Indonesia’s Dilemma Between Economic Growth and Environmental Sustainability

During the early COVID-19 pandemic, the government successfully passed the Omnibus Law to keep pursuing its ambition of realising the unachieved 7% annual economic growth. The law promises to cut the infamous red tapes in bureaucracy to attract more business investment and create job opportunities. The bigger question posed by many, however, remains to be: are all of the business-oriented laws passed and economic projections worth the risk of the global climate crisis that threatens the country’s national security?

The climate crisis has again worsened and is more threatening than before to countries worldwide. The man-made crisis led to a disastrous flood in Pakistan that caused 1,731 fatalities and 33 million of the population displaced. On the other side of the world, Hurricane Ian hit Florida and became the second costliest storm in the United States, reaching $84 billion, killing 32 people, and more than 18 thousand residential properties suffered from major damage. Meanwhile, in late 2021, Indonesia experienced catastrophic flooding across Kalimantan in late 2021 that hit more than 140 thousand people and lasted more than 3 weeks due to rapid deforestation and exploitation. These phenomena prove the “Code Red” report raised by the Intergovernmental Panel on Climate Change report is undeniably real and can have an impact on developed and developing countries. Hence, the dependence on fossil fuels and unsustainable practices of industries are a few of the utmost priorities to be resolved rapidly and globally.

However, Indonesia seems disinterested in taking progressive steps seeing the lacklustre response from the Minister of Environment and Forestry at last year’s COP 26. Indonesia did not proceed with the commitment of carbon reduction due to the goal of ‘development’. The government is using the 1945 Constitution as their basis of argument. On the other hand, does it mean prioritising national security, economic, and social equity threatened by the climate crisis considered not aligned with the Constitution?

Bear in mind that international development and financial institutions have committed not to finance infrastructure projects, for instance, emission-intensive coal-powered plants. At the same time, coal-powered plants still made up more than 50% of Indonesia’s electricity source. In the case of green energy, Indonesia is still lagging in renewable energy investment in its energy mix. Until 2020, renewable energy is still at 11.51%, far below the targeted 23% in 2025 based on the National Energy Policy (KEN). Furthermore, the government deserves to be questioned with the little update on 2021 Nationally Determined Contributions (NDCs) compared to 2016. To reduce greenhouse gases, 29% to 26% reduction are done independently and the remaining 41% with international assistance. All in all, the government has to take the climate crisis as the most urgent challenge to date. Without issue-focused solutions, the climate crisis can spark the biggest national security threat at our time, for instance, migration, intra-state conflicts, and state collapse caused by livelihood insecurity, local resource competition, and extreme climate impacts.

Finding an Effective Middle Ground

There are two conceptual ways to be focused on: political consolidation and the market concern over environmental sustainability. First, we should come to the realisation that there is no post-reformation President that has parliamentary control at 82% like President Joko ‘Jokowi’ Widodo, and we never know if the same momentum is repeatable, giving more than sufficient bandwidth to the extent to pass a controversial law. Albeit with the parliamentary capability, we cannot be naïve to the fact that Indonesia has abundant energy resources, including the dirtiest fossil fuel, coal. Based on the data from the Ministry of Energy and Minerals, Indonesia’s coal reserve itself can last up to 60 years. Therefore, it is not surprising as the current usage of coal in the energy mix has exceeded 32% from the 30% KEN’s threshold due to the rational national interest and cost-benefit. However, this does not mean the government is reluctant and drops its guards to proceed towards renewable energy.

The definite solution is how President Jokowi can approach through a comprehensive environmental law to provide accessible adoption of green energy and significant incentives to technology innovation in facilitating the reduction of carbon emissions. For example, as Indonesia is highly reliant on coal, the transition from fossil fuels to renewable energy requires time and alternative greener sources of energy. The implementation of technology such as Carbon Capture, Utilisation, and Storage (CCUS) technology into existing sources of fossil fuel energy that can convert to fewer carbon particulates is one of the options to be considered to bridge the transition towards net zero. Hence with the policy compromise, President Jokowi with his power in the parliament can pursue this realistic approach.

Secondly, the Indonesian market is becoming more conscious of the private sector’s footprint on the environment, including the types of projects they are investing in. The new phenomenon can be observed from the two new indexes launched by the Indonesia Stock Exchange (IDX) in collaboration with the Indonesian Biodiversity Conservation Trust Fund (Kehati) Foundation. These indexes group Indonesian companies that prioritised Environmental, Social, and Governance (ESG) and financial performance standards, mostly excluding industries such as mining, tobacco, and pesticides. As a matter of fact, the latter precedent index, Sustainable Responsible Investment (SRI)-Kehati Index since its release in 2009 has outperformed Indonesia’s IDX Composite and LQ45 at 224,19% compared to 153,14% and 137,42%.

The notable trend proves the impeccable impact of a company that upholds sustainable, responsible, and transparent approaches and investments. What to see after COP 27 early this November and forward is the government incentivizing and accelerating the industries to adopt the principles of ESG as the industry represents 37% of the total usage of electricity. The huge burden could be a catalyst, setting environmental sustainability and energy-conscious for the industry as a norm. These principles are not necessary, but a necessity for the industry to mitigate the climate crisis and, most importantly, embrace and gain the trust of the market.

If environmental concerns are often undermined by economic growth, surely example in the private and public sector has shown that those two goals can be reconciled. The 1945 Constitution’s description of development, as other general principles, are not explicitly excluding the environment. On the contrary, the interpretation of it is politically influenced by the ruling government’s orientation. Sadly, as we have seen, the political will of the current government in the environment is not big enough to meet climate targets. On this occasion, we should ask ourselves, “If we keep denying it, what will we say to our children and children’s children?”

Kevin Angdreas is Candidate of MSc International Political Economy at the London School of Economics and Political Science. He can be found on Instagram and Twitter with username @kev_kag