US, Japan-Led Climate Pact Set to Offer Indonesia $15 Billion

(Bloomberg) -- The US, Japan and other countries will offer a climate finance deal worth at least $15 billion to help Indonesia shift its coal-dominated power grid away from the polluting fossil fuel.

Details of an agreement will be announced during the Group of 20 meetings in Bali next week after talks between US President Joe Biden and Indonesian President Joko Widodo, Coordinating Maritime Affairs and Investment Minister Luhut Panjaitan said Friday, confirming an earlier Bloomberg News report.

The “just energy transition partnership,” or JETP, pact with Japan, the US and others follows roughly a year of negotiations and could be announced as soon as Tuesday, according to people familiar with the plans, who asked not to be named because the details aren’t yet public.

A spokesperson for the US Treasury Department and Japan’s foreign ministry declined to comment.

The deal would enable Indonesia to accelerate efforts to shutter excess fossil fuel generation capacity, and to limit its pipeline of coal power projects, factors that are currently thwarting the development of renewable energy, the people said. 

“I do hope the size is going to be big enough to create confidence in terms of delivering the transition of energy,” Indonesia’s Finance Minister Sri Mulyani Indrawati said Friday at the Bloomberg CEO Forum in Bali. 

Southeast Asia’s largest economy will need about $600 billion to phase out coal generation, add a similar amount of renewable capacity and make other changes like developing an electric vehicle sector over the next three decades, State-owned Enterprises Minister Erick Thohir said in a September interview. 

Indonesia recently stepped up its emissions reduction targets with plans for more aggressive greenhouse gas cuts by 2030, and has set out a goal of reaching net-zero by 2060 by developing more solar, geothermal and nuclear power. Coal currently dominates the nation’s economy, accounting for more than half of the country’s electricity and is a key driver of growth -- Indonesia is the world’s top exporter of thermal coal. 

The agreement is modeled after a similar $8.5 billion climate finance deal for South Africa first outlined at last year’s UN climate summit, while talks are also under way on efforts to strike pacts for nations including Senegal and India. South Africa only this month published a detailed investment plan, showing how complex it can be to turn initial bare bones deals into fully realized proposals.

However, unlike the South African deal, which was hastily advanced at last year’s climate summit, the Indonesian JETP is the product of a full year of negotiations and the initial framework is more detailed, according to some of the people.

US officials have been working to steer some of the world’s most populous countries to cleaner forms of energy, including talks with Indonesia and Vietnam, US special presidential envoy for climate John Kerry said in an interview last month.

Panjaitan spoke with Kerry on the issue on Thursday night and parties hope to make an announcement by Wednesday, he told the B-20 Net Zero Summit on Friday in Bali. “Indonesia needs to transform, we care very much about this and our negotiation with US and JETP went very well,” he said.

Though the announcement is set to be delivered alongside the G20 meetings, the details will reverberate all the way to the COP27 climate summit in Egypt, where a central issue is how to get more investment dollars to work building renewable power projects in developing nations. 

Indonesia’s abundance of thermal coal and large volume of potential power plant projects have long been cited as a barrier to the nation bringing on more capacity in renewables. State-run electricity utility Perusahaan Listrik Negara, or PLN, has a pipeline of about 13.7 gigawatts of new coal generating capacity under construction or development. 

Under the JETP, some of those new coal plants would not be built and total new coal power capacity additions would shrink to about 10 gigawatts, some of the people said. PLN didn’t immediately respond to a request for comment.

It’s not immediately clear how many existing coal plants PLN would commit to closing early under the deal, though company executives previously have identified 6.7 gigawatts for potential early retirement. 

--With assistance from , , , and .

(Updates to add investment minister comment in 2nd paragraph.)

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