Climate change issues are currently discussed in various fora at the global level, such as G20, United Nations General Assembly (UNGA), Annual Meeting of International Monetary Fund (IMF), Climate Week in various regions, and the 28th Conference of the Parties to the United Nations Framework on Climate Change (COP28 UNFCCC) in Dubai, November 2023. In addition, all eyes are currently watching the progress of several initiatives on just energy transition, such as the Just Energy Transition Partnership (JETP) and Energy Transition Mechanism (ETM).
The Indonesia Research Institute for Decarbonization (IRID) recognized as the just energy transition aspect became the highlights of climate diplomacy topics in various fora. However, there were not much of discussions on what are the implications of the just energy transition in climate diplomacy, particularly to Indonesia as a country. Therefore, IRID held a discussion on November 16th 2023, on "Just Energy Transition in the Climate Diplomacy Context”. Some key findings from the discussion are the following:
A. Regarding to climate diplomacy at the global level
- Member states of the Coalition of Finance Ministers for Climate Action (CFMCA) use the forum to share knowledge and best practices on climate finance in their countries. Some of the Scandinavian countries presented their best practices to align their climate resilience strategies, both long- and short-term strategies, with the allocations of their state budget. In that context, Indonesia has shared its best practices such as the implementation of climate budget tagging and some innovative financing schemes such as Green Sukuk, SDGs Bond, and Blue Bond.
- There are two issues that were discussed within the CFMCA which are: (1) mobilizations of USD 100 billion; and (2) the Carbon Border Adjustment Mechanism (CBAM). The discussion around USD 100 billion did not specifically address the mobilizations of USD 100 billion itself. However, the collaborative study between CFMCA and OECD identified that the source of the USD 100 billion comes from both public and private sources. On the CBAM, the CFMCA has not yet delved into CBAM yet, and not yet decided whether the discussions on CBAM will continue. CBAM is one of developed countries efforts to meet its climate target by using a trade measure or is called as climate-based trade measures. Applying CBAM is considered as adding to developing countries’ burden, including Indonesia. In iron and steel trade measures for instance, countries that exporting iron and steel to the European Union will be subject for additional obligations such as to pay carbon tax rates based on the number of iron or steel exported.
B. The impact of climate diplomacy to Indonesia at the national and/or sub-national level
- The Ministry of Finance of the Republic of Indonesia (MoF) will develop various financial management systems that are synchronized with other Ministries/Institutions, such as the National Development Planning Agency (Badan Perencanaan Pembangunan Nasional/Bappenas), the Ministry of Environment and Forestry (Kementerian Lingkungan Hidup dan Kehutanan/KLHK), and other relevant ministries. This is because the implementing ministries/institutions understand more of their needs for financing climate actions in their related sector
- The Just Transition Framework aspects are used in the JETP-CIPP (Just Energy Transition Partnership - Comprehensive Investment and Policy Plan) document to manage the social, economic, and environmental impacts of the implemented energy transition measures. Just Transition Framework in the JETP-CIPP was developed by compiling various frameworks that were used by various financial institutions, which is expected to have equal footing with those of financial institutions. To strengthen the framework, the JETP Secretariat planned to do research on how to operationalize the framework. The study will not only be looking into the just aspects, but also policy measures required to support the inclusion of just aspects in the Indonesia’s energy transition plan. The results will be included in the next CIPP.
- To finance energy transition, a complete financing is required. A complete financing means that all costs, including both project and non-project costs, need to be calculated. Having said that, all costs emerged as the consequences from a project also need to be calculated. For example, the cost for an early retirement of coal-fired power plants in areas that are highly dependent on the coal industry, such as Kalimantan, need to also consider the compensation for the affected formal workers.
- Local governments play important roles to implement energy transition in Indonesia, both on technical and financial aspects. In practice, the local governments put an additional obligation for public assets. For instance, there were levies on dams which will be used for Micro Hydro Power Plant or Pembangkit Listrik Tenaga Mikro Hidro (PLTMH), or taxes on water used for Hydro Power Plant or Pembangkit Listrik Tenaga Air (PLTA). In terms of JETP, the local governments are needed from the project planning phase, starting from the issuance of project permits, to monitoring and evaluation of the project’s impacts.
NB: (This original publication is only available in Bahasa Indonesia)
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