Emerging economies like Indonesia are ready to decarbonise. But at the same time, it wants advanced countries to acknowledge that for most of the developed world, their historical progress has been built on the combustion of fossil fuels, so they should refrain from lecturing the Global South about how it develops.
For Arsjad Rasjid, who at the start of the year, added chairman of the Association of Southeast Asian Nations (ASEAN) Business Advisory Council to his numerous roles, the time is now for advanced economies to “pay back”.
“You cannot tell us to decarbonise without helping us with capital,” said the 50-year-old executive, when asked by Eco-Business about the pressure Western powers have been putting Indonesia under to retreat from coal. “It takes two to tango.”
Indonesia is the world’s biggest coal exporter, and Arsjad runs one of Indonesia’s biggest coal companies, Indika Energy. The business mogul, also chairman of the country’s powerful chamber of commerce (KADIN), was speaking to Eco-Business at the Indonesian embassy in Singapore, to discuss the challenges of a just energy transition.
The Just Energy Transition Partnership (JETP), signed at the G20 Summit in Bali in November and worth US$20 billion, is the latest attempt by G7 countries to cajole Indonesia off coal – which makes up 60 per cent of the country’s energy mix and is worth 3.5 per cent of gross domestic product (GDP). JETP requires Indonesia to curb its power sector emissions by 2030, and freeze a pipeline of planned on-grid coal-fired power plants.
But Indonesia’s energy transition bill will be a lot bigger than US$20 billion. Southeast Asia’s largest energy network will need up to US$2.4 trillion in cumulative investment to reach net zero by 2050 – the energy’s sector climate target – which would mean doubling the rate of renewables deployment, according to some estimates.
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The motivation to change [decarbonise Indika Energy] came from my daughter. She showed me an article titled ‘100 killers of the world’. My name was there, as head of a coal company.
Arsjad Rasjid, chairman, Asean Business Advisory Council and Indonesian Chamber of Commerce; president director, Indika Energy
Arsjad said that it is not only funding that Indonesia wants to aid a pivot to clean energy. “Share your technology with us,” he said. “If you don’t share the technology, how can we develop and decarbonise at the same time? We want to become an advanced country too.”
Indonesia is banking on technology – particularly carbon capture, use and storage facilities attached to coal-fired power stations and biomass co-firing plants – to help it reduce its emissions to net zero by 2060, its national decarbonisation target set in 2021.
Rasjid admits that there are many challenges, but says Indonesia is committed to achieving net-zero and the business sector – which contributes a large chunk of the country’s emissions – is very much part of the plan.
Indika Energy, which is part of an international consortium operating Indonesia’s Cirebon 1 coal power project, is itself no stranger to scrutiny from non-governmental organisations and local stakeholders for how the energy transition is managed.
In this interview, Arsjad talks about the opportunities in net-zero economics for Indonesian businesses, the challenges in making JETP work, and how his daughter persuaded him to transition his energy company towards clean energy.
KADIN set a target for its members to reduce their emissions in support of Indonesia’s national 2060 net-zero target. How are Indonesian businesses progressing towards that goal?
One of the main concerns with the energy transition is that [we make sure] nobody is left behind. While big corporations have made decarbonisation commitments and have been raising awareness [of corporate climate action], we need small- and medium-sized businesses to move too. We must guide SMEs and bring them on the journey. We need to create the right ecosystem for all businesses to decarbonise, and celebrate the firms leading the way.
This is why we are working with the Indonesian Stock Exchange to create a climate index [to monitor carbon reduction performance]. Investors will see the companies making commitments, and recognise that there is greater value in those companies. There needs to be a incentive for businesses to be part of the net-zero movement.
What sort of opportunities do you see in Indonesia’s energy transition?
The transition to net-zero involves three key sectors: power, transport and industry. The strategy for transport is particularly interesting. By shifting to electric vehicles (EVs), we can reduce the volume of fossil fuel imports, thereby reducing fossil fuel subsidies and also curbing emissions. Not only that, we can create a new business ecosystem and leapfrog fossil fuel-based transport.
Critically, Indonesia has the raw materials. We have the nickel, bauxite, copper and tin. We want to create a business ecosystem that supports SMEs, not just the big players. It’s been done in Korea, Japan and China, why can’t we do that? We don’t have to just be a manufacturing hub. We have the ingredients to be a global EV hub, a supply chain to the world.
How can Indonesia better manage the environmental damage of mining transition minerals?
Let’s be frank. Mining is not the cleanest of industries. That is why it is so important that advanced countries share their technology. A British mining company that specialises in zero-waste processing is doing a feasibility study in Australia, and they are planning to come to Indonesia too. There has been progress in powering manufacturing processes by solar, for instance, but less in the technology behind mining.
There is a big opportunity for Indonesia to work more closely with Australia, which currently does a lot more trade with China. Indonesia and Australia are neighbours. We should work together more. For instance, Indonesia has lots of nickel, Australia has lithium. There could be a lot of synergies in mining transition minerals. It’s time for us to revisit our relationship.
How do you see JETP panning out?
I hope the JETP will be the answer [to Indonesia’s energy transition riddle]. But I don’t just believe in talk and commitments – I want to see real action. I think the world recognises that Indonesia is moving in the right direction; we are trying. But there must be the understanding that Indonesia needs economic growth too, and energy accessability and affordability is still an issue. We don’t want to leave anyone behind.
Indonesia is working towards becoming the world’s fourth-largest economy by 2045, when we will mark 100 years of independence. At the moment, income per capita is US$4,000-5,000. We’re aiming for US$20,000 per capita by 2045. It’s an ambitious goal.
The question is, what sort of Indonesia do we want to see by then? We want to eliminate poverty. But we also want to live in a clean country with healthy people breathing clean air. We need the right net-zero roadmap to realise that vision. We also need the right skills and technology, which is why the government recently merged its research and education ministries. Indonesia will have a population of, perhaps, 320 million by 2045, and we need the right investment in human capital to a void a skills shortage.
Tell us about Indika Energy’s commitment to achieve net-zero emissions by 2050. Is that going to plan?
It will be difficult and a commitment like this must come from the top. The motivation to change came from my daughter. I was having coffee with her one day. She had just returned from the UK, where she was studying. She passed me her phone and showed me an article titled ‘100 killers of the world’. My name was there, as the head of a coal company. That’s what triggered me. I went back to the board and said: ‘Guys, we need to change.’
So we started to think about how to move away from coal and create a new strategy for net-zero 2050. We started to sell our coal assets one by one. We’re selling off our coal mines, gradually.
At the same time, we are pivoting our energy business to renewables. We have invested in solar and biomass companies. We are also moving into nature-based solutions through our forestry business, and electric mobility [Indika announced a deal with EV component producer Foxteq Singapore to produce EVs and electric batteries last September].
I don’t want ESG (short for environment, social and governance) to just be a motto. It has to be instilled in the business. That is the key to success. And that is a work in progress.
This interview has been edited for brevity and clarity.
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