How Indonesia's Incoming President Can Advance the Transition to Clean Energy

At this critical moment, Indonesia's energy policies will shape the country's economic dynamics and either provide a solid foundation for the transition to clean energy or limit the country's progress. With a fresh mandate for action, the newly elected president will have the opportunity for bold policy-making and delivery.

Four key actions for the incoming government to consider include the following: implementing a legally binding energy transition roadmap in the form of a presidential decree (Perpres) or government regulations, reforming harmful fossil fuel subsidies, reducing Indonesia’s dependency on coal, and accelerating growth in renewables.  

The new government’s plan to cut energy subsidies and compensation for the 2025 budget year could be a bold policy move that mirrors Jokowi’s first term back in 2014.

However, in order to evaluate Prabowo’s potential approach, it is essential to examine energy policy dynamics over the past decade and where they leave Indonesia today.

Early Ambition

During the previous government’s first term from 2014 to 2019, it set out ambitious energy transition goals. The measures included the reduction of energy subsidies, biofuel initiatives, encouraging investment in renewable energy through tariff system reforms, and achieving a 100% electrification rate nationwide while eliminating electricity subsidies and reducing production costs.

During this first term, Indonesia continued its commitment to achieve 23% renewable energy in its energy mix by 2025, pledged to reduce greenhouse gas (GHG) emissions by 29% (unconditional) and up to 41% (conditional on international support) by 2030. In 2022, these targets were increased to 31.9% (unconditional) and 43.2% (conditional), respectively, with a goal of net-zero emissions by 2060. It also partially removed subsidies on premium gasoline and introduced a new pricing mechanism.

These reforms led to budget savings of around IDR 211 trillion (USD 15.6 billion) in 2015, which was then reallocated to other sectors and widely regarded as a step in the right direction.

Setbacks and Subsidies

Despite initial reforms and pledges, subsidies for fossil fuels have gradually crept back up, reaching their peak in 2022 at IDR 551 trillion. It is particularly concerning that a significant portion of Indonesia’s energy subsidies are directed toward fossil fuel industries, with no indication of this trend reversing.

Support for Indonesia’s coal industry persists, and it is increasingly shifting toward downstream activities such as coal gasification. Recent legislation offers tax incentives for coal liquefaction and gasification, while coal-producing companies now enjoy free royalties for coal derivatives.

Energy Emissions Rising

Progress on GHG emission reduction has been mixed. While Indonesia’s overall GHG emissions have fallen, energy sector emissions have steadily increased over the past decade (except for 2021–2022 due to the COVID-19 pandemic).

This trend is likely related to the government’s limited progress in reducing the country’s coal dependency. Despite USD 20 billion pledged to transition to renewables through the Just Energy Transition Partnership (JETP) in 2022, the JETP Comprehensive Investment and Policy Plan (JETP CIPP) only plans to retire 1.7 GW of coal power plants while an additional 23.5 GW of new coal power plants are still in the pipeline.

High fossil fuel subsidies and inconsistent government messaging create investment uncertainty, hindering the growth of renewables. In 2023, renewable energy investment hit a 6-year low, contributing to stagnating renewable energy growth, with only 13.1% achieved in 2023. Instead of coming up with strategies to accelerate this growth, the government opted to update the target for renewable energy mix, lowering it to 17%–19% by 2025. Not only is this lower than the previous 23% by 2025 target, but it also threatens the new, more ambitious target set by JETP of 44% by 2030.

A Way Forward

Indonesia’s energy transition plans launched with ambitious goals a decade ago but faced challenges in implementation due to policy inconsistencies and entrenched interests.

There is no denying that the energy sector in Indonesia is tightly interwoven with politics and fossil fuel interests. It is also undeniable that the transition to a cleaner energy system demands fundamental reforms to the country’s energy policy that can only be achieved through strong political will. With his landslide victory in the election, Prabowo has a strong foundation to begin his term with necessary actions, such as energy subsidy reforms, despite the potential for pushback from critics.

Energy transition cannot be achieved without the government addressing the roadblocks that have been hampering the development of renewable energy, such as the issues of local content requirements, renewable energy tariffs, and the fossil fuel subsidies that tip the scales against renewables. A stable investment climate can be created if the government comes up with a clear and legally binding roadmap, such as the ones already identified in the JETP CIPP.

The government won’t be short of recommendations, but what has been lacking is the commitment to take action. Prabowo’s proposed cabinet with approximately 108 ministers and vice ministers, including representatives from nearly all political parties in Indonesia, as well as his plan to split eight existing ministries into 18, could make it easier for him to start his term with decisive actions or may prove challenging due to the competing political interests at play.

Whatever path he chooses, given the growing climate concerns, it is crucial for Prabowo to begin his first term with the momentum needed to bring Indonesia’s energy transition commitment back on track. After all, further delays will only cause more problems down the road.  

Anissa Suharsono is an energy policy associate with IISD’s Energy Program. She holds a BSc in physics from the Bandung Institute of Technology and an MSc in sustainable energy technology from Technische Universiteit Delft, the Netherlands.

She specializes in renewable energy policy, fossil fuel subsidy reform, coal and power sector dynamics, and just energy transition, with 13 years of experience working in the energy industry.