Indonesia's Transition to a Low-Carbon Economy: Challenges and Opportunities

Washington, D.C. - Indonesian Minister of Finance, Sri Mulyani Indrawati, highlighted the importance of inclusivity and justice in the transition to a low-carbon economy in her speech at the G20 Finance Ministers and Central Bank Governors Meeting (FMCBG) on April 18, 2024.

"The investment needed for this transition is enormous," said Minister Sri Mulyani, referring to data from the United Nations Conference on Trade and Development (UNCTAD) showing an annual investment gap of $400 billion to implement the essential elements of the transition.

Minister Sri Mulyani emphasized that future climate planning must prioritize inclusivity and justice. The transition to a low-carbon economy must be done in a way that is fair and affordable for all, in line with the G20 Transition Finance Framework.

One example of Indonesia's efforts in this transition is the Energy Transition Mechanism (ETM) Country Platform, a blended finance framework that aims to mobilize financial resources and international support. One pilot project that is already underway is the early retirement of the Cirebon 1 power plant. With a capacity of 660 megawatts, this project requires a cost of approximately $1.3 billion to prematurely retire this power plant over the next 7 years. However, this process can save 28.5 million tons of CO2e.

Minister Sri Mulyani also stressed the importance of carbon credits in CO2 reduction efforts, especially in attracting private sector investment. She also emphasized the important role of Multilateral Development Banks (MDBs) such as the World Bank, Asian Development Bank (ADB), and Asian Infrastructure Investment Bank (AIIB) in correcting risk perception and management in this transition.

"Without their role, we will only rely on public financing, both on a national and global scale - and not attract financing from the private sector at all," explained Minister Sri Mulyani.

As co-chair of the Coalition of Finance Ministers for Climate Action (CFMCA) with her colleague Steven van Weyenberg, Minister Sri Mulyani welcomed all collaboration efforts related to the transition and solutions to climate problems, including the Task Force for the Global Mobilization against Climate Change (TF-CLIMA).

Challenges and Opportunities for Indonesia's Transition to a Low-Carbon Economy

The transition to a low-carbon economy in Indonesia presents various challenges and opportunities. The main challenges are the limited availability of financial resources and technology, as well as the disparity in capacity between regions and sectors. On the other hand, this transition also opens up opportunities to create new jobs, increase industrial competitiveness, and drive sustainable economic growth.

The Indonesian government has committed to achieving a net zero emission target by 2060. To achieve this target, Indonesia needs international support in the form of funding, technology, and knowledge transfer.