Just weeks into his presidency, Indonesia’s new leader, Prabowo Subianto, pledged to retire all coal power plants in the country within 15 years.
Indonesia will be building over 75 gigawatts of renewable energy capacity during this period, Subianto said at the summit of leaders of the Group of 20 major economies in Brazil which was held at the same time as the COP29 climate talks in Azerbaijan.
With a much ambitious aim, Indonesia is estimated to require a far larger expenditure totalling up to US$235 billion over the next 15 years. However, this amount is now being scrutinised because, even before the early net-zero announcement, Indonesia will require an annual expenditure of US$30-40 billion annually to support its renewable energy transition efforts.
While this number obviously cannot be fulfilled entirely through public funding, climate finance distribution to Indonesia continues to be delayed. Under the Just Energy Transition Partnership (JETP), Indonesia has received only US$20 billion (primarily loans) out of the US$97.1 billion total investment needed for the country’s Comprehensive Investment and Policy Plan (CIPP) Power Sector Pathway.
The JETP Package Deal thus leaves a significant funding gap of 70 per cent for Indonesia to achieve its power sector reform plan by 2030.
Hashim S. Djojohadikusumo, special envoy of the President of the Republic of Indonesia, speaks at the World Leaders Climate Action Summit at COP29. Image: PPID
The Indonesian government, through its head of delegation Hashim Djojohadikusumo, had the opportunity to raise funding gaps and complex mechanism issues at the World Leaders Climate Action Summit. Unfortunately, neither JETP nor funding access were mentioned in his keynote speech.
While addressing the carbon capture and carbon market, among others, is important, Hashim should also provide space for addressing two important messages. First, Indonesia is a recipient of two multilateral climate finance programs, JETP and GCF. Second, outlining the nation’s accomplishments and concrete plans to contribute to the 1.5-degree target despite a limited budget.
While I believe the Indonesian delegation actively reiterates this in many other panel discussions, in diplomacy, this message will resonate more powerfully when conveyed directly by Djojohadikusumo as a special envoy of the president of Indonesia and chief representative of Indonesia to COP29.
Addressing these two messages will convey three important signals. First, Indonesia is a champion in climate diplomacy and in tapping into climate finance. Second, the Indonesian high officials have in-depth knowledge of the progress of climate finance and are aware of this funding shortage problem—lastly, showing the country’s optimism and firm commitments amidst climate financing constraints.
However, with that being unaddressed and a massive financing gap still looming, Indonesia missed an opportunity to demonstrate strong climate leadership to Global South nations.
I agree that addressing climate change is not about which country takes the lead and who shepherds another; rather, solidarity between developed and developing countries is what is truly needed. However, as a recipient of both JETP and GCF, Indonesia should have first-hand experience and knowledge of what is lacking and what needs improvement for future funding disbursement.
The country supposedly exercises this experience to represent Global South countries’ voices, echo their needs for more climate financing, and serve as a focal point that actively negotiates a transformative reform of the current international financial system that fails to deliver.
Funding inequalities still looming big for developing countries
The COP29 was expected to open up a new horizon for developing countries by promising to reach a new agreement on climate finance through the NCQG (new collective quantified goals). However, the progress made over the final days of COP29 was frustrating.
Lengthy negotiations eventually concluded that developed countries would raise financial pledges only by $300 billion yearly by 2035. In detail, US$300 billion of the US$1.3 trillion needed by developing countries will be provided primarily through grants and low interest rates, with the remaining US$1 trillion coming from private investment.
There are at least two reasons I could think of why COP29 resulted in a new financing accord that fell far short of expectations. First, far-right voters in the Western world are rising, with Trump’s forthcoming second presidency and several European Union hard-right parties now in power.
Proposing large amounts of climate funding may thus provoke a domestic backlash from far-right supporters and jeopardise the current party’s chances of winning future reelection. Second, with the war in Ukraine dragging on for years and inflation rampantly hitting, developed countries are restrictedly facing their own budgetary constraints.
However, with climate finance agreed at US$300 billion, the new financial pledge still leaves many loopholes. The first is inflation adjustment, which was obviously ignored in previous and current climate agreements. Because if inflation is taken into account, developed countries must surely provide more money than they previously and now pledge to pay.
With inflation considered, financial pledges of US$100 billion agreed in 2009 would have become US$145 billion in today’s worth to deliver the same value. In the same way, assuming a US inflation rate of 2.38 per cent during the last 15 years, then climate finance should be distributed annually by 2035 is supposed to be at $390 billion a year, instead of US$300 as agreed. With that explained, the new financial pledge fails to hit a tripling target as expected.
COP29 was also expected to shake up the status quo on current financial distribution mechanisms, which has been widely criticised for being overly complex and time-consuming. In Indonesia, applying for a Green Climate Fund Accredited Entity can take years to process.
As of right now, out of numerous applications, only two (PT Sarana Multi Infrastruktur and Kemitraan Indonesia) have advanced to the last round and officially become GCF’s accredited entities, with others eventually giving in after lengthy back-and-forth attempts.
For many years, developing countries have called for the simplification of funding requirements. This is because, without a standardised mechanism, each multilateral development bank can impose different conditions that can vary greatly from one another.
Barbados, through its well-known “Bridgetown Initiative,” has shed light on this, underscoring the need to reform the current global financial infrastructure, which fails to meet the financing demands of developing countries in dire need of climate investment. Rather than offering the required assistance, international financial institutions are making nations already facing economic difficulties even more indebted.
Developing countries now still pay much higher interest rates (around 14 per cent) for climate disaster recovery projects than developed ones’ (around 1-4 per cent). The initiative hence advocates for a major overhaul of the global financial infrastructure, encouraging a shift toward more accessible and low-interest financing arrangements that prioritise poor nations’ legitimate needs for climate funding.
However, with COP29 leaving inflation and funding barriers issues unaddressed, the public is now in question whether the needs of developing countries will again be timely met.
Benita Sashia Jayanti is a Climate and Energy Diplomacy Program Officer at the Institute for Essential Services Reform (IESR), a Jakarta-based think tank that focuses on energy transition, climate policies, and climate finance.
