One of the outcomes of the Global Stocktake recognizes that doubling the global average annual rate of energy efficiency improvements by 2030 is crucial for rapid greenhouse gas (GHG) emissions reduction, aligning with the 1,5oC pathways. The current global energy efficiency improvement rate is 2%, meaning it must reach 4% annually by 2030, to meet the doubling energy efficiency improvements by 2030. Presently, many countries have yet to fully leverage energy efficiency to drive emission reduction, including Indonesia. Between 2010 and 2022, Indonesia’s annual energy efficiency improvement rate is ranged between 2%-3%.
The outcomes of the first Global Stocktake provides a guidance for Parties, including Indonesia, in updating its Nationally Determined Contribution (NDC). The second NDC is expected to be more ambitious than the previous one, noting that if all actions in the NDC are implemented, the temperature increase would still be above 2oC. One of the actions that can be done is through leveraging energy efficiency. Recognizing that the 4% is a collective global target that all Parties must contribute to, Indonesia could also take part in the collective efforts.
Indonesia Research Institute for Decarbonization (IRID) finds it important and strategic for Indonesia to promote the global target for energy efficiency by implementing it at the national level. In that context, IRID has initiated a discussion on Indonesia’s role in doubling the global energy efficiency rate on 11 September 2024. The discussion aimed to gather information on how Indonesia could leverage energy efficiency, including the opportunities and challenges.
The discussion has resulted in the following key findings:
A. Optimizing energy efficiency in the building sector
The Indonesian Ministry of Energy and Mineral Resources (MEMR) has taken various measures to improve energy efficiency in buildings. The measures include non-fiscal incentives to promote energy efficiency in buildings, encouraging development partners to invest in energy efficiency in the building sector, and cross-sectoral collaboration with the Ministry of Public Works and Housing to implement the green building concept by combining active and passive design. Looking ahead, the Government of Indonesia plans to enforce mandatory energy management measures in government buildings.
B. Fostering Energy Service Company (ESCO) ecosystem in Indonesia
ESCO’s role in improving energy efficiency in Indonesia remains overlooked. ESCO’s business activities are now mainly limited to energy audits and feasibility studies. The implementation of energy efficiency measures in Indonesia’s building sector is often carried out internally, rather than involving independent energy managers, which has hindered the ESCO ecosystem from flourishing in Indonesia. Therefore, fostering ESCO’s ecosystem in Indonesia includes ensuring the role of ESCO goes beyond energy audit, and further to the implementation part.
C. Increasing energy efficiency in the industrial sector
Energy audit is one of the requirements that need to be met, to comply with Indonesia’s green industry standards (Standar Industri Hijau/SIH). However, the capacity of industry actors to carry out energy audits is very limited. To increase the capacity of the industry actors the Indonesian Ministry of Industry facilitates diverse capacity-building programs, such as training on calculating GHG emissions in the industrial sector, energy management training, and to assist in the certification process.
Adopting energy-saving technologies from abroad is another strategy that can boost Indonesia’s industrial energy efficiency. However, challenges lie in the financial and technical capabilities of Indonesian manufacturing industries. The Government of Indonesia addresses this issue by creating demand for the technologies through regulatory measures, such as mandatory GHG emissions reporting, setting the emission cap for industries, enforcing compliance with carbon trading, and preparing industries for carbon leakage policies.
D. Energy efficiency financing
Financing energy efficiency in Indonesia has several challenges. One of the challenges is the absence of guarantees instruments for energy efficiency projects. This is due to Indonesia regulations that have not yet making energy efficiency as mandatory, including the absence of punishment and reward mechanism. Most of the industries in Indonesia are more interested to invest in their core business, rather than investing in the energy efficiency measures, particularly when the return of investment is still unclear.
Another challenge is the requirement for the project proponent to provide the feasibility study to access the loan to implement the project. Most of the time, there is no available support for project proponents to prepare a good quality of feasibility study. This case occurs both at the national and sub-national level.
Financing energy efficiency for domestic financial institutions is perceived as a high-risks investment. However, the perception may come from the limited understanding of how energy efficiency works. Hence, they are unsure about the appropriate collateral for the project which often comes in the form of energy-saving processes, rather than physical assets. Nevertheless, the state-owned banks have crucial roles in energy efficiency financing, particularly due to the obligations that are embedded to them to channel green financing.
Related to this issue, the Ministry of Industry is currently developing the Green Industry Service Company (GISCO) scheme to enable more funding for green industry implementation.
Notes: The full version of the discussion paper is only available in Bahasa Indonesia.
The outcomes of the first Global Stocktake provides a guidance for Parties, including Indonesia, in updating its Nationally Determined Contribution (NDC). The second NDC is expected to be more ambitious than the previous one, noting that if all actions in the NDC are implemented, the temperature increase would still be above 2oC. One of the actions that can be done is through leveraging energy efficiency. Recognizing that the 4% is a collective global target that all Parties must contribute to, Indonesia could also take part in the collective efforts.
Indonesia Research Institute for Decarbonization (IRID) finds it important and strategic for Indonesia to promote the global target for energy efficiency by implementing it at the national level. In that context, IRID has initiated a discussion on Indonesia’s role in doubling the global energy efficiency rate on 11 September 2024. The discussion aimed to gather information on how Indonesia could leverage energy efficiency, including the opportunities and challenges.
The discussion has resulted in the following key findings:
A. Optimizing energy efficiency in the building sector
The Indonesian Ministry of Energy and Mineral Resources (MEMR) has taken various measures to improve energy efficiency in buildings. The measures include non-fiscal incentives to promote energy efficiency in buildings, encouraging development partners to invest in energy efficiency in the building sector, and cross-sectoral collaboration with the Ministry of Public Works and Housing to implement the green building concept by combining active and passive design. Looking ahead, the Government of Indonesia plans to enforce mandatory energy management measures in government buildings.
B. Fostering Energy Service Company (ESCO) ecosystem in Indonesia
ESCO’s role in improving energy efficiency in Indonesia remains overlooked. ESCO’s business activities are now mainly limited to energy audits and feasibility studies. The implementation of energy efficiency measures in Indonesia’s building sector is often carried out internally, rather than involving independent energy managers, which has hindered the ESCO ecosystem from flourishing in Indonesia. Therefore, fostering ESCO’s ecosystem in Indonesia includes ensuring the role of ESCO goes beyond energy audit, and further to the implementation part.
C. Increasing energy efficiency in the industrial sector
Energy audit is one of the requirements that need to be met, to comply with Indonesia’s green industry standards (Standar Industri Hijau/SIH). However, the capacity of industry actors to carry out energy audits is very limited. To increase the capacity of the industry actors the Indonesian Ministry of Industry facilitates diverse capacity-building programs, such as training on calculating GHG emissions in the industrial sector, energy management training, and to assist in the certification process.
Adopting energy-saving technologies from abroad is another strategy that can boost Indonesia’s industrial energy efficiency. However, challenges lie in the financial and technical capabilities of Indonesian manufacturing industries. The Government of Indonesia addresses this issue by creating demand for the technologies through regulatory measures, such as mandatory GHG emissions reporting, setting the emission cap for industries, enforcing compliance with carbon trading, and preparing industries for carbon leakage policies.
D. Energy efficiency financing
Financing energy efficiency in Indonesia has several challenges. One of the challenges is the absence of guarantees instruments for energy efficiency projects. This is due to Indonesia regulations that have not yet making energy efficiency as mandatory, including the absence of punishment and reward mechanism. Most of the industries in Indonesia are more interested to invest in their core business, rather than investing in the energy efficiency measures, particularly when the return of investment is still unclear.
Another challenge is the requirement for the project proponent to provide the feasibility study to access the loan to implement the project. Most of the time, there is no available support for project proponents to prepare a good quality of feasibility study. This case occurs both at the national and sub-national level.
Financing energy efficiency for domestic financial institutions is perceived as a high-risks investment. However, the perception may come from the limited understanding of how energy efficiency works. Hence, they are unsure about the appropriate collateral for the project which often comes in the form of energy-saving processes, rather than physical assets. Nevertheless, the state-owned banks have crucial roles in energy efficiency financing, particularly due to the obligations that are embedded to them to channel green financing.
Related to this issue, the Ministry of Industry is currently developing the Green Industry Service Company (GISCO) scheme to enable more funding for green industry implementation.
Notes: The full version of the discussion paper is only available in Bahasa Indonesia.
