By Niken Arumdati, ST, M.Sc

The impacts of carbon emissions and greenhouse gases are becoming increasingly evident. Last year, the Earth recorded the hottest temperatures in human history. As of September 2023, the global average temperature had risen by 1.80°C above pre‑industrial levels. Scientists agree that preventing the worst impacts of climate change requires limiting global temperature increase to no more than 1.50°C above pre‑industrial levels.

As the world’s largest archipelagic nation, Indonesia is already experiencing the consequences of rising global temperatures, prolonged droughts, floods, sea‑level rise, and forest fires. At the same time, climate change is making food production and distribution more difficult and costly (Foley et al., 2011). Shifts in planting seasons and uneven harvest periods are driving food prices upward, contributing to inflationary pressures.

The National Development Planning Agency (Bappenas) projects that economic losses due to climate change could reach IDR 544 trillion during the 2020–2024 period. These losses are expected to increase further if no significant emission‑reduction efforts are undertaken.

The Government of Indonesia has responded to climate change challenges through the Low Carbon Development Initiative, which places the energy sector among the key contributors targeted for emission reductions. 

Given that fossil fuels still account for approximately 87 persen of Indonesia’s primary energy mix, the urgency of decarbonizing this sector is extremely high. Studies by the Ministry of National Development Planning (Bappenas) conclude that starting in 2022, the energy sector will overtake the forestry sector as the largest contributor to national greenhouse gas emissions.

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The energy and transportation sectors together dominate Indonesia’s emissions profile, contributing 50.6 % or approximately 1 gigaton of CO₂ equivalent of total national emissions in 2022. This upward trend is projected to continue through 2030, when emissions from the energy sector alone are expected to reach 1.4 gigatons of CO₂ equivalent, representing 59 % of total emissions.

In response, the Government has initiated various measures, including pursuing an energy transition. To create an enabling environment and facilitate this transition, a series of regulatory frameworks have been introduced. One of the most significant is Government Regulation No. 40 of 2025 on the National Energy Policy. Article 10 of this regulation sets Indonesia’s target for achieving an optimal primary energy mix by 2030.

Among these targets is the requirement that New and Renewable Energy (NRE) contribute at least 23 % of the national energy mix by 2030 and at least 72 % by 2060. In reality, however, Indonesia continues to struggle to meet these goals. According to data from the Ministry of Energy and Mineral Resources, by 2023 the share of new and renewable energy in the national energy mix had reached only around 13 % -15 % .

This underachievement is widely attributed to misguided policy implementation that continues to favor fossil‑fuel‑based industries. For example, the transportation sector one of the largest energy consumers alongside industry has not undergone a rapid shift toward mass public transport electrification. Instead, the Government has allocated substantial subsidies to private electric vehicle (EV) owners. This policy has increased the number of vehicles on the road and is poorly targeted, as the benefits are largely captured by higher‑income groups.

Moreover, nickel an essential raw material for EV batteries is produced through processes that contradict the Government’s stated commitment to sustainable energy transition. Approximately 14.4 gigawatts of coal‑fired power plants currently supply electricity to nickel smelters. At the same time, state‑owned utility PLN is under pressure to pursue early retirement of its coal‑fired power plants, while new coal‑based facilities justified under the banners of downstream industrialization and decarbonization continue to be promoted.

Although many renewable energy power generation projects have been included in PLN’s Electricity Supply Business Plan (RUPTL), a significant number remain stalled at the tendering stage. Government policy is often cited as a major factor behind the deadlock in negotiations between project developers and lenders, particularly due to the Domestic Component Level (TKDN) requirements. 

In principle, TKDN implementation is intended to strengthen domestic manufacturing industries and ensure that local firms benefit economically from PLN and private sector projects in Indonesia. However, when such requirements instead create bottlenecks, the policy warrants reassessment especially if it results in higher project costs.

In parallel, PLN must ensure that projects listed within the RUPTL timeline are executed on schedule. This is critical to providing certainty for domestic manufacturing industries, as demand would then be clearly scheduled and predictable.

What, then, are the solutions? Ambitious climate commitments entail substantial financing consequences. Policy reform is needed, particularly in financing and fiscal frameworks. Financing mechanisms must be redirected toward clean energy projects, enabling a shift of credit flows away from mining and oil and gas sectors toward renewable energy.

The Financial Services Authority (OJK) should also more actively involve indigenous peoples and local communities in carbon trading schemes, so that these markets are not dominated solely by corporations. Furthermore, to stimulate carbon trading activity, a carbon tax should be implemented. Such a measure would provide corporations with incentives to decarbonize while encouraging their participation in carbon markets.

Alongside growing domestic awareness of climate change impacts, many local governments have demonstrated leadership by declaring net‑zero emissions commitments earlier than the national 2060 target. One such example is the Provincial Government of West Nusa Tenggara (NTB), which has set a net‑zero emissions target for 2050 and has detailed its roadmap within the Governor’s Regulation No. 43 Year 2024 concerning NTB Energy Master Plan.

However, the strengthening trend toward recentralization of regional autonomy has constrained local governments’ authority, limiting their ability to develop energy affairs particularly renewable energy. To help accelerate the achievement of the national target of at least 23 % renewable energy contribution by 2030, which in turn supports net‑zero emissions at the regional level, the Government is expected to grant greater flexibility and authority to local governments. This would enable regions to allocate funding through Regional Budgets (APBD) for matters within their jurisdiction.

Furthermore, local governments must integrate the energy transition paradigm into regional development planning documents namely the Medium‑Term Regional Development Plan (RPJMD) and the Long‑Term Regional Development Plan (RPJPD) so that these commitments can be translated into concrete programs and activities and used as performance indicators for evaluating relevant regional government agencies.

Decarbonization efforts offer significant potential benefits, including economic opportunities for businesses and job creation, while supporting national policy targets. However, these benefits have yet to be fully realized because current efforts are not sufficiently well‑directed. More focused and coherent actions are urgently required in the face of the increasingly tangible threat posed by climate change.

*language editor: Tyson Michael Burnett, Canadian Journalist