Indonesia’s Ambitious Net Zero Emissions Goals Require Substantial Financing and Private Sector Support

Indonesia seeks to gradually reduce total emissions through various efforts, one of which is carbon trading.

The Finance Minister of Indonesia, Sri Mulyani Indrawati, has acknowledged the significant financing requirements for the country to achieve its net zero emissions goals. The estimated financing need for Indonesia’s transition towards net zero emissions is a staggering Rp4,000 trillion, emphasizing the need for support from the private sector.

Recognizing the limitations of relying solely on the State Budget (APBN) to meet this financial demand, Sri Mulyani emphasizes the vital role of the private sector in realizing these ambitious targets.

She highlights the importance of private sector engagement, stating, “We understand that the cost required to fulfill our commitment in reducing CO2 emissions cannot solely rely on the State Budget. The private sector’s involvement is crucial,” as conveyed during The 11th Indonesia EBTKE ConEx on Wednesday, July 12, 2023.

It is evident that the financial scale required for Indonesia’s net zero journey far surpasses the current capacity of the State Revenue and Expenditure Budget (APBN), which stands at Rp3,000 trillion. Sri Mulyani emphasizes that the cost of carbon reduction efforts exceeds the APBN’s capacity. Additionally, she notes that APBN’s contribution towards the financing goal will likely not exceed 20 percent, with a potential range of around 10 percent.

Despite the daunting financing challenge, Sri Mulyani highlights the government’s commitment to facilitating investments in green projects and industries through a range of incentives. These incentives include tax holidays, tax allowances, exemptions from value-added tax, import duties, and property tax.

By offering such incentives, the government aims to attract both domestic and international investors to contribute to the green economy and accelerate the transition towards sustainable practices.

Sri Mulyani further explains the delicate balance between retiring coal-fired power plants (PLTU) and meeting the increasing energy demands driven by societal progress. While there is a need to phase out PLTU plants, the demand for energy, particularly electricity, continues to grow alongside improved living standards.

In alignment with efforts to reduce greenhouse gas emissions, Indonesia has developed plans for the early retirement of coal-based power plants and their replacement with renewable energy sources. These measures seek to align energy production with sustainable practices and contribute to the country’s net zero emissions goals.

To address the financing requirements, the government has already taken proactive steps by issuing various financial instruments such as green bonds, green sukuk bonds, and utilizing specialized institutions like PT Geo Dipa Energi as a special mission vehicle. These initiatives aim to mobilize the necessary capital to support the country’s transition to a low-carbon economy.

Overall, Sri Mulyani emphasizes the need for collaboration between the government and the private sector to meet Indonesia’s ambitious net zero emissions targets. By leveraging the expertise, resources, and innovative solutions from both sectors, the country can unlock the necessary financing and technological advancements to create a sustainable and resilient future.