How Indonesia Can Achieve Both a COVID-19 Recovery and Its Climate Targets

Achieving a Fossil-Free Recovery in Indonesia | Brief 1

The COVID-19 pandemic created a worldwide economic disruption, and many countries are developing support and recovery packages to help counterbalance the socio-economic effects of the crisis. The COVID-19 recovery budget presents a unique opportunity to shift countries’ public funds and expenditures to meet global climate targets while also helping their economies to recover.  This brief analyzes Indonesia’s COVID-19 recovery budget and provides recommendations on future expenditures to help align its economic recovery and Nationally Determined Contributions (NDC) targets.
By Theresia Betty Sumarno, Lourdes Sanchez on October 11, 2021
  • Indonesia spent 19% (USD 7.5 billion) of its 2020 COVID-19 recovery package on support for the energy sector, with the majority going to the fossil fuel sector. This came in addition to the already very high fossil fuel subsidies (USD 6.8 billion in 2020).

  • An important part of Indonesia’s COVID-19 recovery package (USD 6.6 billion, 16.3% of total recovery support) went to support fossil fuel state-owned enterprises (SOEs). It also dedicated USD 910 million to subsidize electricity for poor households.

  • The current renewable energy share (11.2%) in the Indonesian energy mix is far from the 23% target by 2025. Given this target and Indonesia’s new Net-Zero Emission (NZE) initiative, there is a need to significantly increase renewable energy investment. COVID-19 recovery support can help address this need.

The Government of Indonesia (GoI) has supported the recovery of its economy since the start of the COVID-19 pandemic through its National Economic Recovery package, which covered several sectors. As part of the support to the energy sector, the country’s recovery package 2020 allocated much more direct support to fossil fuels than to renewable energydespite Indonesia’s falling well behind its target of 23% renewable energy by 2025.

To meet its Nationally Determined Contribution (NDC) target as well as the current plan on net-zero emissions, there is a need to significantly increase renewable energy investment. It is a missed opportunity if the COVID-19 recovery funds are not spent to promote renewables. This investment would result in a win-win scenario in Indonesia as new investments and jobs would be created in renewable energy, which would align with the country’s climate ambitions.

To achieve the objective of achieving the NDC targets and net-zero, any fiscal stimulus to the fossil fuel sector (even if deemed necessary) should be conditional to transitioning away from fossil fuels. Furthermore, taxing the fossil fuel sector could aid the COVID-19 recovery and energy transition. Lastly, higher transparency in COVID-19 spending is important to increase public trust in the government.