Entering the Renewable Energy Age, Supporting Policy Packages Need to be Arranged Immediately
20 September 2021
Jakarta, 21 September 2021 - Achieving Indonesia’s carbon neutral target in Indonesia by 2060 or sooner requires clear policies and strategies, including in the energy sector as one of the largest emitting sector in Indonesia. The energy sector decarbonization policy package is being prepared by the Indonesian government to realize a smooth and equitable energy transition.
Arifin Rudiyanto, Deputy for Maritime Affairs and Natural Resources at the Ministry of National Development Planning, Bappenas, said that there are several strategies that Bappenas has been prepared to realize the low-carbon development and climate resilience, including the development of sustainable energy, waste management, and a circular economy, and the development of green industries. Furthermore, he explained that there are three important things in realizing energy transition, they are potical commitment (political will), strong legal basis, and a comprehensive strategy.
"Political commitment has been obtained, a good strategy has been outlined in the National Mid-Term Development Plan (RPJMN) to transform towards green energy, while a strong legal basis has been prepared through the EBT Bill," said Arifin on the second day of the Indonesia Energy Transition Dialogue (IETD) 2021 organized by Indonesia Clean Energy Forum (ICEF) and Institute for Essential Services Reform (IESR), Tuesday (21/09/2021).
Responding to the statement, Sugeng Suparwoto, Chairman of Commission VII DPR RI promised that the New Renewable Energy (EBT) Bill would be ratified in 2021.
“The era of renewable energy has become a must. In the new renewable energy (EBT) Bill, there are incentives for developing new renewable energy (EBT) and disincentives for energy development, which still contributes the largest carbon contribution,” he explained.
Herman Darnel Ibrahim, Member of the National Energy Council warned that the implementation of energy system decarbonization should also mitigate economic risks, as well as maintain the national energy security, in particular to keep energy prices affordable. In addition, creating a level playing field between renewable energy and fossil energy is also needed, including by utilizing carbon tax instruments.
Alluding to the funding needed to achieve carbon neutrality with renewable energy which tends to be high, Febrio N. Kacaribu, Head of the Fiscal Policy Agency (BKF), Ministry of Finance of the Republic of Indonesia compared that at least IDR 3500 trillion is needed to achieve the NDC target in 2030.
"Our state spending planning budget is only 40% of the need, so it is clear that this must involve the local government, the private sector, and international support," he said.
Overcoming this, Febrio revealed that the government has prepared financial instrument green bonds and sukuk (Green Bond) with low interest rates which the global market has responded well. The Ministry of Finance is also currently conducting tax harmonization so that it is in line with the principle of reducing carbon emissions.
"So we need a carbon market mechanism to connect sectors that have not net zero emissions with those that have net zero emissions," said Febrio.
Febrio added, if the carbon market mechanism in Indonesia has been established, the carbon tax signal for coal actors will be stronger as well. Therefore, Indonesia will be ogled by the global new energy market. This will certainly help the process of funding renewable energy projects in Indonesia, so that it can accelerate the achievement of Indonesia's decarbonization targets.
Dewa Putu Ekayana, Policy Analyst, Ministry of Finance of Indonesia stated that now Indonesia is almost final for the draft presidential regulation related to the economic value of carbon (NEK).
“The fiscal aspect of the economic value of carbon (NEK) is not a carbon tax but a levy on carbon. This expansion of meaning is expected to include not only taxes but also other instruments. The next consideration is the balance of central and sub-national government finances. Our suggestion from the Ministry of Finance is how later the financing mechanismwill be paid for with carbon credits or carbon certificates,” explained Dewa.
On a separate occasion, responding to the carbon economic value policy, Fabby Tumiwa, Executive Director of IESR said that the government needs to set emission reduction targets and determine targets in each sector, as well as assess the value or effective carbon price that can support the achievement of these targets.
“The price of carbon should be linked to emission reduction targets and should encourage economic actors to change their technology choices. If the carbon price is too low, it is feared that it will not provide an adequate signal to encourage substantial emission reduction efforts," explained Fabby.
Regarding to the implementation of the carbon tax, according to Fabby the government needs to openly convey the importance of carbon tax instruments to restrain the growth of carbon emissions, determine the mechanism and instrument, as well as the economic sectors that will be affected by the implementation of the carbon tax.
IETD 2021 which runs for five days, from 20-24 September. This event is in collaboration with Clean, Affordable and Secure Energy for Southeast Asia (CASE), a partnership project from several countries in Southeast Asia and is funded by the Federal Government of Germany. Further information can be accessed at ietd.info.