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Indonesian government trying to boost domestic coal demand

December 28, 2020


With consumption, travel and commuting all suppressed due to the COVID-19 pandemic, researchers from the Global Carbon Project calculate carbon dioxide emissions fell a record 7% in 2020. One key driver was lower demand for fossil fuels, including coal, the consumption of which is expected to fall by 8% this year — the largest drop since the end of World War II.

For many in Indonesia’s government, this is no reason to celebrate. Coal is the country’s largest export, and the pandemic has severely impacted Indonesia’s coal industry. The country, which in 2019 was the world’s biggest thermal coal exporter, has seen demand drop in key export markets including China and India. Domestic consumption is also at risk, as electricity demand from coal-fired power plants drops, exacerbating existing concerns around overcapacity.

Ghee Peh, an energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), a U.S.-based think tank, agrees, saying the technology is inherently dirty.

“You’re crushing 4.5 tons of coal, pressuring it, and eventually you’re going to burn it,” Peh said. “How can that not have a CO2 impact? It’s just a really bad idea for the environment.”

Economically, the plan could also be incredibly costly, requiring significant government subsidies to make the gasification plants cost-effective, and investment in ensuring that downstream chemical plants can accept coal-based fuels in place of LPG. A recent analysis from the IEEFA estimated that the Bukit Asam plant would lose $377 million per year and result in consumers spending more for less energy. And that is beyond the infrastructure costs.

“It’s insane the amount of money they are going to need,” said Peh, who conducted the analysis. “$2 billion for the plant, and then another $1 billion to convert downstream plants, and then the market will be loss-making every year.” 

[Nithin Coca]

More: As world sours on coal, top producer Indonesia tries to sweeten it at home

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