![]() ![]() ![]() The Partnership committed US$20 billion to finance Indonesia’s energy transition. This target was brought forward from 2060 following international pledges of support in the form of the Just Energy Transition Partnership fund, an international cooperation of advanced economies led by the United States and Japan. By 2050, Indonesia aims to reach its net-zero carbon emission target. In Indonesia’s 2022 Enhanced Nationally Determined Contribution, the country committed to reducing GHG emissions by 31.89% by 2030 or 43.2% with international assistance, compared to a business-as-usual scenario. This paper lays out the challenges Indonesia faces in financing its green transformation and recommends financing options by stocktaking Indonesia’s current policies and reflecting on global best practices. Furthermore, short-term financing like bank loans does not match the long-term maturity structure of many green projects. Indonesia has very limited fiscal space for climate-related discretionary spending, while its financial sector is very shallow, and dominated by the banking sector. However, financing a transition towards net-zero carbon emissions and renewable energy is a daunting task. Indonesia’s presidency at last year’s G20 Summit tabled the green economy agenda as a key driver to achieve the United Nations sustainable development goals (SDG). Around 60% of the country’s energy comes from non-renewable sources such as coal. Indonesia is the world’s fourth-largest emitter of greenhouse gases (GHG), contributing around 4% of total global emissions in 2019. Indonesia has committed to reaching net-zero carbon emissions by 2050, a deadline brought forward from 2060 last year. * Reza Siregar is the Head of IFG Progress Indonesia and Maria Monica Wihardja is an Economist and Visiting Fellow at ISEAS – Yusof Ishak Institute. Both funds and projects are of a long-term nature, and the deepening of the pension and insurance sectors in Indonesia could help generate the much-needed, large-scale financing needed for green projects. Pension and insurance funds, which are currently underdeveloped in Indonesia, could play an important role in financing green projects.This is a structuring approach that brings various actors – including private philanthropists and Multilateral Development Banks and International Financial Institutions – together to invest in a green project while achieving their own goals, be these financial, social or both. One potential funding source for the green economy is blended finance.Annual FDI flows to Indonesia were less than 2% of GDP over the last five years, a tiny fraction of the amount needed. Conventional sources of funding, such as foreign direct investment (FDI), remain vital, but are either insufficient or unstable and expose Indonesia to external vulnerabilities.But short-term financing like bank loans does not match the long-term maturity structure of many green projects. Without significant fiscal reforms, Indonesia has very limited fiscal space for climate-related discretionary spending while its financial sector is very shallow, largely dominated by the banking sector. Financing a transition to renewable energy is a daunting task.Indonesia needs to invest approximately US$150–200 billion per year, or about 14% of its GDP, between 20 to meet its 2050 net-zero carbon emissions target. ![]() This picture, taken on 26 October 2021, shows officials taking photos of wind turbines belonging to the state power company in Sidrap, in Sidenreng Rappang – the largest wind power plant in Indonesia with 30 wind turbine generators. ![]()
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