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16 Jan 2022

Nithin Coca, China Dialogue

Indonesia: Foreign investment in coal-to-chemical projects may slow renewable energy transition as COP26 pledge makes no mention of coal gasification

"Indonesia’s coal gasification plans move forward, despite coal pledge", 12 January 2022

Indonesia’s plans to build a new national coal gasification industry, converting its abundant coal resources into methanol and dimethyl ether, are moving forward after two deals were announced late last year.

In October, Indonesia’s Powerindo Cipta Energy and China’s state-owned China National Chemical Engineering Corporation signed an agreement to begin a feasibility study into building a US$560 million coal-to-methanol plant.

Then, in November, just days after the COP26 Climate Change Conference, Air Products announced a plan to invest $13-15 billion into several gasification projects with support from the Indonesian government. The US-based company is a leading provider of gasification technology, including to China.

“Host countries play an underappreciated role in determining the types of projects that are developed with support from Chinese partners,” said Cecilia Han Springer, a senior researcher at the Boston University Global Development Policy Center. “Indonesian companies and policymakers are still seeking ways to capitalise on domestic coal resources and will continue to do so until incentives favour renewable energy development instead.”

The agreements may entrench the use of coal and result in higher greenhouse gas emissions and other environmental impacts. They are “very unfortunate for tackling climate issues,” said Andri Prasetyo, a programme manager at Trend Asia, a Jakarta-based environment and energy NGO. “We need to divest from all coal projects, including downstream coal gasification.” [...]

International investments could prolong Indonesia’s use of coal, despite Indonesia signing a pledge at COP26 to shift away from generating electricity using coal by 2040. There is no mention of gasification in the pledge. [...]

From a climate perspective, there’s little difference between coal-fired power plants and coal gasification as both increase greenhouse gas emissions beyond what is compatible with the Paris Agreement. But both China’s September pledge and Indonesia’s at COP26 focus on coal-fired electricity generation, ignoring coal-to-gas. This omission could, Andri fears, lead to a wave of new coal gasification investments by China, Indonesia’s primary foreign investor, which may cast a shadow on the climate benefit of China’s coal pledge.