How ‘serious’ can US really be on Indonesia green energy if it pumps cash into oil site?
- Six months have passed since landmark G20 energy transition deal announced, aimed at helping Southeast Asia’s largest economy reach net-zero target faster
- However, Jakarta is frustrated no money has been forthcoming. Meanwhile, the US’ Export-Import Bank is to help fund expansion of refinery in East Kalimantan
Details of the Just Energy Transition Partnership (JETP) would be announced in six months, it was said at the time.
Six months have passed since the landmark deal and Indonesia, Southeast Asia’s biggest economy, finds itself in a stalemate with its JETP partners. Not only has a comprehensive investment plan not been publicly announced, Jakarta has openly voiced its frustration with its partners’ perceived lack of commitment in disbursing the promised money.
The bank’s move not only pokes holes in Washington’s commitment to the climate, but also risks increasing Indonesia’s reliance on fossil fuels, environmentalists and energy experts say.
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The EXIM bank is an independent federal agency that offers loans and insurances to projects that can help advance US exports.
Andri Prasetiyo, a researcher at Trend Asia, a Jakarta-based non-profit that focuses on the transition to clean energy, said the EXIM cash underlined the “inconsistency” of the Biden administration’s vow to stop backing fossil fuel projects.
“This funding risks disrupting the achievement of the net zero target. One of Indonesia’s net zero targets is reducing the use of fossil energy, not just coal, but also oil and gas, but the US seems to show that the fossil energy industry is still relevant to support,” Andri said.
“This also gives a bad signal that the US is not serious enough with its own climate commitments, and that the US is not serious enough to show leadership to developing countries, that the energy transition must begin now.”
According to US-based research firm Rhodium Group, Indonesia was the world’s fifth-biggest greenhouse gas emitter in 2019, largely because of deforestation and coal plants, with the latter generating 61 per cent of the country’s power.
Renewable energy currently contributes to 12 per cent of national power capacity.
EXIM Chair Reta Jo Lewis said in a statement on the agency’s website that oil refinery expansion plans in Indonesia were “consistent with EXIM’s mission to facilitate American exports and support US jobs, through more than 30 US suppliers in 13 states and Washington DC”.
“This project would support hundreds of US jobs at dozens of manufacturers across the country, and allow Indonesia to substantially reduce its reliance on imported, refined transport fuels while upgrading to a cleaner standard, protecting human health and the environment in the process,” she said.
‘Where’s the money for net zero transition?’
The frustration over US’ perceived lack of commitment to reducing Indonesia’s greenhouse gas emissions resonated in Jakarta as Luhut Pandjaitan, the coordinating minister for maritime affairs and investment, revealed on May 9.
During his visit to Washington in April, he said, he explained his country’s planned transition to net zero, to which the US responded positively.
“Then I said: ‘Where is the money?’ It’s all just talk now,” Luhut told reporters, referring to the money promised by JETP countries and institutions.
Under the JETP deal in November, the US, Japan, Canada, France, Germany, Italy, Britain, Norway, Denmark and the European Union promised an initial US$20 billion in funding, with half coming from the public sector and private financing covering the other half.
The cash would be disbursed in the next three to five years to cap Indonesia’s power sector emissions in 2030. The money would also be spent on bringing forward the country’s target of reaching net-zero emissions in that sector by a full 10 years, aiming for 2050 instead of 2060.
Institutions including the Asian Development Bank, the Climate Investment Funds, and the World Bank also contributed to the partnership.
The US$10 billion in funding raised by the private sector will be coordinated by the global coalition Glasgow Financial Alliance for Net Zero, a body made up of leading financial institutions committed to accelerating decarbonisation.
Alliance members include the Bank of America, Deutsche Bank, HSBC and Standard Chartered.
Among the factors contributing to the slow disbursement of funds for Indonesia, Luhut said, is the interest calculation on loans given by such institutions, as the nation prefers the rate to be lower than commercial loans.
“If you give the loan rate at the price of a commercial loan, forget it. We can [borrow the money] ourselves, no need for them to arrange it. If they can’t give [our preferred rate], then forget it because they will disrupt our economy,” he said.
In an interview with Bloomberg this week, the influential minister doubled down on this stance, saying “if we get the money with good terms, we proceed [and] if not, we will go ahead with our own plans”.
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Putra Adhiguna, an analyst at the Institute for Energy Economics and Financial Analysis, an international non-profit think tank, said it was unlikely the stalemate would be resolved soon as JETP countries may need Indonesia to show a “more credible clean energy transition pathway”.
“But if you ask me whether Indonesia will quit the JETP, I’m not that pessimistic,” Putra said.
“The question is, can the government and [state-owned electricity provider] PLN, Pertamina, and other state-owned enterprises show a credible transition pathway, one that is scientifically defensible, one that is not influenced by politics? The difficulty [of dispersing the JETP fund] lies in this point.”
For environmentalist Andri, EXIM’s funding into Pertamina’s oil refinery also could risk “hampering the shifting of funding from fossil fuel industries to renewable energy [projects], not only in Indonesia but also globally”.
He was worried this would make Indonesians view renewable energy projects as “not attractive. The more incentives there are for fossil energy, the more this will be a disincentive for renewable energy”.
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Global financial institutions have in recent years been forced to think twice before backing fossil fuel projects, due to mounting pressures from climate activists that worry about the impact on greenhouse gas emissions.
This month Standard Chartered announced that it will not fund the US$5 billion East African Crude Oil Pipeline project in Uganda, while Japanese bank Sumitomo Mitsui said on Tuesday that it is “not currently involved” in the hugely controversial project.
