Funds for refinery expansion raise doubts over US green energy vow
Jakarta yet to see any money months after US$20b pledged in celebrated transition deal
At the G20 summit in Bali in November, Indonesia and the United States announced a headline-grabbing US$20 billion energy transition deal aimed at helping the Southeast Asian nation curb its carbon emissions and reach its net-zero target a decade faster than planned.
Details of the Just Energy Transition Partnership (JETP) would be announced in six months, it was said at the time.
Six months have passed since the landmark deal and Indonesia, Southeast Asia’s biggest economy, finds itself in a stalemate with its JETP partners. Not only has a comprehensive investment plan not been announced, Jakarta has openly voiced its frustration with its partners’ perceived lack of commitment in disbursing the promised money.
And, in fact, the only money Indonesia has been promised by the US recently is far from climate-friendly: last week the Export-Import Bank – a government agency that assists the export of American goods and services – said it would lend US$99.7 million to help fund the expansion of a refinery operated by Indonesian state-run oil firm Pertamina in the nation’s East Kalimantan province.
The bank’s move not only pokes holes in Washington’s commitment to the climate, but also risks increasing Jakarta’s reliance on fossil fuels, environmentalists and experts say.
In late 2021, after the COP climate change summit in Scotland, US President Joe Biden ordered federal agencies to stop funding new fossil fuel projects abroad.
Andri Prasetiyo, a researcher at Trend Asia, a Jakarta-based non-profit that focuses on the transition to clean energy, said the EXIM cash underlined the “inconsistency” of the Biden administration’s vow to stop backing fossil fuel projects. “This funding risks disrupting the achievement of the net zero target. One of Indonesia’s net zero targets is reducing the use of fossil energy, not just coal, but also oil and gas, but the US seems to show that the fossil energy industry is still relevant to support,” Andri said.
According to US-based research firm Rhodium Group, Indonesia was the world’s fifth-biggest greenhouse gas emitter in 2019, largely because of deforestation and coal plants, with the latter generating 61 per cent of the country’s power. Renewable energy currently contributes to 12 per cent of national power capacity.
EXIM Chair Reta Jo Lewis said on the agency’s website: “This project would support hundreds of US jobs at dozens of manufacturers across the country, and allow Indonesia to substantially reduce its reliance on imported, refined transport fuels while upgrading to a cleaner standard, protecting human health and the environment in the process.”
However, the frustration over US’ perceived lack of commitment to reducing Indonesia’s greenhouse gas emissions resonated in Jakarta as Luhut Pandjaitan, the coordinating minister for maritime affairs and investment, revealed on May 9. During his visit to Washington in April, he said, he explained his country’s planned transition to net zero, to which the US responded positively.
“Then I said: ‘Where is the money?’ It’s all just talk now,” Luhut told reporters, referring to the money promised by JETP countries and institutions.
Under the JETP deal in November, the US, Japan, Canada, France, Germany, Italy, Britain, Norway, Denmark and the European Union promised an initial US$20 billion in funding, with half coming from the public sector and private financing covering the other half.
The cash would be disbursed in the next three to five years to cap Indonesia’s power sector emissions in 2030. The money would also be spent on bringing forward the country’s target of reaching net-zero emissions in that sector by a full 10 years, aiming for 2050 instead of 2060.
Institutions, including the Asian Development Bank, the Climate Investment Funds, and the World Bank also contributed to the partnership.
The US$10 billion in funding raised by the private sector would be coordinated by global coalition Glasgow Financial Alliance for Net Zero, a body made up of leading financial institutions committed to accelerating decarbonisation.
Alliance members include the Bank of America, Deutsche Bank, HSBC and Standard Chartered.
Among the factors contributing to the slow disbursement of funds for Indonesia, Luhut said, was the interest calculation on loans given by such institutions, as the nation preferred the rate to be lower than commercial loans. In an interview with Bloomberg this week, the influential minister doubled down on this stance, saying “if we get the money with good terms, we proceed [and] if not, we will go ahead with our own plans”.
Putra Adhiguna, an analyst at the Institute for Energy Economics and Financial Analysis, an international non-profit think tank, said it was unlikely the stalemate would be resolved soon as JETP countries might need Indonesia to show a “more credible clean energy transition pathway”.
“But if you ask me whether Indonesia will quit the JETP, I’m not that pessimistic,” Putra said.