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For now, Indonesia's energy transition needs China

The country has no plans to take sides in the West's trade war with China, and in fact wants more Chinese capital.

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Photo credit: Aditya Irawan / NurPhoto via Getty Images

Photo credit: Aditya Irawan / NurPhoto via Getty Images

Indonesia is looking to bolster its clean energy manufacturing and capacity — and is courting both the West and China for investments.

  • The topline: The cost of the energy transition is too burdensome for Indonesia to take sides in the burgeoning trade war. Even with investment commitments coming in from the West, the coal-dependent country will continue to look toward China for energy transition investment and technologies. 
  • The market grounding: The International Partners Group and the Glasgow Financial Alliance for Net Zero have committed a collective $30 billion to Indonesia for everything from developing renewables to bolstering its supply chain. Since 2019, the country has banned the export of nickel to build up domestic processing capabilities. It now also bans the export of copper and bauxite. Currently heavily dependent on coal, the country wants to leverage its other natural resources to attract foreign investments in processing and building clean technologies. 
  • The outlook: In the meantime, Indonesia will still have to look to China for the technology to meet its goal of 44% renewable energy generation by 2030 goals, said Mari Pangestu, Indonesia’s former minister of tourism and creative economy in an episode of Columbia Energy Exchange. “If you really want an accessible and affordable green transition, you will have to rely on a lot of the technologies that have developed in China,” she said. 

Even with the $30 billion between IPG and GFANZ, Indonesia still needs a lot more capital for the energy transition. 

Pangestu said more needs to be done to attract private capital specifically: “one dollar of concessionary finance is only mobilizing less than one dollar of private capital,” she said, adding that it should be five times that. 

But as Indonesia’s largest trade partner, China is pouring money into the country. Eleven deals totaling $12.6 billion were signed at last year’s Indonesia-China Business Forum in Beijing. Those mostly focus on developing EV batteries, and clean energy. 

And earlier in 2023, the Chinese glass producer Xinyi Glass Holdings announced an $11.5 billion investment to build a quartz sand processing plant on Indonesia’s Rimpang island. Quartz sand is used in the production of solar panels. 

These investments are important for building up Indonesia’s renewable energy capacity and supply, even as Pangestu said those efforts are being hindered by strict content requirements and the state-owned utility’s misaligned incentives. 

Because the state-owned electric utility — which has a monopoly on production, distribution and transmission — has more than enough supply from existing coal-fired power plants, she said, “they’re not in a hurry to deploy renewable energy.” She added that the utility is “not very excited” about buying any excess electricity that comes from privately owned large-scale renewables or rooftop solar.

Furthermore, Pangestu said Indonesia’s current industrial policy outpaces the capabilities of domestic manufacturers.

“If you're going to build a solar power plant, you have to procure solar panels locally, but we don't have a local industry well-developed enough for that,” she said. That’s where the Chinese investments announced last year, which promise to meet the country’s domestic sourcing requirements, come in.

Instead of focusing on building the entire clean energy supply chain domestically, Pangestu is vying for regional supply chains. 

“With all these capital intensive processes, you need scale,” she said, adding that that scale should also yield more competitive technologies. “So that's why I'm really pushing the idea that we should be developing regional supply chains.”

And the current trade tensions between China and the West could actually help bolster those potential regional supply chains. ASEAN countries, along with New Zealand and the lithium-producing Australia, could create a regional supply of batteries and electric vehicles, Pangestu said . 

“We recognize that there's this whole diversification from China, deconcentration from China, which is very dominant in critical minerals,” said Pangestu. “Not every country should be trying to develop their own value chain on batteries and EVs.”.

And while much of the West can afford to start to decouple from Chinese clean energy technologies, Indonesia cannot. 

“For developing countries, it would be a disservice to want to decouple just because it's geopolitically not correct,” Pangestu said. “We still need to have a transition, and we want to do it in an as affordable way as possible. So we should be seeing China as a partner, but also a partner that can develop our own renewable energy sector.”

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Transcript 

Mari Pangestu: I think the developed countries which have been trying to tell us to phase down and phase out are discovering it's not easy, it's very complex and it's very costly. And the transition is very different in developing countries compared to developed countries.

Bill Loveless: Indonesia's economy is closely tied to its natural resources. It is the world's fourth-largest producer of coal and Southeast Asia's largest gas supplier. But even with its connection to fossil fuels, the country's population strongly supports climate goals. In this year's presidential election, every candidate advocated for the energy transition and more renewables. At the same time, like many other developing countries, Indonesia needs energy security, increased access to energy and affordability. These factors complicate the energy transition and could prolong the use of existing fossil fuel infrastructure and abundant coal resources. So how can Indonesian policymakers balance economic development and the energy transition? What is the role of renewables in meeting the country's growing energy demands and how can Indonesia collaborate in energy with other Asian nations?

This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I'm Bill Loveless. Today on the show, Mari Pangestu. Mari is a distinguished visiting fellow at the Center on Global Energy Policy. From 2020 to 2023, she served as the managing director of Development Policies and Partnerships at the World Bank. Prior to joining the bank, Mari served as Indonesia's Minister of Trade and as Minister of Tourism and Creative Economy. I sat down with Mari for an interview at the Center on Global Energy Policy in New York. We discussed her work in the Indonesian government and her views on economic development in the country. We talked about the public support for de-carbonization and how it is influencing energy policy, and how Indonesia is using its natural resources to build a stronger presence in global energy markets. I hope you enjoy our conversation.

Mari Elka Pangestu, welcome to Columbia Energy Exchange.

Mari Pangestu: Thank you, Bill.

Bill Loveless: Great to have you here in New York and have this discussion. Your country is just so fascinating, the development that's taking place there, and so significant too when we talk about the energy transition, not only for itself but for the region and quite frankly for the world. But before we get into that, tell us a little bit about yourself. You've held some prominent roles in government and even in Washington, but tell us a little bit about your background and your schooling and how you got to where you are today.

Mari Pangestu: I'm from Indonesia. Many people don't know it's a big country. We're the fourth-largest country in the world in terms of population, and we have 17,000 islands. I like to start with that because a lot of people who are not familiar with Indonesia don't understand how big of a country we are.

Bill Loveless: It's almost incomprehensible if you're not familiar with it. If you look at the map for the first time and see how spread out and how big it is.

Mari Pangestu: Yeah, yeah. It takes you longer to get from one end of Indonesia to another than it is from San Francisco to New York.

Bill Loveless: Wow.

Mari Pangestu: That gives you a perspective. So I'm Indonesian, but I happened to spend a lot of time abroad because of my father's work.

Bill Loveless: Which was? What kind of work did your dad do?

Mari Pangestu: He was actually an economist, so he taught at different universities. So I ended up spending a lot of my life being educated in Singapore, Australia, and then finally in the US to do my PhD. And basically I'm an economist by training and I always wanted to work in academia and that's where I started my career teaching and working in Indonesia in the university. And then somehow I was at a time in Indonesia where I was advocating for good policy, and I kind of became known for that and labeled as being vocal, although I didn't think I was very vocal. And that's how probably when we had the change in government and democracy and all that, I became part of the reform movement at the time. And that's how I ended up in government actually, because we were all part of a reform movement that ended up in government.

Bill Loveless: Where you held a couple of positions, trade minister and-

Mari Pangestu: Tourism and Creative Economy. So I was in government for 10 years. And when I was an academic doing policy, good policy is important work, "Oh, you've got to change the world," and this. And then when you actually have to implement policy reforms, you find it's not that easy. So even if you could achieve 20% of what you thought should be done you should declare a victory, right?

Bill Loveless: Right.

Mari Pangestu: So that was a kind of huge learning experience. And then I ended up also at the World Bank as the managing director of knowledge, or what we call development policy and partnerships. So that's another learning experience because you're not just dealing with the development of your own country, but the development of many, many other countries with very, very different levels of development as well as different initial conditions. So I think I've learned a lot now about-

Bill Loveless: Taken a lot from all the work you did in Indonesia, you took it to the World Bank and you're continuing today in important roles.

Mari Pangestu: Yes, that's right. Yeah.

Bill Loveless: Your country's so vast, as you mentioned, and it's known for its rich culture, it's significant economic growth, but it faces a critical challenge in balancing its energy needs with its environmental and economic sustainability. How is it going about doing that?

Mari Pangestu: That's a really good question. I think things have changed in the last five, eight years. Prior to that, I think most developing countries, including Indonesia, their answer when we are asked about climate action is, "Climate is a luxury for developing countries. We need to grow first and we worry about climate later." But now I think we do see a change in the government, as well as in the people's attitudes where there is much more pressure to deal with the climate change.

I would say one important turning point was forest fires, because Indonesia was always looking bad because of the forest fires from the peatlands. And in 2015 it really affected the country very much and lots of strong reaction from the population, which led to very strong government action including moratorium on the use of peatland for agriculture. And I think that led to quite a big change. And now I think our forest fire issue and deforestation issue has much, much reduced. And now we are much more serious about addressing more broadly the issue of climate. And because we're also facing frequency of disasters, droughts, high temperatures, pollution, that's the other big thing that really hit the population more recently. So I think we are going to be very serious about addressing it.

Bill Loveless: It's interesting you say how it affects the people and raises concerns and prompts a government response. We've seen that very same thing happening in China, for example, where pollution, particularly around Beijing, is a big concern for the government there. They worry about public attitudes about these things. When people get upset when they're having troubles breathing, they blame the government. And the government there, it's a big issue for them. You see the same thing happening in your country as well.

Mari Pangestu: Yes, yes, most definitely. Especially in the last few years. And we just had elections and for the very first time, all three candidates in their platform had something about climate change.

Bill Loveless: Interesting.

Mari Pangestu: And we do review the issues and how young people feel about it, and it did come out that young people actually felt very strongly about the environment.

Bill Loveless: Which may not be that surprising, right? Young people you would expect to be concerned, it's their future. But we've seen in other countries, Europe, for example, where say farmers, environmental policies have been a big concern among farmers who are pushing back over changes, older people like that. But you're seeing rather broad support for it.

Mari Pangestu: Yeah, so I think they must have read all the surveys as well and realized that they have to say something about climate and about the importance of environment and so on. So this is the very first time, and we've had democracy now for 20 years, so it's the very first time that it's on the platform.

Bill Loveless: Interesting.

Mari Pangestu: So I think that's a positive sign, but it does not reduce the complexity of the question you asked about how do we balance reducing our CO₂ emission from coal-fired power plants, because that's still the majority of our source of power, and how do we balance that with the need for affordable and just transition from this coal-based power plants.

Bill Loveless: Yeah, it's coal, it's oil. The country has been an oil exporter. Industries in which its economy has been heavily dependent. I would think the transition from those traditional fuels, given the reliance of Indonesia on them, would be as difficult there as it is in so many other places around the world.

Mari Pangestu: Yeah, it is. And it's also the issue that we still subsidize electricity as well as fuel consumption. So the relative price of carbon, if you like, is not correct. And this is very different from the other Southeast Asian countries which already have the energy price linked to world prices. So we are still carrying this subsidy which affects consumption on the one side and then whenever the energy price spikes, your subsidy goes up tremendously and that reduces the amount you can spend on other things. So it's one of the big reforms that need to happen if we're talking about how to have an energy transition. And the other thing is how do you accelerate renewable energy deployment? That's the other big challenge for Indonesia. And we have been asked by developed countries by G7, there's this Just Energy Transition platform, which the G-Seven have tried to work with South Africa, Indonesia and Vietnam to reduce the coal-fired power plants, phase down the coal-fired power plants and then accelerate the renewable energy. But the reducing or the phasing down of the coal plants is very, very difficult and very costly.

Bill Loveless: To what extent is Indonesia reliant on coal-fired electricity and how does it compare historically?

Mari Pangestu: It's about 60 to 70% and it increased in the last 15 years.

Bill Loveless: Increased?

Mari Pangestu: Before that it was more fuel-based and then it switched to coal because coal is cheaper and we do have coal. So that's why we ended up having this dominance of coal. And we also export, we are also exporting coal as well. So coal is a very important component of the economy and also providing revenues to the government. So whatever you do with coal has to be done in a way which is not going to cause disruption in many ways and affect the price because it's also about affordability for the people.

Bill Loveless: I'm going to ask you in a minute how you go about doing that if you were still in government, but also I want to just touch on petroleum to what extent petroleum plays a big role in the country's economy.

Mari Pangestu: It used to be very dominant. Back in the '80s, 80% of our government budget as well as our foreign exchange came from oil. That was in the '70s into the early '80s. Then you had the collapse of the price of oil, which was a big wake-up call for Indonesia. And then they start diversifying. And unfortunately we didn't also increase the investments with oil and gas and now we are actually a net oil importer. But if you put oil and gas together, we are still a net oil and gas exporter. But we are a net oil importer. And that's also another reason why there was this switch to coal as well.

Bill Loveless: You mentioned before the challenge facing the government in terms of guiding a sustainable transition to cleaner forms of energy. You mentioned how the most recent election indicated there's broad support in the country for policies that would address climate change. So then how do you get at these very real challenges that you kind of laid out just now with the reliance on coal probably standing out most prominently among them? What is it a government official can do? Perhaps has the new government suggested steps it might take?

Mari Pangestu: Well, basically this government as well as the incoming government, which they have been saying they're continuing the policy of this government, they've done a couple of things. One is they've put a moratorium on new coal-fired power plants since 21 or 22. But the reality is that you've got about 13 gigawatts incoming, those who already have a concession and which will be built. So you've got another 13 gigawatts coming on stream. And you also have what's called captive coal-fired power plants, which are linked to industry, including for our nickel smelters and nickel processing. So that's still another source of coal-fired power plants. So we still are going to be relying on new sources of energy coming from coal at least for the next five, 10 years.

So the challenge of reducing and phasing out is very difficult because basically you have to pay for early shutdown, which is a financial cost, and you also have to break a contract, which also has legal implications. So I think the developed countries which have been trying to tell us to phase down and phase out are discovering it's not easy, it's very complex and it's very costly. And the transition is very different in developing countries compared to developed countries. The average age of a coal-fired power plant in advanced countries it's like 40, 50 years. It's close to having to be closed. In a country like mine, it's like 10, 15 years. So it is another 20 years, so 30 years to go. So what we are going to try to do is obviously have some phase down or reducing the existing capacity, but what is going to be more important is to accelerate the renewable energy deployment.

Bill Loveless: And it would seem too that you need to address the subsidies too at some point, right? Because unless the right price signals are sent, you can't expect consumers to respond to the changes that you anticipate are needed.

Mari Pangestu: Yeah, absolutely.

Bill Loveless: Is there much talk about doing that? That's a tough one.

Mari Pangestu: Always. There's always talk about it and every new government that comes in does remove the subsidy. So when I was in government in 2004, in 2005, we removed the subsidy. But then what we didn't do was link the domestic price to international price. Same thing happened in 2015 with this incoming government. They also removed the subsidy and reallocated it to infrastructure and social needs. But again, they didn't link it to international prices. So then it balloons up again. What needs to happen, we hope in the next government, is that they will see, especially if the price of energy goes up with the current tensions in the Middle East, they're going find... Because we are importing oil and we will have to address the subsidy issue again and this time please link it to international prices.

And if your concern is affordability for the lower income groups, you can give cash transfer or for electricity, you can do differentiated pricing for the lower income households. So you do a targeted subsidy, not an overall subsidy. All the analysis actually show that the beneficiaries of the subsidy are actually the middle income and upper middle income. It's not the lower income. So we really need to get this right and really have the price of fuel reflect the relative price of carbon because otherwise, both on the behavior change as well as the incentive to go to renewable energy, it's not going to be there. So that's really one of the big reforms that needs to happen for us to really have a good Just Energy Transition plan.

Bill Loveless: And it's one again where it can be... You talk about the public approval of a lot of the things that are going on, and yet if you don't do that properly, you risk stirring a public dissent over the higher prices among the middle class.

Mari Pangestu: Remember the yellow jackets?

Bill Loveless: That's right.

Mari Pangestu: This is what most governments sort of think about when they do that. But when in 2005 we raised the price of fuel 130%, but at the same time we did cash transfer compensation to the lower households for I think three to six months. And it was by poor households per household. And it was very effective. And we did a lot of communications to reduce the political pushback. But it does require you to think about those impacts very carefully and compensate and manage politically.

Bill Loveless: There's a track record then for dealing with this sort of thing?

Mari Pangestu: Yes, yes, yes. So it can be done, you just have to make sure you do it in a comprehensive and correct way.

Bill Loveless: I'd like to talk about renewable energy. I understand that hydro and geothermal energy are promising options in Indonesia. How is Indonesia's energy sector benefiting from technical breakthroughs especially among these renewable energy opportunities?

Mari Pangestu: So I think we have a number of potential sources of renewable energy. We have a lot of geothermal. Now the challenge with geothermal is the infrastructure, the pipeline infrastructure to get the energy to where it should go. Same thing with hydro, where the hydro is is not necessarily where the needs by population or by industry are. So there are a couple of areas outside of Java. So it is going to be, a lot of things will happen outside of the major population, where the population are in Java, like in Kalimantan where the hydro is, that's also where the nickel is... Sorry, Sulawesi is where the nickel is. And Kalimantan also, northern Kalimantan is going to be the new area of industrial development, including with the minerals because there's hydro there. But that will take time. Therefore solar, wind, floating solar, wind and other sources of energy also need to be deployed at the same time because they would take not as long as having to do hydro or geothermal.

And what needs to happen is the renewable energy law needs to be passed so that the feed-in tariffs are attractive enough. And earlier we talked about how vast Indonesia is. So it's really difficult to say what is the solution. There is no one-size-fits-all solution for a country like Indonesia. So Java, Bali, because it's where most of the population live, that's going to be the large scale power plants, whether getting out of coal and going into probably have to have natural gas as a transition fuel. But if you talk about the outer islands, it can be solar, it can be wind, it can be biomass, depending on the geographical location. And even though our electrification rate is quite high overall, but if you talk about the remote areas, it's still very low.

So we still have access problem, at the same time having a transition problem. So it really requires a good mapping of the potential. And floating solar, because we have so much ocean, is probably one of the options. And we are even exporting electricity to Singapore from the Riau Islands. This is a new initiative. In the past, Singapore was quite wary about importing electricity, but now because of the energy crisis, it opened up the opportunity for regional cooperation in energy.

Bill Loveless: And this is solar power that's being exported?

Mari Pangestu: Yes, floating solar.

Bill Loveless: Floating solar?

Mari Pangestu: Yes. From the islands. There are a number of islands off Singapore which are part of Indonesia. And so the floating solar are in these islands and it's being exported to Singapore through a pipeline under the sea.

Bill Loveless: You mentioned the feed-in tariff option among policies. What has encouraged the development of the geothermal so far, for example, the floating solar? And what more will it take? Is the feed-in tariff a policy that would adopt a feed-in tariff for the developers? Something that's essential?

Mari Pangestu: Yeah, I think that's one of the essential factors. Because at the moment what we hear is that the feed-in tariffs are not attractive enough. And it's partly because the state-owned electricity utility company, which has a monopoly on production, distribution and transmission, they have excess supply of electricity still based on coal-fired power plants because of COVID having lowered the demand projections. And they also made miscalculation on the projection. So with that excess supply, they're not in a hurry to deploy renewable energy. So that's been one of the issues. Whereas in about five years time, the excess supply will be reduced. So if you want to have a replacement for the new energy sources to be coming from renewable energy, you have to start now. The investments need to start now.

Bill Loveless: And they have started now to some extent?

Mari Pangestu: Yeah, but one issue is the feed-in tariffs. The second issue is local content requirements. So the government has a policy where, okay, if you're going to build a solar power plant, you have to procure solar panels locally. But we don't have a local industry well-developed enough for that. So there has to be some flexibility given on that. And then the last issue is of course the PLN as the monopoly utility company, they have to want to buy and absorb the excess supply of renewable. If the renewables are being used for industry purposes or even household solar panels on the roof, the excess needs to be sold back to PLN. Right now they're not very excited about buying back the excess

Bill Loveless: That's interesting. As happens with utilities everywhere.

Mari Pangestu: Yeah.

Bill Loveless: Mining, forestry, agriculture are some of the sectors of the Indonesian economy on which the country is most dependent. And in these crucial areas, how can the government balance a compromise between the need for environmental sustainability and economic growth?

Mari Pangestu: Yeah, I think we have, at least in the last 10 years I would say, learned that exploitation of our natural resources needs to be done in a sustainable way so that there are regulations regarding environment sustainability. But always the issue is enforcement and being able to really go to some of these remote areas and make sure that this is being done. And we have had a policy for the last 10 years on what we call increasing value added of the mineral resources. We don't want to be exporting primary commodities anymore or mineral ores. We want to have processing. And we banned the export of nickel in 2019, and that led to a large amount of investments in smelters as well as in the processing of nickel and stainless steel.

But there has been criticism as to whether this has been done in an environmentally sustainable way and whether it's actually benefited the regions that have these resources. So this is one of the criticisms that have emerged. Actually during the elections, it did come out as an issue. So I do believe that the government will have to take this issue very seriously because we now also ban the export of bauxite as well as copper. And there are a number of other minerals that we want to supposedly increase the value added off.

And I think we need to have a more comprehensive policy while recognizing we want to increase value added on the one hand, but we've got to do it A, in an environmentally sustainable way, we have to do it in an economically and commercially viable way because the moment you ban something, there are the risks of substitution emerging. And it's not necessarily that you will be able to do all the downstreaming in your country. The idea about the nickel processing was that the batteries and the EVs would then also be built in Indonesia. That's not necessary if you don't have the ecosystem that supports the development of further downstreaming in that particular industry.

Bill Loveless: How long has the ban on exports of nickel been in place?

Mari Pangestu: I believe it was 2019 maybe announced that they had another two years before it would actually be totally banned.

Bill Loveless: Yeah, it's interesting. It was recent that the ban was put in place. As a former Minister of Trade, you have a comprehensive understanding of Indonesia's economic landscape. What impact does Indonesia's nickel industry have on the national economy? You mentioned this ban's in place. The thought was that more nickel would be processed there, but there's not the infrastructure to do that. And yet there is this critical demand for nickel as well as other critical minerals for electric batteries and so many other things in the renewable energy field.

Mari Pangestu: Yeah, so in fact, the government did declare success on this, and I could say there is some positive benefit from what happened even though it was done in a kind of maybe... Using export restrictions is a rather blunt instrument. You could have used export tax instead, for instance. But anyway, the export ban led to the increase in processing to ferronickel, as well as stainless steel. And if you look at the amount of exports that are nickel-based, it went from something like $3 billion to $30 billion over five years period. And the amount of investments also went up. So in terms of foreign exchange and investment flows, it had a positive benefit.

But then the criticism is more about, "Okay, did it really benefit the people in that location?" The income per capita went up, but did it really create jobs because it was capital intensive? And also there was a lot of tax holidays given. So what's the net income that stayed in Indonesia? I think that this is still being analyzed and we don't quite know the answer yet. But more importantly, I think, is the fact that the government actually wants to go further downstream, beyond stainless steel, which is using the nickel, which is a critical mineral for the production of EV batteries. But of course, the thing about wanting to do EV batteries, nickel is not the only critical mineral you need. You need lithium and other minerals. And we don't have lithium, so you'd have to import.

Bill Loveless: Right. And China, for example, has such a headstart.

Mari Pangestu: Yes. And so unless you have the ecosystem, and it does require a lot of capital and a lot of energy, you're going to have to use coal to be able to produce these batteries. So I think these are issues that we need to face moving forward. But I think the idea of having increasing value added is a valid one. It's more about how do you achieve that. And what you can do in nickel, Indonesia is the second-largest producer of nickel. Might not necessarily be true for bauxite. We are probably number six or number seven producer of bauxite. Similarly with copper. It's not all minerals that you could actually do this kind of policy.

So I'm more in favor of developing regional supply chain, whether it's batteries or critical minerals value chain, because we recognize that there's this whole diversification from China, deconcentration from China, which is very dominant in critical minerals. That's kind of a valid diversification objective. So I think what should happen is regional supply chain, within ASEAN, Southeast Asia, or within East Asia including Australia and New Zealand because Australia has lithium. So you can think about a regional supply chain on critical minerals supply and having the kind of production and processing could be done in different places, including the battery production, including the EV production. Not every country should be trying to develop their own value chain on batteries and EV.

Bill Loveless: That's interesting. In effect then, Indonesia at some point could export its nickel as part of this value chain for the region?

Mari Pangestu: Yes. Yeah, because what you need is scale. With all these capital intensive processes, you need scale EV needs scale for you to be competitive. So that's why I'm really pushing the idea that we should be developing regional supply chains. This exactly happened with combustible engine vehicles back in the '80s and '90s. Every ASEAN country wanted their own national car. Of course none of them worked. And the moment Thailand opened up and said, "Okay, we welcome everybody." I think Thaksin's line was, "We want to be the Detroit of Asia." So he opened up the sector and then all the investors came in and then Indonesia said, "Okay, we better do the same." So in the end, Toyota, for instance, they specialize because you want scale. They produce the Sedans in Thailand and they produce the SUVs in Indonesia, and then you exchange as well as exporting to the rest of ASEAN and the rest of the world.

Bill Loveless: What about carbon removal? This concept of net-zero entails balancing greenhouse gas emissions with removals by using technologies like carbon offsets or carbon capture. How feasible do you believe it is for Indonesia to achieve net-zero emissions given its diverse geography and its social economic challenges?

Mari Pangestu: That's definitely in the strategy of the government. There are two areas where we could think about carbon capture, if you like, to use that word. One is actually still in the energy sector itself. So in the coal-fired power plants, we just passed a regulation on CCS.

Bill Loveless: Carbon capture-

Mari Pangestu: Yeah, carbon capture and storage. And then the other one is CCUS, right? The U is the usage part. So we just passed a regulation on that. So I think we can foresee that the coal phase down or the coal exit is not going to happen anytime soon. So in the meanwhile, can we actually increase energy efficiency? Can we at least make the coal-fired power plants as clean as possible with all this technology that's available? So that's really definitely something that needs to happen as well as modernizing the grid. That's one part of it.

The other part of it is what we call the carbon sink, right? Indonesia has mangroves. Indonesia has coral reefs. So mangroves absorb four times more carbon than forest, than tropical forests. So we have actually a big project to replant and restore mangroves across Indonesia, 400,000 hectares or something along those lines. Something very huge. And that is what we call a triple win. You are creating jobs in the process of restoration and replanting, and that improves the ecosystem so that the fish come back and it's also used for ecotourism and you can absorb carbon so you can have a net-zero outcome. So these what we call nature-based solutions is also another big area for Indonesia, also in the tropical forests.

Bill Loveless: Yeah. What about Indigenous people? There's concerns in Indonesia as well as elsewhere to make sure that a sustainable transition is sustainable for those who are often most impacted, but at least assisted in a transition. What sorts of policies has the government considered there?

Mari Pangestu: Okay, you're bringing me back to something I did in my younger days, which was I had an NGO that advocated for Indigenous peoples. And one of the things that we did advocate for was their land rights because actually they didn't have land rights because they have communal rights. It's not individual rights. So there was a law that was passed to recognize communal rights of the Indigenous people. And about five or eight years ago, we have been, I think, recognized for this, we have defined what's called social forest.

Bill Loveless: What's a social forest?

Mari Pangestu: A social forest is where the Indigenous people have the right for that particular area in the forest, and so they have the right to develop it in the way that is sustainable. And we recorded our NGO that was working on this 20, 25 years ago, we recorded that actually Indigenous people have local wisdom in terms of how they can retain the sustainability of the forest or of the ocean because it's their livelihood. So they have the right to develop that social forest in accordance with the way the communal rights and communal local wisdom have come about. And the government can work together with the Indigenous people who are managing the social forest. You can introduce modern ideas or modern technology, but it has to be done together with the community.

Bill Loveless: And so that sort of approach has been underway for some time?

Mari Pangestu: Yeah.

Bill Loveless: 20, 25 years.

Mari Pangestu: But more recently, I think this social forest idea has been a bit of a revolution, I would say. It's an ongoing process. I don't think we can declare victory yet. But there are good examples where this has actually worked.

Bill Loveless: And it may in fact be a model for other countries?

Mari Pangestu: Yes

Bill Loveless: Because others share many of those very same challenges. You were with the World Bank for several years in Washington. I'm interested in sort of your worldview, or maybe I should say region view of Southeast Asia in terms of the energy transition. You described what's going on in your own country, which in fact is rather progressive in some aspects. And you talk about the public support there. You talk about the ongoing reliance on coal, the use of gas as a transition. And a ways to go, I guess, on renewables, but it's started, you're exporting some solar now. How does Indonesia fit in with the region as a whole?

Mari Pangestu: Yeah, I think we used to talk a lot about how there should be regional cooperation in energy, but it was always on paper. But I think the energy crisis that happened with the invasion of Russia in Ukraine and everything being upended on the energy and the food security has actually heightened, again, the need for regional cooperation in energy. So we had this program called the ASEAN Energy Grid for a long time, but it never happened. But more recently there have been two projects that have come about trying to implement and realize this so-called ASEAN Energy Grid. One is a hydropower project in Laos, which goes through various countries and ends up being sold to Singapore. It's still only a hundred megawatt, but it's the beginning, right? Because you're talking about having interoperability between grids and crossing countries. So you need to figure out how that works. Then the other one was the one I just mentioned about selling our solar energy to Singapore, which is very new because Singapore in the past was not open to the idea of importing energy.

So I think moving forward, I believe we should be working on a concept of energy supply and demand which is regional in focus, because a lot of our countries are neighboring. So you could be closer to your neighboring country than to the rest of your own country. And that happens also, not just in Southeast Asia, but in Africa. Say Mozambique has a lot of gas, which they do export to South Africa, but they should also be exporting to other parts. Egypt, same thing. So I think the notion of regional energy grids and energy supplies can be an answer to our sustainable energy and energy transition issues.

Bill Loveless: Yeah. And of course, the elephant in the room in the region, of course, is China, which is so dominant in so many ways in terms of renewable energy, critical minerals and all of those sorts of things. What's the play vis-a-vis between Southeast Asia and China when it comes to energy security in that region?

Mari Pangestu: Well, a lot of the power plants are being built by China and with Chinese development financing. So I think we learned, at least when talking from my being formally in the government, the first 10,000 megawatt which we got from China, we had lots of issues and problems. It was called fire-powered plants. So this government in the next 10,000 megawatt learned the lesson about quality. It's about a quality issue of, "Okay, it might be coming from China, it's coming with concessionary finance from their development banks. It's not clear whether it's commercial or not commercial, but we require quality and we require them to fulfill the environmental regulations and, as much as possible, procure locally."

So I think those are kind of learning curves. But the dominance of China in critical minerals, solar panels, wind turbines and EV batteries, and anything battery related to EVs is the reality. We need to cooperate and get parts of the Chinese value chain either to start investing in the different parts of our region and diversify, if you like, or deconcentrate. But I don't think you can decouple from China because if you really want accessible and affordable green transition, you will have to rely on a lot of the technologies that have developed in China, because China actually because of its scale in solar, for instance, or even in wind, they were the ones that brought down the price, right?

There was the price effect and the diffusion of technology effect, which is now being affected by a lot of the geopolitical tensions as well as the security issues around it. But I think for developing countries, it would be a disservice to want to decouple just because it's geopolitically not correct, because we still need to develop, we still need to have transition, and we want to do it in an as affordable way as possible. So we should be seeing China as a partner, but also a partner that can develop our own renewable energy sector.

Bill Loveless: Before you go, I'd like to ask you just what sort of is your own outlook these days on the energy transition? It sounds like you're reasonably optimistic about what's taken place in your own country, Indonesia. Tell me if I'm wrong, but that's the impression I got. But what is sort of your outlook? How do you feel about this as you've come off a couple of important roles you've played in your own government as well as at the World Bank? Are you optimistic about the future going forward, or something short of that?

Mari Pangestu: I'm not sure I'm reasonably optimistic about energy transition in my own country for the same reason that I would answer the second part of your question about how optimistic am I on the outlook globally. Because I think what we need, the actual process of energy transition is very complex because you're talking about the coal exit, you're talking about the investments needed for renewable energy and the grid, the Just Transition component and the policy reforms that need to happen at the same time. And the scale of financing that's needed. And this is where it can only happen if you have private sector coming in, maybe one-third or even less can come from government funding and concessionary funding from multilateral development banks. Two-thirds has to come from the private sector.

This is the big question everybody's trying to answer. How do you mobilize the private sector in this space? Right? And that's where I'm not yet optimistic because there's so much work that needs to be done about the transition finance taxonomy, about the de-risking instruments, the guarantee instruments that are needed, and how does this all come together, is still trying to happen. But I do hope that we can all work together on this. And the multilateral development banks are being, what do you call it? Criticized as well as being pushed. Your catalytic financing from your concessional funding needs to do more to mobilize private capital. At the moment, it's like $1 concessionary finance is only mobilizing less than $1 private capital. It needs to be five times of that, $1 of catalytic needs to mobilize $5 of private capital. How can we make this happen? And this is really the big challenge for all of us.

Bill Loveless: That's a question you must have raised frequently at the World Bank in Washington when you were there.

Mari Pangestu: Mm-hmm, yeah.

Bill Loveless: Well, Mari, thank you very much for taking the time to join us today. Your country, Indonesia, as we've said, is certainly a fascinating one. There's so much interesting that's happening there and so much potential for more. But as you know, challenges for Indonesia as well as for other countries in Southeast Asia. Thank you for joining us on Columbia Energy Exchange.

Mari Pangestu: Thank you, Bill.

Bill Loveless: That's it for this week's episode of Columbia Energy Exchange. Thank you again, Mari Pangestu. And thank you for listening. This show is brought to you by the Center on Global Energy Policy at Columbia University School of International and Public Affairs. The show is hosted by Jason Bordoff and me, Bill Loveless. The show is produced by Aaron Hardick from Latitude Studios. Additional support from Lilly Lee, Caroline Pittman and Kyu Lee. Roy Campanella is the sound engineer. For more information about the show or the Center on Global Energy policy, visit us online at energypolicy.columbia.edu or follow us on social media @ColumbiaUEnergy. If you like this episode, leave us a rating on Spotify or Apple Podcasts. You can also share it with a friend or colleague to help us reach more listeners. Either way, we appreciate your support. Thanks again for listening. See you next week.

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