5.1. The Role of Low-Carbon Energy Systems
Analysis of the modeling results provides insight into the role of a low-carbon energy system in terms of achieving Indonesia’s GHG emission reduction target. To achieve a moderate emission reduction target (e.g., a 15% reduction—CM1), implementation of energy efficiency measures combined with deployment of renewable energy would be sufficient. In CM1, energy efficiency measures would eliminate 40.2 Mtoe/year of total annual energy consumption, a 4% reduction overall. This emission reduction would also be met through electrification of end-user consumption, whereby deploying renewables for power generation would decarbonize the electricity supply. Electrification of end-user consumption is indicated by increases in the share of electricity within total energy consumption. In CM1, the share of electricity in terms of total energy consumption is 12.7% in 2030, while in the baseline scenario it is only 7.2%. This increase in electricity share contributes to emission reductions since in CM1 the electricity would be supplied by power plants using higher shares of renewables, as compared to the baseline case. In the baseline scenario, the share of renewables in the power supply would only be 4%, while in CM1 it would be 16%.
To achieve relatively large emission reductions (i.e., a 27% reduction—CM2), more mitigation measures would be required than in CM1. In addition to energy efficiency measures and deployment of renewables, coal and CCS power plants would be introduced under the condition of a high carbon price. Moreover, CM2 requires greater energy efficiency measures. In this scenario, the measures result in a 60.5 Mtoe total energy demand cut, or 17% less than the baseline energy demand. The share of electricity within total energy demands is larger in CM2 than in baseline, namely, 14% vs. 7%. To decarbonize the electricity supply, the share of renewables in the power mix would increase to 22%, and 12% of coal power plants would be equipped with CCS systems. The decarbonization technologies rely heavily on commercial activities and the government should frame policies considering actual implementation [24
]. Indonesia is endowed with the capacity to produce many types of renewable energy, such as geothermal, hydropower, solar energy, and bioenergy. Geothermal energy has particularly large potential and is a unique opportunity for Indonesia. Japan and New Zealand also have large potentials in geothermal and have therefore pursued technological development. Indonesia could thus benefit from technology transfer from these countries. Green general-purpose technologies, including Information and Communication Technology (ICT), would also contribute to CO2
emission reductions, and it is critical to consider these options [25
The emission reductions that result from the mitigation actions in this modeling study are lower than the emission reduction targets for Indonesia’s energy sector (as proposed in the sectoral breakdown of Indonesia’s Nationally Determined Contribution (NDC)) [27
]. A comparison between the results of our study and the sectoral breakdown of Indonesia’s NDC is presented in Table 3
As in the case of our study, Indonesia’s INDC was also estimated using economic and population growth as the driver of energy development. Despite using the same assumptions for economic development and population growth, the INDC estimates larger baseline emissions. The reason for this difference cannot be analyzed because the corresponding energy level and energy mix in 2030 are not provided in the INDC document. In terms of emission levels under conditional and unconditional scenarios, the results of our study are similar because those are exogenous assumptions. However, without details of INDC energy levels in these scenarios, we cannot analyze the reason for the similarity. It is probably a coincidence.
As previously mentioned, the results of our study indicate that mitigation measures will lead to some improvement (compared to the baseline scenario) in economic development (i.e., 0.6% for CM1 and 0.3% for CM2). After observing the spread of value-added output across the economic spectrum, it is likely that economic development improvements will be a result of a shift in economic activities from the fossil-fuel energy industry to industries that have higher value-added output. It should be noted, however, that the economic gain calculation only takes into account the impact of “mitigation” actions such as technology investment, taxes, and redistribution among economic sectors. Gains resulting from avoiding climate change impacts or risks (floods, droughts, etc.), adaptation costs, and the cost–benefits of improved public health due to cleaner energy systems are not incorporated in this study. However, such implications are worthy of analysis and should be discussed further. As mentioned in the previous section, two elements impact on the results of our study, namely, strong assumptions regarding coal power plants and low productivity in coal-related industries. SAM is the basis of CGE modeling and we should be attentive to the accuracy and reliability of SAM (or the input-output table).
Compared to Indonesia’s previous pledge (i.e., RAN GRK, which targeted a 38 MtCO2 reduction by 2020), the new target (INDC), which aims for 250 MtCO2 by 2030, is a big jump for the energy sector. Such a change poses significant technical and economic, as well as psychological, challenges. An important step that must be taken to achieve the reduction target is to prepare appropriate and concrete mitigation action implementation strategies and plans. Since most of the necessary emission reductions would come from the power sector (via a fuel switch from fossil fuels to renewables), the main component of government mitigation action should be linked to PLN (Plan PT Perusahaan Listrik Negara; the state-owned electric utility). A key factor for success in achieving the reduction target will be cooperation between the government and PLN.
There are several limitations to this study. Firstly, the trigger or shock factor in a low-carbon energy system is a carbon tax. In a country such as Indonesia, where industries have experienced energy subsidies for years, implementing a carbon tax would be difficult, but not impossible.
Secondly, our study considers the country as a point in space, rather than as a spatial region. Therefore, distances between energy resources and demand locations are not considered. In reality, there are many renewable energy resources for grid electricity (such as geothermal and hydropower) that are located in areas far from the demand centers and are often separated by seas and other water bodies. Therefore, exploitation of these resources would depend on practicality, advances in technology, and the economics of submersible electricity transmission systems.
Thirdly, to achieve the higher reduction target (CM2), advances in technologies such as CCS would be required. In reality, CCS technology is still in its infancy with regard to development. Therefore, implementation of CCS in Indonesia will depend on the logistical and economic advances in this technology.
Although the insights of this study are meaningful, there should be discussions on the problems that face this transition—these could be better elaborated on in future. Firstly, power generation is exogenously given in this study, considering the current power development plan, but it would be beneficial to have the flexibility to suggest broader energy system changes in future studies; Secondly, mitigation efforts would result in losers and winners in society. The potential losers tend to lobby for climate policy, so special treatment or strong political will would be needed; Thirdly, Indonesia is unique in the sense that its many islands are separated, and this would be a challenge for the grid system. The variable renewable energy amount in this study is small. However, if the cost reduction is so dramatic that the penetration of such renewable energy greatly increases, how to manage the variability would be a key challenge in a future low-carbon society.