Momentum is building, but global pledges for no new fossil fuel expansion come with a lot of caveats

Indonesia’s Just Energy Transition Partnership (JETP) was signed with well-meaning intentions to raise climate ambition by accelerating the energy sector’s transition to renewables. So far, it has brought to light several interesting dynamics and insight as to what that really takes.

The JETP program promised to embody collaboration across the Global North and South to raise ambition on both sides. Developing countries commit to accelerate their energy transition, while developed countries led by the United States and Japan pool together under the banner “International Partners Group” and commit to provide financial support. The Glasgow Financial Alliance for Net Zero (GFANZ), a global alliance of banks, is also part of the deal, pledging commercial funds to support JETP investment areas.

The first major milestone of Indonesia’s JETP materialised on 21 November 2023 with the launching of Comprehensive Investment Policy and Plan (CIPP). This launch, however, had been previously delayed from an initial launch target in August.

Such delay was attributed to Indonesia’s plans over the next decade to build approximately 20 GW of off-grid captive coal plants – the type of electricity generation dedicated to a particular manufacturer or industry. The CIPP draft therefore only covers on-grid plants, used for general consumption, with a separate discussion and analysis on captive plants to follow in the next few months. Indonesia previously declared downstream industry a national priority to reduce dependence on the extractive sector and build integrated local supply chains for electric vehicles, most of which is set to still be powered by coal plants.

Indonesia is not alone in facing this conundrum. Despite a respective commitment to no new coal permits, India has an estimated 65.3 GW of proposed, on-grid coal capacity under development, while China has 243 GW of coal capacity already permitted and under construction.  At a global level, 51 per cent of planned expansion from new oil and gas fields to 2050 comes from the United States, Canada, Australia, Norway and the United Kingdom.

It demonstrates that commitments for no new fossil fuel expansion come with a lot of caveats, seemingly exempting strategic national interests and permits already in the pipeline.

Such a troubling global trend requires an international and coordinated response to tackle the issue. It starts with acknowledging the pragmatic nature of emerging economies focusing on industrialisation. This aligns with past reports issued by the World Bank, Organisation for Economic Cooperation and Development and Asian Development Bank pointing to manufacturing as one of the fundamental sectors in pulling emerging economies out of the middle-income trap. Moreover, this presents an opportunity to question several pre-existing assumptions. Is manufacturing still the key to escaping a middle-income trap? Could a legal framework be built to safely renegotiate and fairly compensate existing fossil fuel licenses? Could global financial support be rallied around developing essential downstream industries powered by renewables?

The intensive preparations in developing the JETP Investment Plan have prompted Indonesia to begin asking these questions. Unlike on-grid independent power producer permits, permits for off-grid captive power plants can be issued by different authorities, ranging from central to sub-national governments, depending on the coverage and the level of licensing. Data fragmentation is therefore an ongoing challenge for Indonesia, leading to difficulties in providing data transparency. With convening stakeholders presented as a key element under Indonesia’s JETP, the awareness and process of consolidating and disclosing data about captive power plants under development is now starting to spread.

While solutions to captive power plants exist, the financing for them is elusive. The Indonesian government has suggested acquiring some captive power plants and connecting them to the grid, therefore enabling them to decarbonise together with the grid’s renewables expansion. Enhancing grid coverage would play an important role in achieving this. Geothermal and hydropower are both promising for smelters in need of non-intermittent energy, while storage solutions remain an option to pair with intermittent renewables. In terms of financing, however, private sector investment in renewables is severely lagging, with no significant investment into grid upgrades in decades.

Indonesia’s JETP is now drawing GFANZ and local banks in to discuss these previously overlooked areas of investment. Last year, there was no mention of captive coal power plants in the national discourse. There was no discussion of private sector investment into state-owned grids, and very few were seriously considering early coal retirement. This year, everybody is talking about these issues and how to make them work.

The JETP has created significant political momentum and national convergence around raising the stakes on climate ambition. The process is ongoing with no signs of halting. But as more challenges are uncovered, more resources need to be rallied around finding and supporting the right solutions.

_{This article was published in Lowy Institute’s The Interpreter on 7 November 2023.}