Indonesia's ill-fated drive towards carbon dependency

Indonesia's ill-fated drive towards carbon dependency

18th November 2007

A leading journal on Indonesian affairs has spotlighted the extent to which the southeast Asian country has become dependent on coal for its energy supplies - it's already the world's biggest single exporter of thermal coal.

In contrast to many other countries, Indonesia’s global greenhouse gas emissions have risen faster than GDP growth, with " a marked shift in ...energy mix toward high-emissions sources."

The government currently plans to install 10,000 MW of new coal-fired generating capacity by 2009-2010 which, according to the author, " will effectively lock in new high-carbon infrastructure for many decades... Yet there are large opportunities to follow a lower-carbon path."

Bali’s climate conference :

Rich countries should pay big bucks to reduce emissions in the developing world

Frank Jotzo, Inside Indonesia

November 2007

Climate change has climbed up the agenda in the global public and policy discussion. Indonesia is no exception, as the country is vulnerable to future climate change impacts and is a major greenhouse gas emitter.

The spotlight is on Indonesia as the host of this year’s UN climate conference. Over 10,000 delegates, including ministers and heads of state, will descend on Bali in December. The talks are shaping up as the launching pad for negotiations for a new international agreement, after the first period of the Kyoto Protocol runs out in 2012.

Science shows more strongly than ever the risk of dangerous climate change. It is no longer just an environmental problem, but a challenge to development and economic prosperity. People in developing countries like Indonesia are most vulnerable. To limit the risk of dangerous climate change, the goal being discussed is a 50-80 per cent reduction in global greenhouse gas emissions by 2050 compared to levels in 2000. Global emissions rose by 70 per cent from 1970 to 2004.

Continuing on this path would set the globe on a trajectory of rapid climate change.

To turn ever rising global emissions around is a daunting task, and all countries need to be involved if it is to happen. Rich countries are historically responsible for greenhouse gases already in the atmosphere and can more readily pay for action. But the bulk of the increase in greenhouse gas emissions each year comes from developing countries. The international discussion tends to focus on China and India as the global centres of growth, but Indonesia has huge emissions from deforestation, and emissions from energy use are growing swiftly as well.

Impacts and Indonesia’s vulnerability

Climate change is not just an issue of higher temperatures and sea-level rise, but of flow-on effects throughout the climate system, in particular changes in rainfall patterns. Indonesia can expect longer dry seasons and shorter but more intense wet seasons. That means greater risk of flooding and droughts. Agricultural growing patterns will change, and with that come risks to regional food security.

Sea-level rise can cause sea-water inundation, with damage to agricultural growing areas and urban infrastructure. Higher temperatures worsen the spread of water- and vector-borne diseases, and have direct health effects through increased heat stress. Impacts are expected to differ strongly between regions. In some ways climate change could be beneficial, but overwhelmingly the impacts disrupt established systems.

Climate change will affect the poor more than the rich, because they are often more vulnerable to disruptions to their physical environment. Flooding in Jakarta in 2006, for example, hit poor flood-prone areas whose residents could not readily pay for health care or reconstruction of their homes.

Adapting to climate change will be important for continued development and economic prosperity. Infrastructure will need upgrading, from transport networks to flood defences. Improvements will be needed in public health, emergency management, agricultural extension, urban planning and so forth.

But spending scarce public resources in preparation for long-term future risks is problematic. In Indonesia as elsewhere it is difficult to justify spending big money on structural improvements for climate change, when there are many more pressing concerns in areas like health and education.

Even further down the list are investments to reduce greenhouse gas emissions, whose benefits are dispersed over the whole globe and over future generations. This leads us to Indonesia’s greenhouse gas emissions.

Deforestation

Indonesia’s carbon emissions made headlines earlier in 2007 when a report entitled ‘Indonesia and climate change’ pointed out that Indonesia is the third largest greenhouse gas emitter, behind the United States and China, and ahead of Brazil, Russia and India. This is on account of land-use change, mainly deforestation. Clearing land releases carbon stored in trees and in biomass below ground into the atmosphere as carbon dioxide. This occurs either by fire or by later decomposition of wood and wood products. Peatland fires in Kalimantan and Sumatra are a major source of carbon dioxide emissions, and also a big factor in the ‘Asian haze’.

Deforestation is thought to account for almost 20 per cent of current total global greenhouse gas emissions, with Indonesia and Brazil the largest sources. Tropical forests are often converted for private economic gain that is small compared to the amount of carbon dioxide released, when emissions are valued at prices paid in emerging carbon markets in developed countries.

Plans for an international incentive scheme against deforestation are expected to figure prominently at the Bali meeting. Mechanisms need to be devised that have real prospects of reducing deforestation and that encourage financial flows from rich countries. Different models are in the debate, including a global fund to pay for avoided deforestation or, alternatively, creating tradable offsets for avoided deforestation. Each model has its own difficulties, from how to estimate the amounts of emission saved to how to allocate funding and check it is spent properly.

Indonesian provinces that have not yet begun to exploit their natural forest resources heavily may be interested in carbon payments as an alternative to large-scale land conversion. Large amounts of money will be needed, to essentially buy out competing economic interests. Incentives to retain forests need to outweigh the opportunity costs of foregoing other development options.

Australia recently pledged A$200 million over five years to support projects aimed at reducing net forest loss, principally in Indonesia. This sends a positive signal, but by itself it is the proverbial drop in the ocean. To substantially slow global deforestation will require tens of billions of dollars per year, not tens of millions. And at current rates of forest conversion, little time is left.

Fossil fuel emissions

The largest share of greenhouse gas emissions globally is carbon dioxide from burning coal, oil and gas. Indonesia’s fossil fuel emissions account only for a little under 1.5 per cent of the world total, about the same as Australia. But they are rapidly rising. They are now two and a half times larger than in 1990, and over that period have grown at a slightly faster rate than those of China. For the world as a whole, the rise since 1990 is about one third.

Remarkably, Indonesia’s emissions have risen faster than GDP growth, in contrast to most other countries. Over recent years, there has been a marked shift in Indonesia’s energy mix toward high-emissions sources.

Most of the increased energy demand is met using coal, the most greenhouse gas intensive fuel, and oil products for transport. By contrast, use of gas (which has relatively low emissions) has stagnated since the financial crisis, and growth in renewable energies such as geothermal has been slow.

There are straightforward economic reasons for this. Indonesia has plentiful coal reserves that are easily accessible, and this is the cheapest fuel for electric power generation and some heavy industries. Gas is more profitable to export into booming markets in East Asia than to sell domestically. Investment in renewables suffers from high up-front expenditure and long payback periods, which is a particular problem when investors feel uncertain about future laws and regulations in Indonesia.

More coal expansion is planned. The government’s current answer to the looming electricity supply crisis is a ‘crash program’ for expansion of base-load capacity through coal-fired power plants. The plan is to install 10,000 MW of new coal-fired generating capacity by 2009/10 (existing on-grid capacity is around 23,000 MW), using low-grade coal. This will effectively lock in new high-carbon infrastructure for many decades.

Yet there are large opportunities to follow a lower-carbon path. They include more efficient, energy-saving equipment; greater use of gas rather than oil or coal; expansion of renewable energy sources like geothermal and hydropower and, more controversially, large-scale biofuels production.,Even nuclear power remains in the discussion for Indonesia despite safety and security concerns. The common feature of most of these options however is that they are more expensive than the high-emissions alternatives.

The way forward

Curbing Indonesia’s emissions must be part of an effective future global response. Yet Indonesia, like other developing countries, has much more pressing and immediate concerns that need scarce public resources. Reducing greenhouse emissions is a global public good; its benefits are dispersed over everyone on the planet and future generations.

The logical conclusion is that rich countries need to pay for greenhouse gas reduction measures in developing countries like Indonesia on a big scale. This is far from easy to achieve. Issues of international equity and incentives to free-ride on other countries’ efforts remain tricky.

But political will to find a solution is growing. The Kyoto Protocol approach could be broadened using a portfolio of different commitment options, and made more flexible to accommodate individual countries’ preferences and circumstances. The Bali climate conference must mark an important step, and Indonesia as the host is in a good position to help the process along.

Frank Jotzo (frank.jotzo@anu.edu.au) is a research fellow at the Research School of Pacific and Asian Studies, Australian National University. He specialises in the economics of climate change and climate policy. Inside Indonesia 90: Oct-Dec 2007

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