Green Stimulus, Key in Indonesian Post-COVID-19 Economic Recovery

By: Pamela Simamora

The coronavirus has undeniably hit hard the global economy. As the spread of the virus has started to show declining trends in many countries, many governments around the world prepare to get their economies back on track. In Indonesia, the government has started to reopen the economy since June, albeit the country’s on-going battles against the virus.

To help the country recover from the pandemic-caused economic downturn, the Indonesian government through Government Regulation No. 23/2020 on the national economic recovery program has allocated Rp 318 trillion (USD 21.28 billion) as economic stimulus packages. Almost half of the stimulus (Rp 152 trillion) will go to state-owned enterprises (SOEs), with Pertamina (state oil and gas company) together with PLN (state power utility) will get 65% of the money. The government will also provide tax incentives for businesses (Rp 63 trillion), fund placements for local banks (Rp 35 trillion), subsidies for biodiesel (Rp 2,78 trillion), a stimulus for the tourism industry (Rp 25 trillion), and loan interest subsidies for MSMEs (Rp 34.15 trillion).

While well-intentioned, the government failed to see the opportunity to use the stimulus to rebuild the Indonesian economy towards a low carbon economy. The Indonesian government, like many other governments, often sees the economic recovery and climate issue as mutually exclusive. On the contrary, history shows us how South Korea successfully kickstarted its economy after the financial crisis in 2008 – 2009 by investing 80% of its USD 38 billion stimulus packages in green projects. In March 2020, in a wave of economic recovery efforts following the COVID-19 crisis, the South Korean government introduced back the similar stimulus packages dubbed as the Korean version of Green New Deal (GND). With this GND, South Korea became the first East Asian country committed to carbon neutrality by 2050.

The decision made by the South Korean government was not without careful calculation. The green projects such as renewable energy, energy efficiency, and clean transport projects are some of shovel ready projects that can speed up the economic recovery as well as get people back to work immediately. In fact, green projects are more labor-intensive than fossil fuel projects. A study in 2017 shows that every USD 1 million invested in energy efficiency and renewable energy creates 7.72 and 7.49 jobs respectively, compared to 2.65 jobs in fossil fuels. As the government desperately needs to revive the economic activities and create jobs, more focus should be put on green projects to help Indonesia ramp up the economy while building our resilience to climate change.

Skeptics might say that low carbon development is too expensive to be pursued at this challenging time. This view was largely true in the case of the 2008/2009 economic crisis. But with the plummeting costs of clean technologies such as solar PV, wind turbines, electric vehicles (EV), and batteries in recent years, the shift from a carbon-intensive economy to a low carbon economy will be within our reach. Contrary to conventional wisdom, the low carbon development can actually bring higher economic growth than the high carbon one as revealed by Bappenas in 2019. In addition, more international financial institutions shy away from fossil fuel projects such as coal projects as they see the risk of these projects becoming stranded assets in the not too distant future. The government, therefore, should at least listen to those financial experts and make sure that the public funds allocated to PLN and other businesses will be invested in “the future” rather than “the past”.

The green stimulus is key to not only bounce back the economy but also fight against the Coronavirus pandemic in a country where millions of people still live without access to electricity and clean cooking fuels. Without electricity, the government will find it more difficult to provide the much-expected COVID-19 vaccine to people in rural areas as the vaccine requires cold storage all the time. The decentralized clean energy resources such as solar and wind energy, therefore, will be more practical than large, dirty fossil fuel power plants for this service. In addition, the use of decentralized renewable energy technologies in rural areas will also give children in those areas their right to quality education which has been largely overlooked by the government’s online learning program during the COVID-19 pandemic.

Meanwhile, clean cooking as well as clean transport programs will surely help improve both indoor and outdoor air quality in Indonesia. The better air quality will lead to fewer people with respiratory diseases, making Indonesian people less vulnerable to novel viruses such as Coronavirus.

The COVID-19 crisis should not then compromise the transition to a more advanced, carbon-neutral economy. Instead, it should reinforce the commitment that the government has made to climate actions as the government’s response to today’s crisis will decide whether we can eventually prevent a more catastrophic climate crisis in the future.

In this unprecedented time, the government is then offered with a unique opportunity to build back better: by investing in green and sustainable projects and driving transformation in the Indonesian industries. As more industries are seeking financial assistance from the government in response to the crisis, the government of Indonesia should stress that any taxpayer money would be given away with conditions. For some, it could mean increased fuel-efficiency standards and for others, it could require business diversification away from fossil fuels and into renewable energy.

As we recover from the Coronavirus crisis that has brought a massive shock to our economy, it is imperative that we build back better. And it is only with government leadership, we can turn this rough time into the opportunity to build a resilient and sustainable economy and prevent our short-sightedness in seeing climate risks from jeopardizing our future.

Pamela Simamora is research coordinator at the Institute for Essential Services Reform, a think tank focuses on energy transition issues in Indonesia. This article is the author’s personal view.

*)

Pamela Simamora is a research coordinator at the Institute for Essential Services Reform, a think tank focuses on energy transition issues in Indonesia. This article is the author’s personal view.

DISCLAIMER

Articles published in the “Your Views & Stories” section of en.tempo.co website are personal opinions written by third parties, and cannot be related or attributed to en.tempo.co’s official stance.