Indonesia launches Energy Transition Mechanism Country Platform

“This is surely an important momentum calling for all members and beyond to deliver their climate financing commitments with real and implementable initiatives,” said head of the fiscal policy agency, ministry of finance, Febrio Kacaribu on the Soft Launching of Indonesia’s ETM Country Platform, Sustainable Finance for Climate Transition Roundtable, as part of the Third G20 Finance Ministers and Central Bank Governors (FMCBG) Meeting 2022’s side event series.

Since the last meeting of Indonesia’s finance minister with ADB who announced a new partnership to launch Indonesia’s ETM in November 2021, Indonesia has developed designs for an effective and measurable implementation of the ETM. Indonesia has initiated a special Task Force and agreed on a list of coal-fired power plants suitable for early retirement. Indonesia has also agreed to a key set of goals and milestones to be achieved by stakeholders head into the G20 Leaders’ Summit and COP 27, the government said in a press release.

"Indonesia has put the highest priority on energy transition to cleaner energy. However, with this transition, the government of Indonesia needs to ensure that the country will be able to continue growing and requires more energy and electricity, yet at the same time reducing the CO₂ emissions. To overcome this, it requires a combination of controlling or retiring coal-fired power plants and simultaneously developing renewable energy. Early retirement will be conducted in a measurable and gradual manner in the medium and long term. The government ensures that this transition remains affordable for the community, business, and the state budget," the release added.

ETM consists of two schemes. First, the Carbon Reduction Facility (CRF) scheme is used to retire coal-fired power plants (PLTU) early in Indonesia. Meanwhile, the Clean Energy Facility (CEF) scheme is aimed to develop or reinvest green energy facilities. This mechanism is expected to be a win-win solution for communities, investors, the regional economies, and the environment.

To get to the implementation level, the transactions within the mechanism must be well defined, including the parties to the transactions, financing instruments, challenges and expected financial and economic cost or benefit. To this extent, the country platform could accommodate the holistic approach required for ETM implementation. The country platform for ETM will serve as a framework that could provide the necessary financing to accelerate the national energy transition by mobilising commercial and non-commercial funding sources in sustainable manners.

This platform and other mechanisms will be derived from a broader framework regarding just energy transition to achieve the National Determined Contributions (NDC) and Net-Zero Emissions (NZE) targets. The platform also welcomes all investors, including the World Bank, the Indonesia National Authority (INA), the Glasgow Financial Alliance for Nett Zero / GFANZ), and other multilateral development banks, countries, private sector and philanthropists, as per the release.

This country platform is a model that can be used by other countries. To ensure its effectiveness, the ETM country platform can be customised and adapted based on the local context and the need of each country according to its specifications, priorities and regulations. Indonesia’s country platform investment will come from blended finance through PT SMI, including philanthropists, bilateral or multilateral development finance, and climate finance. Some of the sources of financing include the Glasgow Financial Alliance for Net Zero/GFANZ and SDG Indonesia One (SIO) platform.

Additionally, Indonesian minister of finance Mulyani Indrawati and secretary general of the OECD Mathias Corman have signed the renewal of the Indonesia-OECD Framework of Cooperation Agreement (FCA) for the next five years in Bali and launched the Joint Work Program (JWP) as a guidance for cooperation between the two parties during 2022-2025 period.

Fibre2Fashion News Desk (KD)