Indonesia Considers Coal Production Levy to Finance Energy Transition

Indonesia is exploring the implementation of a coal production levy as a strategic measure to finance its energy transition. This initiative aims to generate substantial revenue to support the shift towards renewable energy sources and reduce dependence on fossil fuels.

Potential Revenue from Coal Levy

According to the Indonesian Sustainable Welfare Foundation (SUSTAIN), increasing the coal production levy could yield significant national revenue. Under various scenarios, the country could receive a minimum of Rp 84.5 trillion annually, with the potential to reach up to Rp 353.7 trillion. These figures are based on calculations considering coal production and price fluctuations between 2022 and 2024.

Addressing Energy Transition Challenges

The proposed coal levy aims to address financial challenges associated with the energy transition, particularly in funding the Just Energy Transition Partnership (JETP). By increasing revenue from the coal sector, Indonesia can secure the necessary funds to accelerate the adoption of renewable energy technologies and infrastructure development.

Ensuring Fairness and Sustainability

SUSTAIN emphasizes that this policy would promote fairness, as coal companies have been experiencing substantial profits. Implementing a progressive levy would ensure that these companies contribute to the national effort in transitioning to sustainable energy sources. 

Government's Perspective

Septian Hario Seto, Secretary Executive and Member of the National Economic Council, notes that while coal royalties have significantly contributed to national revenue in recent years—approximately Rp 170 trillion in 2022 and Rp 168 trillion in 2023—some coal mines have a lifespan of less than ten years, especially those with Special Mining Business Permits (IUPK). This indicates that the current royalty structure may not be sustainable in the long term. 

Balancing Subsidies and Transition Goals

Tiza Mafira, Executive Director of the Climate Policy Initiative, highlights that government spending on fossil fuel subsidies remains substantial. Between 2016 and 2022, total government revenue from fossil fuels was Rp 210 trillion, accounting for 11% of total revenue, while fossil fuel subsidies reached Rp 165 trillion, representing 9% of total expenditure. This imbalance underscores the need for a strategic shift in funding mechanisms to support the energy transition. 

Conclusion

Implementing a coal production levy presents a viable solution for Indonesia to finance its energy transition. By leveraging the coal sector's profitability, the country can secure the necessary funds to invest in renewable energy infrastructure, promote sustainable development, and fulfill its commitments to global climate goals.