Indonesia’s $20 Billion Climate Deal With Biden Hits Delay

Indonesia has pushed back the launch of a much-anticipated investment plan underpinning a landmark $20 billion climate financing deal struck with US President Joe Biden last year.

(Bloomberg) — Indonesia has pushed back the launch of a much-anticipated investment plan underpinning a landmark $20 billion climate financing deal struck with US President Joe Biden last year.

Efforts to hammer out the specifics of the Just Energy Transition Partnership, or JETP — which is intended to provide affordable financing to clean up the Southeast Asian nation’s coal-dependent power grid — have been hampered by disagreements over the cost of funds, and by legal and policy tangles.

Half of the $20 billion intended to be mobilized was supposed to come from wealthy nations and the other half via large financial institutions like HSBC Holdings Plc and Citigroup Inc., under the Glasgow Financial Alliance for Net Zero.

A draft investment plan has been submitted to Indonesia’s government and JETP partner, but the comprehensive strategy will now not be launched until later this year, as unspecified “additional data” needs to be included, Indonesia’s JETP secretariat said in a statement on Wednesday.

The new timeline will also allow for more public feedback, the secretariat said.

Indonesian President Joko Widodo and Biden made headlines last November when they agreed on the historic package that’s also intended to promote renewable energy, invest in infrastructure and support local populations through the transition.

The setback is a potential embarrassment for an Indonesian president who has made economic diplomacy and this green deal a key part of his legacy, hoping to produce a model for others. 

It’s also an indication of just how hard it is to work through the pioneering financing deals the world needs to avoid disastrous climate outcomes. Emerging economies do not want to take on the cost of transition alone and wealthy nations and financial heavyweights have struggled to step up. Domestic concerns intervene, as they did in South Africa.

“The delay in the Indonesia JETP investment plan, while unfortunate, is not unexpected,” said Ali Izadi-Najafabadi, BloombergNEF’s head of Asia-Pacific. “There have been fundamental differences among the stakeholders with regards to areas to prioritize for investment as well as the financing structure.” 

For months, Indonesian officials have expressed concern over just how much JETP funding would be made up of grants, as opposed to loans, and where cheaper funding would be allocated. Banks and financial institutions have wrestled with internal and other constraints.

Indonesia said it remains committed to the energy transition, adding that JETP aims to accelerate this process for the global good. 

“Given Indonesia’s current state of economic development, this effort can only be achieved with international support,” said Rachmat Kaimuddin, the country’s deputy coordinating minister for maritime affairs and investment. “Therefore it’s essential that the ambition and support are aligned on all aspects” laid out in the investment plan, he said. 

Indonesia has a long way to go to provide clean energy for its growing economy. Reaching net zero by 2050 could cost $3.5 trillion, according to BloombergNEF. 

“While it’s encouraging that a draft plan is under consideration by the Indonesian government, it’s not clear if a few months delay will be sufficient to resolve the differences,” Izadi-Najafabadi said.

–With assistance from Faris Mokhtar and David Stringer.

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