Indonesia Announces Energy Transition Mechanism Country Platform

Published on:
by KnowESG

In collaboration with the Asian Development Bank (ADB) and PT Sarana Multi Infrastruktur, the Indonesian government has launched the Energy Transition Mechanism (ETM) Country Platform. The ETM is an ambitious strategy that allows Indonesia's energy infrastructure to be upgraded while accelerating the clean energy transition to net zero emissions in a just and economical manner.

The head of the fiscal policy agency, the ministry of finance, Febrio Kacaribu, said: “This is surely an important momentum calling for all members and beyond to deliver their climate financing commitments with real and implementable initiatives."

According to a government press release, Indonesia has established plans for effective and measurable execution of the ETM since the last meeting of Indonesia's finance minister with ADB, which announced a new partnership to launch Indonesia's ETM in November 2021.

Indonesia has formed a special Task Force and agreed on a list of coal-fired power units. It has also agreed to a crucial set of targets and milestones for stakeholders to meet as they prepare for the G20 Leaders' Summit and COP 27.

"Indonesia has put the highest priority on energy transition to cleaner energy. However, with this transition, the government of Indonesia needs to ensure that the country will be able to continue growing and requires more energy and electricity while at the same time reducing CO2 emissions. To overcome this requires a combination of controlling or retiring coal-fired power plants and simultaneously developing renewable energy. Early retirement will be conducted measurably and gradually in the medium and long term. The government ensures that this transition remains affordable for the community, business, and the state budget," the release added.

ETM is made up of two schemes. First, in Indonesia, the Carbon Reduction Facility (CRF) scheme is utilised to retire coal-fired power stations (PLTU) early. Meanwhile, the Clean Energy Facility (CEF) programme aims to construct or reinvest in green energy infrastructure. 

This approach benefits communities, investors, regional economies, and the environment. To reach the implementation level, the transactions inside the mechanism must be thoroughly specified, including the parties involved, funding instruments, difficulties, and predicted financial and economic cost or benefit. 

The country platform could accommodate the holistic approach necessary for ETM deployment to this extent. The country platform for ETM will serve as a framework for mobilising commercial and non-commercial funding sources in sustainable ways to accelerate the national energy transition.

This platform and additional measures will be drawn from a broader framework for just energy transition to meet the NDC and NZE targets. According to the announcement, the platform is open to all investors, including the World Bank, the Indonesia National Authority (INA), the Glasgow Financial Alliance for Nett Zero / GFANZ), and other international development institutions, nations, the private sector, and philanthropists.

This country platform serves as a model for other countries to follow. To ensure its effectiveness, the ETM country platform can be customised and adapted to each country's standards, priorities, and legislation. 

Blended financing, including philanthropy, bilateral or multilateral development finance, and climate finance, will fund Indonesia's country platform investment through PT SMI. The Glasgow Financial Alliance for Net Zero/GFANZ and the SDG Indonesia One (SIO) platform are two sources of funding.

Furthermore, in Bali, Indonesian Finance Minister Mulyani Indrawati and OECD Secretary-General Mathias Corman renewed the Indonesia-OECD Framework of Cooperation Agreement (FCA) for the next five years and launched the Joint Work Program (JWP) as a guide for cooperation between the two parties during the 2022-2025 period.


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