Current Policy Projections
Economy-wide
Before COVID-19, GHG emissions excl. LULUCF were expected to increase to 1,357-1,401 MtCO2e/year by 2030, about 40% higher than 2010 emissions. The lower economic activity resulting from the pandemic reduces projections to 1,191-1,326 MtCO2e/year. With these projections, Indonesia overachieves its unconditional NDC and conditional 2030 targets (excl. forestry), despite strongly increasing emissions and not achieving other national targets, e.g. the National Energy Policy, or NDC reductions for LULUCF emissions.
The full effect of COVID-19 on emissions is subject to much uncertainty as emissions projections are dependent on the economic impacts as well as the recovery measures. The dip in activity brings emissions downwards: Indonesian GDP retraction is expected to result in emissions reductions in the range of 2 to 6% in the same year.
As of late August 2020, the number of new confirmed COVID-19 cases was still increasing, which exacerbates the uncertainty around the duration and intensity of impacts on the economy beyond 2020. The economic decline observed in the first quarter of 2020 was mostly influenced by domestic demand, driven by a reduction in household consumption and a slowdown in investments (Bank of Indonesia, 2020). Indonesia has also seen a reduction in both coal exports and palm oil exports which affects two major economic sectors: mining and palm oil plantations (Christina & Ungku, 2020; Jong, 2020c; The Jakarta Post, 2020), with the reduction in coal demand particularly in India and China having a large impact on coal production (Wilda Asmarini, 2020).
As an attempt to minimise the effect of COVID-19 on the economy, the government has earmarked approximately USD 48 billion (IDR 720 trillion ) to fund the National Economic Recovery (Ministry of Finance Indonesia, 2020a). It does so with the establishment of numerous policy instruments such as tax incentives, direct investments and subsidies, and loans (Cabinet Secretariat of the Republic of Indonesia, 2020; Media Indonesia, 2020; Ministry of Finance Indonesia, 2020b). The post-COVID-19 economic recovery presents an opportunity to increase investment in low-carbon development, specially to foster renewable energy development (Amri et al., 2020). The current plans however make no attempt of putting the country in a low-emission pathway, latest developments suggest the opposite:
- Additional fossil fuel support picks up speed: in January 2020, Indonesia capped the price of domestic coal at USD 20 per tonne below market value to boost consumption (Harsono, 2020b). The Indonesian government plans to subsidise fuel for industries and businesses using roughly 14% of the budget reserved for the National Economic Recovery – PEN (Kontan.co.id, 2020). Two regulations (PP 36/2020 and PP 37/2020) are already in place to inject approximately USD 1 billion into state companies, including the national utility company, PLN. However, third-party estimates that PLN might need up to USD 7.2 billion in subsidies from the government to address their budgetary issues (Brown, 2020).
- Renewables uptake faces setbacks: Indonesia has postponed this year’s geothermal auctions, claiming delays on data improvement and regulation development (Richter, 2020). Solar PV panel demand, which is only starting to pick up in Indonesia, experienced a drop of 70% during the pandemic. The drop is attributed to both reduction in household spending as well as the reduction in government spending for rooftop installations (Harsono, 2020a).
- Biodiesel future is unclear: Indonesia has been rolling out an ambitious biodiesel target since 2016 (see Transport below), but discussion on the mode of continuation are ongoing amid low crude oil prices, which reduce the competitiveness of the domestic palm oil biodiesel (Munthe & Ungku, 2020). Government plans to produce ‘green diesel’ entirely with palm oil by 2023 were pushed back to 2026 (Diela et al., 2020).
- Environmental regulations being eased under the radar: the government has resumed discussions on the Omnibus bill on job creation, which transfers the decision-making power from local to the central government for deliberation about environmentally sensitive projects. The regulation is considered a setback as it downgrades the importance of environmental licenses and reduces the efficiency of monitoring mechanisms (Sembiring et al., 2020).
Indonesia has also been back and forth with the requirements on certification for wood production, which raised concern about increases in illegal logging (Iswara, 2020). In an attempt to boost wood exports, regulation 15/2020 discarded the SVLK verification system, which ensures the legality and sustainability of all wood exports. The regulation was supposed to take effect on May 27. However, regulation 45/2020, which took effect on May 11, reinstated the mandatory provision of the certificates for exports (Jong, 2020a; Myers, 2020).
While these developments had the intention of ensuring the country can overcome the current crisis, experts highlight the importance of increasing support for low-carbon options (Simamora, 2020). Greening recovery packages can reduce air pollution, create more and better jobs, lead to a more resilient and independent energy supply, and enhance access to energy (Climate Action Tracker, 2020).
In 2019, Indonesia published its RPJMN 2020-2024 medium term plan, which includes strategies and targets that will guide the country’s development for the next five years (Ministry of National Development Planning (Bappenas), 2019). The RPJMN, used as the lower range of our planned policies projections, could lead to emissions of 1,136 MtCO2e/year excl. LULUCF in 2030, down from 1,222 MtCO2e/year before the impacts of COVID-19.
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