Political Economy of Net Zero: Indonesia

Indonesia faces significant structural barriers to achieving net-zero emissions by 2060, including an unstable policy environment, inconsistent signals regarding fossil fuel subsidies, and a lack of coordinated strategy across sectors. The country requires approximately $200 billion annually for its climate agenda, yet domestic public budget contributions from 20152020 averaged only $4.5 billion. To address these gaps, the briefing suggests three key interventions: the use of blended finance to de-risk renewable energy projects like geothermal power, the operationalization of 'Just Transition' principles through the Indonesia Just Energy Transition Partnership (INO-JETP), and the implementation of multi-level coordination mechanisms to engage sub-national governments and standardize greenhouse gas reporting.

• Indonesia's path to net-zero emissions by 2060 is obstructed by six primary political economy issues: an unstable policy environment where commitments like the Long-Term Strategy (LTS) are not legally binding; inconsistent policy signals such as continued fossil fuel subsidies; a funding gap where public and private resources still favor carbon-intensive activities; a lack of coherent cross-sectoral strategy (e.g., biofuel programs increasing emissions in the AFOLU sector); limited attention to independent academic and marginal voices; and the operation of government and non-government actors in silos.
• There is a severe shortfall in climate finance; while Indonesia needs at least $200 billion per year, the average annual domestic public budget contribution between 2015 and 2020 was only $4.5 billion, or 2.25% of the requirement. Furthermore, actual allocated amounts decreased from $8.91 billion in 2018 to $5.23 billion in 2020.
• Blended finance presents an opportunity to mobilize private and multilateral investment by using philanthropic grants for feasibility studies and de-risking. A successful template is PT Sarana Multi Infrastruktur (PT SMI), which used World Bank funding to support high-cost geothermal exploration, helping to unlock Indonesia's 29,000 MW geothermal potential.
• The Indonesia Just Energy Transition Partnership (INO-JETP), co-led by the US and Japan, aims to provide $20 billion toward the estimated $600 billion needed to phase out coal-based electricity. However, the operationalization of 'Just Transition' principles remains unclear for many stakeholders, creating a need for philanthropic support in social justice and gender mainstreaming for impacted workers.
• Net-zero implementation is hindered by a top-down approach and a lack of standardized greenhouse gas (GHG) reporting. There is currently no regulation mandating big emitters from the private sector or state-owned enterprises to report emissions, and existing reporting systems are uncoordinated and developed in silos.

APA

Octifanny, Y., & Halimanjaya, A. (n.d.). Political Economy of Net Zero: Indonesia. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2022/12/Political-Economy-of-Net-Zero-Indonesia.pdf

Chicago

Octifanny, Yustina, and Aidy Halimanjaya. Political Economy of Net Zero: Indonesia. Climate Strategies, n.d. https://climatestrategies.org/wp-content/uploads/2022/12/Political-Economy-of-Net-Zero-Indonesia.pdf.

Wikipedia

{{cite report |last1=Octifanny |first1=Yustina |last2=Halimanjaya |first2=Aidy |title=Political Economy of Net Zero: Indonesia |publisher=Climate Strategies |url=https://climatestrategies.org/wp-content/uploads/2022/12/Political-Economy-of-Net-Zero-Indonesia.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{octifannyndpolitical, author = {Octifanny, Yustina and Halimanjaya, Aidy}, title = {{Political Economy of Net Zero: Indonesia}}, institution = {Climate Strategies}, url = {https://climatestrategies.org/wp-content/uploads/2022/12/Political-Economy-of-Net-Zero-Indonesia.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }