Guest essay by Vijay Jayaraj
Over the past few decades, Indonesia, an archipelagic nation made up of over 17,000 islands, has seen amazing economic progress. The strategic utilization of fossil fuels is a key factor at the center of this growth.
Indonesia is a significant user of coal as well as the world’s third-largest producer of the mineral. But just like other countries, it faces immense pressure from entities like the United Nations and anti-fossil fuel leaders in the West to reduce the carbon dioxide emissions of industrial activity.
Rich countries led by the U.S. and Japan offered Indonesia a $20 billion package in 2022 to persuade the coal-dependent nation to transition off fossil fuels. In November 2022, the country’s leadership signed the agreement known as the Just Energy Transition Partnership, which was expected to formally ratify the nation’s move away from coal.
However, almost a year later, the island nation appears to be going the opposite direction as it embraces fossil fuels for energy security. In 2022, Indonesia used more coal than ever and is looking to produce even more this year.
Indonesia’s coal consumption will rise steadily until 2029 due to the construction of new coal-fired power plants. As per Global Energy Monitor, nearly 19 gigawatts of coal power were under construction at the end of 2022. If the status quo prevails, the country is expected to retain its ranking as the sixth largest emitter of CO2 in the world.
Coal, Nickel, and Asian Energy Security
A plentiful supply of coal, oil and natural gas has had a significant impact on Indonesia’s economic development and is now crucial for boosting the economy and lowering poverty.
For this reason, the country continues to increase the installed capacity of fossil fuel-powered technologies. Since 2015, the highest share of increase in electrical generation capacity has been in fossil fuels, not renewables. In 2022, almost 90 percent of the country’s primary energy came from coal, oil and gas.
Among these, oil and coal provide the majority of the county’s primary energy, with the latter’s contribution being 45 percent. Not only is Indonesia’s coal output essential to the country’s energy security but it is also for Asia’s. The nation is on course to produce in 2023 695 million tons, of which 518 million tons will be exported. Some of the largest buyers of Indonesian coal are China, India, Japan, the Philippines and South Korea.
China and India, two of the world’s biggest economies that mostly rely on coal-fired power plants, benefit the most from Indonesia’s exports of coal. With its share increasing to two-thirds in 2022, Indonesia solidified its position as India’s top foreign supplier of thermal coal. For the foreseeable future, Indonesia intends to keep mining its reserves, as neither China nor India are exhibiting signs of reducing their reliance on coal.
It’s also vital to remember that Indonesia is the number one producer of nickel, an essential part of batteries that power EVs and energy storage systems globally. In 2022, half of the world’s nickel production came from Indonesia.
The production of nickel in Indonesia is largely dependent on smelters that use coal energy, which makes the nation even more dependent on the fuel. The adoption of EVs and batteries in Europe and North America suggest that the demand for coal-enabled nickel production will continue in Indonesia.
Indonesia’s sizable export income has been made possible by the global need for coal and nickel. This wealth has been essential for funding development initiatives, maintaining Indonesia’s trade balance and adding to its foreign exchange reserves.
There is no way Indonesia will choose to kill a booming economy for a $20 billion handout to fund a so-called energy transition.
This commentary was first published at Real Clear Energy, October 30, 2023, and can be accessed here.