach by private energy companies aligns with the broader national agenda and positions them as key players in Indonesia’s journey towards decarbonization and an energy transition.

One notable development on the horizon is the upcoming finalization of the JETP (Jakarta Environmental Trust Partnership) financing, totaling USD 20 billion. This substantial investment is expected to further empower private energy companies, enabling them to take on a more significant role in driving Indonesia’s decarbonization efforts. It represents a vital step towards a more sustainable and climate-resilient future.

Indonesia faces numerous challenges as it navigates the realities of climate change. Its inherent vulnerabilities, such as coastal areas at risk from sea-level rise and extreme weather events, necessitate urgent action. However, the nation has demonstrated resilience and adaptability in the face of these challenges. By leveraging its unique characteristics, abundant resources, and innovative private sector, Indonesia has turned these challenges into opportunities. The commitment to green growth, the push for renewable energy, and the rapid expansion of the EV industry showcase Indonesia’s determination to create a sustainable and climate-resilient future.

To finish, the green transition for Indonesia is both a necessity and an opportunity. With a strong focus on consumer incentives, international collaboration, and private sector mobilization, the country is well-positioned to make significant strides in mitigating climate change while fostering sustainable economic development. As Indonesia continues to harness its potential, it serves as an inspiring example of how nations can tackle climate change head-on, transforming adversity into prosperity.

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