Indonesia can lead G20 in sustainable energy transition

It may feel a bit like a strange case of Dr Jekyll and Mr Hyde when we speak highly of green energy and energy transition whilst at the same time scramble to secure coal supply. In the early weeks of 2022, the Indonesian government had to take measures to ensure that (coal-fired) electricity is not interrupted, while in this same year it is leading the G20 in which one of three priority issues is Sustainable Energy Transition.

It will be a grave over-simplification to pass quick judgement to any government facing one of the most challenging wicked problems that is energy transition. Governments, not only Indonesia’s, have no easy task when it comes to energy transition. Last week, the World Economic Forum released The Global Risks Report 2022 in which it identified climate inaction as the top global risk over the next ten years. It also soberingly notes that “governments will face backlash whether climate action is slow or aggressive”.

With over than 70% of global greenhouse gases attributed to the energy sector, energy transition sits at the core of climate change mitigation. However, many countries today – developed and developing alike – would concur with a statement from a prominent English economist, “?Day by day it becomes more evident that the Coal we happily possess in excellent quality and abundance is the mainspring of modern material civilization”. William Jevons wrote it in 1865. It has been clear for a while of course that the energy system of Jevons’ time cannot take us to a sustainable future.

The pace of historical energy transitions was not really driven by a specific target such as economic or environmental output in mind. Rather, innovation and dissemination of new energy technologies drove economic growth and environmental impact. Energy transition of our time is reversing that relationship whereby a global climate goal drive the transition whilst sustaining social and economic growth. Reversal of such relationship requires a different scale and pace of investments.

The International Energy Agency estimated in its Net Zero Emissions by 2050 Scenario (NZE) the amount of clean energy investment required to achieve net zero by 2050 is close to $4 trillion every year for the period 2026-2030, in which more than $2.5 trillion of it is expected to come from the private sector. The scale of the challenge is stark when comparing such investment needs with the global energy investment of 2021 that was “only” in the range of $1.9 trillion. This means shifting existing investments from carbon-intensive energy chain towards a cleaner one is far from suffice. An additional investment of $2 trillion per year is required for the energy transition. This is roughly equivalent to the annual government budgets of United Kingdom and Japan combined.

In the Indonesian context, the Institute of Essential Services Reform in its Indonesia Energy Transition Outlook 2022 estimated that the country needs close to $20 billion of clean energy investments in its energy system every year from 2021 until 2030 to achieve deep decarbonization. This is over ten times the investment value of new and renewable energy in 2021 reported by the Ministry of Energy of $1.4 billion. To contrast, Indonesia’s start-ups attracted $4.7 billion of investment deals in the first half of 2021 alone, according to e-Conomy SEA 2021 by Google, Temasek, and Bain & Company. We must not forget that industrial revolution 4.0 still needs energy – and it must be a clean one.

Society at large, especially policymakers, captains of industry, and financial institutions, must appreciate the depth of the challenge: the already huge annual investment in global energy system (relative to other sectors) needs to double in just four years from now. In case of Indonesia, tenfold. Achieving this goal requires way more than just attracting the additional investments – but equally important is ramping the (clean energy) industry to be able to absorb those investments and deliver at an unprecedented pace and scale. When one manages a business today, even if he gets enough money to build ten more, those additional ten will only be built and operating if the venues, supply chain, workforce, clear regulations and consumers are available.

Indonesia’s chairmanship of G20 is a great opportunity for the Sustainable Energy Transition agenda, partly because Indonesia can be an empathetic leader as its own transition journey contains a full set of conundrums that other countries only experience partially: (i) Indonesia is not a laggard but it is also not a superpower; (ii) it has the moral highground to appeal for affordable growth, but by its sheer size it also has the responsibility to mitigate greenhouse gas; (iii) it is still reliant on fossil fuels, but it has abundant renewable energy potential and minerals critical for renewable energy equipment; and (iv) it is one of the top ten emitters, but given its archipelagic nature it is also exposed to the changing climate. 

The opportunity should not be missed. G20 summit of 2022 must progress the unleashing of clean energy investments, particularly in populous developing countries. Most G20 countries are either countries with large energy systems that must transition fast and/or homes to companies and investors who could invest in energy transition elsewhere. Investments flow to places where risks and rewards are balanced and competitive. Rare occasion of meetings of world leaders should be able to mitigate any investment’s biggest enemy, which is uncertainty, by means of strong commitments that are credibly followed through. This author wrote in this newspaper in 2009, “the window of opportunity for Indonesia to embed climate change considerations into its development plan and muster international support to undertake a low carbon development is still open – but not for long.” G20 chairmanship puts that opportunity on steroid, but only this year. 

A slightly edited version of this article was published by the Jakarta Post, 20 January 2022:
https://www.thejakartapost.com/paper/2022/01/19/indonesia-can-lead-g20-in-sustainable-energy-transition.html

This entry was posted in Business & Society, Climate Change, Editorial, Energy and tagged . Bookmark the permalink.
  • Byline

    Michael is a professional leader in the fields of energy investments, complex commercial deals, and sustainability with extensive international experience. His personal interests span from socio-political issues, history, and culture.

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