Indonesia already has a robust sustainable development plan. By doubling down with a low-carbon stimulus, the country can create more jobs, generate more economic growth, and build back better from COVID-19.
Blog Posts: low carbon development
As governments look to help their economies recover from the COVID-19 pandemic, stimulus packages should also build resilience to the impacts of climate change.
To deal with the forest fires and climate crisis in a more systematic and structural way, Indonesia is implementing a “first of its kind” policy, known as Low Carbon Development Initiative (LCDI). Putting a stop to forest fires requires addressing their root cause, including making sustainable land-based investments possible.
Indonesia has made remarkable economic progress over the past two decades, but to keep up growth while safeguarding public health and the environment, the country needs to switch paths. A new government report finds that smarter development, using less carbon, can deliver 6 percent GDP growth per year until 2045—while slashing Indonesia's greenhouse gas emissions.
Developing countries will need about $531 billion of additional investments in clean energy technologies every year in order to limit global temperature rise to 2°C above pre-industrial levels, thus preventing climate change’s worst impacts. To attract investments on the scale required, developing country governments, with support from developed countries, must undertake “readiness” activities that will encourage public and private sector investors to put their money into climate-friendly projects.
WRI Global’s six-part blog series, Mobilizing Clean Energy Finance, highlights individual developing countries’ experiences in scaling up investments in clean energy and explores the role climate finance plays in addressing investment barriers. The cases draw on WRI’s recent report, Mobilizing Climate Investment.
The development of Indonesia’s geothermal energy sector—and the starts and stops along the way—provides an interesting case study on how to create readiness for low-carbon energy. By addressing barriers such as pricing distortions and resource-exploration risks, the country has begun to create a favorable climate for geothermal investment.
The History of Geothermal Power in Indonesia
Indonesia holds the world’s largest source of geothermal power, with an estimated potential of 27 GW. However, less than 5 percent of this potential has been developed to date. Indonesia began to explore its geothermal resource in the 1970s, with support from a number of developed country governments. The country made some progress in advancing geothermal development by the 1990s. However, development stalled during the Asian financial crisis in 1997-98 and was slow to recover.
In the early 2000s, a number of barriers limited investment in the sector, including a policy and regulatory framework that favored conventional, coal-fired energy over geothermal. Plus, the high cost and risk associated with geothermal exploration deterred potential investors and made it difficult to access financing from banks.
The Indonesian government took a number of steps to try to advance geothermal development and received support from a wide range of international partners, including multilateral development banks and developed country governments. In 2003, it passed a law to promote private sector investment in geothermal, establishing a target of 6,000MW installed capacity by 2020.
Today WRI releases a working paper that provides new information about Indonesia’s moratorium on new forest concessions. Our analysis concludes that the moratorium alone does not significantly contribute to Indonesia’s greenhouse gas emission reduction goal of 26 percent by 2020.