Indonesia preparing to announce early retirement of coal at Cop28

Finance Minister says more investments are needed for the country’s green transition

Smoke rises from the chimneys of the Suralaya coal-fired power plant in Cilegon, West Java, Indonesia. AFP

Indonesia’s Finance Minister Sri Mulyani Indrawati on Thursday said that her country was gearing up to make an announcement at Cop28 in Dubai about retiring early from coal, as the Asian nation struggles to attract enough private capital for its green transition.

Speaking at a conference in Berlin, Ms Mulyani said that she would “push very hard” for this.

“It’s already in the pipeline. We are preparing and are going to announce it,” she said. “If it fails, it’s something beyond me.”

Indonesia had previously indicated that it may actively start phasing out coal in 2040 at the earliest. Bringing this milestone forward by 10 years may accelerate the unlocking of a $20 billion package promised last year by western countries to accelerate the country's green transition.

Analysts told The National that such signalling from Indonesia, the world’s largest thermal coal exporter and one of the fastest growing economies in the world, may also have a ripple effect on other countries such as South Africa and Vietnam, which have signed on to a similar scheme known as the Just Energy Transition Partnership.

But Ms Mulyani warned that this may require western donors to finance coal plants during a transition phase, including possibly compensating coal operators, even though they normally favour investing in renewable energies such as wind and solar farms.

“They are not going to say OK, because climate change is good, I’m going to forego my 10 years of revenue. It won’t work that way,” said Ms Mulyani, who was a panellist at the Berlin Global Dialogue organised by German business school ESMT.

“We have to calculate […] who will compensate, who will pay and then what kind of risk this kind of situation is.”

She called for a discussion between the Global South and the Global North on a so-called taxonomy to better define the green transition, as western investors fear being “punished” for financing a coal retirement plan.

Speaking on the same panel, Bernard Mensah, president of International for Bank of America, echoed Ms Mulyani's views: “There are a lot of nitty-gritty things that need to happen in the finance space, taxonomy, some accounting standards. It may be boring but it crowds in the capital that’s needed.”

The finance sector is under intense scrutiny over its investment in fossil fuels such as coal.

An investigation published this week by a number of outlets, including The Guardian, showed that European banks helped fossil fuel firms raise more than $1 trillion from global bond markets.

Earlier this month, environmental groups submitted a formal complaint to the World Bank over European banks' provision of financial support for two coal-fired power plants in Indonesia.

Indonesia, which recently started trading carbon dioxide emission credits and has set a target of reaching carbon neutrality by 2060, is lobbying hard for more flexible financing.

Nobody wants to fund the dirty. But it’s mission critical to fund the dirty to get to the clean.

Vera Songwe, chairwoman of the Liquidity and Financial Stability Facility

Transitioning away from coal, which in some provinces employs more than 10 per cent of the population, is expected to have deep social consequences.

But Indonesia has so far received only a fraction of the $20 billion promised last year due to disagreements over what it is allowed to spend the money on, said Henning Gloystein, director for energy, climate and resources at political risk consultancy Eurasia.

“Europeans would say: use it for wind farms and solar panels,” Mr Gloystein told The National.

“Indonesia would say: maybe we’ll use it for carbon capture technology or compensation for coal operators. You need to define this process.”

What is green finance?

Indonesian officials have previously complained about the slow pace of implementation of the JETP. Septian Hario Seto, Indonesia's deputy minister of investment at the Co-ordinating Ministry for Maritime and Investment Affairs, told Reuters earlier this week that western countries are not ready to fund it.

Mr Septian said that the coalition of western countries led by the US and Japan have told Indonesia they were more interested in financing commercial renewable projects, which he said it did not need.

South Africa was the first country to reach a deal under JETP, securing a $8.5 billion financing pledge in 2021, while Vietnam secured $15.5 billion in a deal struck in late 2022.

Yet Ms Mulyani's comments in Berlin seem to hint at Indonesia inching towards an agreement to be made public at the next UN international climate negotiations, scheduled for late November.

“There will probably be an announcement to actively start phasing out coal fired generation from 2030 onwards,” said Mr Gloystein. He added that this would represent a “huge achievement”.

“If $20 billion can be released, that would be fantastic,” he said. “Then there would be no stopping other countries receiving it as well.”

To accelerate such financing, there needs to be a “better dialogue” about how transitioning towards clean energies may require financing polluting industries during the transitional period, economist Vera Songwe told The National.

Charles Michel, President of the European Council, left, and Sri Mulyani Indrawati, Indonesia's finance minister, at the Berlin Global Dialogue. Bloomberg

“We must explain that it’s a continuum,” said Ms Songwe, who heads the board of the UN-designed Liquidity and Sustainability Facility.

“People are more excited about funding renewable energy. Nobody wants to fund the dirty. But it’s mission critical to fund the dirty to get to the clean.”

Updated: September 29, 2023, 7:52 AM