The Just Energy Transition Partnership (JETP) is the most ambitious project signed between wealthy and developing countries. When Indonesia agreed last year to clean up its energy system with an estimated $20 billion in aid from a coalition of rich nations and major financial institutions, leaders worldwide hailed it as a historic agreement.

Nearly ten months later, as leaders from Southeast Asia gather in Jakarta, there is little to show for it. A highly anticipated investment plan has been postponed. Parties still need to agree on governance, baseline data, and the required financing to reduce greenhouse gas emissions and move the world’s largest coal exporter away from fossil fuels. The most ambitious energy transition partnership needs to gain momentum.

One particularly thorny issue is that Indonesia’s coal dependence is larger and more complex than all parties initially admitted. The rapid growth of dedicated and captive coal power plants fueling industrial expansion but not connected to the grid complicates data collection. This means that even the exact magnitude of the problem remains to be determined.

How these issues are resolved will set a precedent for future agreements, determining how much the agreement can offer valuable lessons for the global community that could be replicated in other countries. The stakes go beyond Indonesia alone. The outcome in Indonesia will bolster the credibility of countries that have enriched themselves through coal and other fossil fuels for centuries and now cite the need to reduce global emissions. It will test the claims of major private financial institutions’ claims that capital markets can solve the world’s biggest problems.

Indonesia is by far the largest emitter in Southeast Asia, thanks to its vast coal reserves and a surge in power plant construction over the last decade. However, its regional neighbours and other emerging economies also rely on coal power plants that must be phased out to avoid the worst consequences of climate change. Vietnam is moving forward with its own JETP, and Senegal reached an agreement in June.

The initial promise to cap emissions from Indonesia’s electricity sector by 2030 at a maximum of 290 million tons of carbon dioxide, about 20% lower than the baseline level for the year, seems out of reach. An alternative scenario presented in the draft plan would raise the maximum target to 395 CO2 tons to account for constructing new captive power plants to meet growing industrial energy needs.

Officials have stated that they are considering a revised investment plan, possibly final, before COP28 begins in Dubai at the end of November, taking public comments into account. However, to achieve this, they will need to agree on at least three major interdependent issues: funding, emission targets, and mechanisms for phasing out coal, including changes to Indonesian laws and policies that hinder broader ecological progress.

At approximately $21.5 billion, this is the most significant attempt to blend private and public capital to drive energy transition in the developing world, more than twice the size of the initial agreement with South Africa in 2021. The money is expected to come from two sources: $11.5 billion, primarily in grants and concessional loans from donors (the G7 economies plus Denmark and Norway), and the rest from private sector investments gathered by G7 members.

For Indonesia, which is responsible for a tiny fraction of historical emissions compared to donor countries, this presents a problem. JETPs are supposed to bridge the costs for emerging countries to what already wealthy countries would pay through subsidies or extremely low-interest loans. They are designed as catalysts, facilitating affordable investments. Otherwise, the largest economy in Southeast Asia has little financial incentive to risk its own development to clean up the mess caused by developed countries.

Then comes the question of the agreed emission target from last year. Individuals close to these discussions say negotiators avoided the impact of the growing fleet of captive coal power plants, single-use engines built to support nickel production and other heavy industries in areas not reached by the grid. At best, the problem has been significantly underestimated, which may explain why the initial agreement included an escape clause for new captive coal plants. The captive facilities support a boom in nickel processing that has positioned Indonesia as a leading supplier of minerals essential for the global energy transition. The current system is designed to maximize the country’s resources quickly, but it also means that clean energy ambitions, both domestically and abroad, rely on the dirtiest fossil fuels.

According to the project, the current captive capacity is about 13 gigawatts, with an additional 21.5 gigawatts in preparation, nearly half of which is already under construction. This is higher than previous assumptions, as Indonesia’s total coal power plant capacity is generally estimated at around 40 GW, making captives about one-third of that.
Even worse, the lack of centralized data casts doubt on the new figures and makes credible cleanup estimates impossible. There are questions about the age, size, and operation of captive coal power plants, which should be included in publicly reported figures and for which few involved parties are incentivized to be transparent.

This is not to mention Indonesian policies that continue to hinder the transition, including a law governing the sale of state assets that complicates any sale at a loss. Without specific exemptions, leaders risk imprisonment, and past experiences of public company executives offer little reassurance. The measure was an anti-corruption tool designed to prevent leaders from making self-serving deals, but it now slows down the overhaul of an economy dependent on coal for growth.

Of course, other questions remain unresolved. Will Indonesia negotiate with all its partners as a group or with each individually? Where will the funding come from to modernize and expand the power grid so that it can eventually accommodate renewable energy? What about government subsidies and other measures that keep coal energy cheap and limit investor interest in solar and wind projects?

The upside is that despite delays and obstacles in Indonesia, no one has left the ship yet. President Jokowi has made it one of his final term’s flagship initiatives. For the United States and its partners, including development banks and some of the largest private institutions in the financial sector, success will lend new credibility to their environmental commitments and strengthen their influence in Southern countries.