Indonesia’s EV Ambitions Must Surpass Economic Triumph

President Jokowi’s official visit to the PT. Hyundai Motor Manufacturing Indonesia factory in Bekasi Regency, West Java Province, on Wednesday, 16 March 2022. Source: Ministry of State Secretariat of the Republic of Indonesia.

Part of an ongoing article series on renewable energy / climate crisis in Southeast Asia.

President Joko “Jokowi” Widodo’s second term has demonstrated a significant milestone in the climate mitigation effort by setting an ambitious target of becoming a leading country in electric vehicle (EV) production.

The initiative stems from the country’s rich nickel reserves, with Indonesia holding 22% of the world’s nickel reserves. This provides Indonesia with excellent opportunities to become a major player in EV production. Indonesia also possesses other crucial materials for battery manufacturing, such as aluminium, copper, manganese and cobalt.

Another factor driving this initiative is the goal to reduce dependence on fossil fuels in the transportation sector. In 2022, the transportation sector consumed energy equivalent to 428.61 million barrels of oil equivalent (BOE), accounting for approximately 36.15% of the total final energy consumption of 1,185.56 million BOE.

These factors provide valid reasons why the Indonesian government aims to accelerate the establishment of an EV ecosystem in the country. The government has also introduced several regulatory instruments to facilitate the entry of EV automaker investment and promote the mass adoption of EVs among the public.

With Jokowi’s administration wrapping up in October 2024, now is the right time to review the government’s trajectory in the EV sector.

A question arises: has the government genuinely endeavored to address climate change issues while gaining economic benefits from significant EV investments, or has the focus been solely on economic gains?

Understanding the Government’s Position

To answer that question, it is critical to understand the government’s stance and attitude towards EV development.

One method is conducting content analysis of media coverage on EVs in Indonesia. By searching for and comparing keywords “kendaraan ramah lingkungan” (eco-friendly vehicles) and “investasi mobil listrik/EV” (EV [4w] investment), the author found that the latter was more dominant in media publications during May-July 3, 2024, as illustrated in the figure below. 

The data was generated by manual media monitoring from May – 3 July, 2024. The monitoring was conducted after the 2024 presidential election and before the start of the 2024 regional election period, so as to ensure that the public discourse among high-level stakeholders is not heavily influenced by practical political issues. Source: author’s tabulation.

Based on the above percentages, the majority of news related to EV investment came from statements by government officials, such as Coordinating Minister for Economic Affairs Luhut Binsar Pandjaitan and Minister of Energy and Mineral Resources Bahlil Lahadalia.

Furthermore, news about eco-friendly vehicles mostly came from EV automakers promoting their brands to the public.

The data above indicates that Jokowi’s second administration has focused more on the economic aspects of EVs rather than promoting their potential to reduce greenhouse gas emissions (GHG).

Jokowi’s statements in the past have strengthened this indication, such as a speech he delivered at the inauguration of the integrated ecosystem between batteries and electric vehicles in Karawang on 3 July 2024.

The key message from the president’s speech, as captured in media reports, emphasized the importance of the battery ecosystem as a new milestone in Indonesia’s commitment to becoming a major player in the global electric vehicle supply chain.

In this context, the statement focused solely on the economic aspects of EV development in Indonesia without touching on environmental concerns.

While it is understandable that the government’s aggressive promotion of EV investment is for economic purposes, another question emerges: is economic gain the sole focus?

The next section provides an overview.

Tracing the Energy Source

One criticism regarding Indonesia’s EV ecosystem is the paradox that this seemingly pro-green policy is not truly green. It stems from the fact that Indonesia still relies heavily on coal-fired power plants (PLTU) for electricity and even seeks to expand its use. This means that while EVs can reduce GHG emissions, the power still comes from coal for the time being.

PLTU will remain the top power generator until 2030. Source: Katadata Media Network.

Based on the Electricity Supply Business Plan (RUPTL) by the National Electricity Company (PLN), the capacity of PLTU is projected to increase by 13,800 MW, bringing the total capacity to 45,000 MW by 2030, equivalent to 44% of the total national power generation capacity.

Meanwhile, renewable energy power plants (NRE) will also be introduced or expanded, though with less intensity as non-renewable power plants. The largest planned additions are hydroelectric/micro-hydro/pumped storage (PLTA/M/PS) plants. The capacity for these three is projected to increase by 10,400 MW, bringing the total capacity to 15,600 MW by the end of 2030, equivalent to 15% of the total national power generation capacity.

PLN has disclosed that the plan to retire several PLTU ahead of schedule, or early retirement, is challenging to execute. This is because coal-fired power plants remain a cornerstone of the national economy.

Similarly, the Country Director of Asia Development Bank Indonesia, Jiro Tominaga, mentioned that the progress of early retirement of PLTU under the Energy Transition Mechanism (ETM) framework remains complex in its implementation.

He urged for more legitimate government policies upstream and for the government to push ahead with its early retirement program, which he emphasized as important to achieve a fair and affordable energy transition. His statement highlights the difficulty that the government is facing in phasing out PLTU.

As long as PLTU continues to be the main supplier of energy, the potential of EVs to reduce carbon emissions in Indonesia is hampered. This is because EVs will continue to be powered up by “dirty” energy produced by PLTU stations, thus underscoring the dilemma of green policy in Indonesia.

Regulatory Perspective

Moreover, from regulatory aspects, one of the recent regulations related to EVs is the Minister of Finance Regulation (PMK) No. 8 of 2024 concerning the Value Added Tax (VAT) incentive for battery electric vehicles (BEVs). This regulation has been effective since 15 February 2024.

It offers a 10% VAT incentive on the selling price for the delivery of certain four-wheeled BEVs that meet the local content requirement (TKDN) of 40%.

For certain battery-electric buses that meet this requirement, a 10% VAT incentive is also provided. Otherwise, for certain battery electric buses that meet the TKDN requirement of 20% to 39%, a 5% VAT incentive is given on the selling price.

This regulation is issued as part of the economic transformation efforts to enhance the attractiveness of investment in the EV ecosystem and transition from fossil energy to electric energy.

Despite its noble purpose, the regulation has been criticized by hybrid car manufacturer Suzuki because it only applies to BEVs. Currently, these incentives are only applicable and being utilized by certain automakers, namely Wuling, Hyundai and Chery.

The hybrid automakers request that incentives for this category of vehicles be equalized, arguing that hybrid cars and BEVs both fall under the Low Carbon Emission Vehicle (LCEV) program.

The LCEV regulation is outlined in the Minister of Industry Regulation No. 36 of 2021. The regulation defines various vehicle technologies, including energy efficient and affordable four-wheeled motor vehicles (KBH2) or commonly referred to as low-cost green cars (LCGC), full hybrid, mild hybrid, plug-in hybrid electric vehicles (PHEVs), BEVs, fuel cells, and flexy engines.

This indicates that the government still intends to focus on BEVs to maximize Indonesia’s nickel potential and tends to put less emphasis on other eco-friendly vehicles.

On the other hand, various key regulations related to EVs in Indonesia (as shown in the table below) predominantly use the term BEV. One example is Presidential Instruction (Inpres) No. 7/2022. The regulation promotes the use of BEVs as operational and/or personal service vehicles for Central and Regional Government Agencies.

This further indicates that the government’s primary focus is on BEVs, consistent with its interest in developing the nickel mining industry.

This position was emphasized by Minister of Industry Agus Gumiwang in 2023, who stated that hybrid vehicles are not part of the ecosystem because “we have a battery and nickel ecosystem, and that’s what we want to promote.”

The current situation suggests that while the government does indeed promote EVs, its policies seem to neglect the development of other eco-friendly vehicles. As such, it further calls into question the government’s intention of introducing green policies, specifically with regards to the EV ecosystem.

Key EV-related regulations in Indonesia

RegulationBrief Description
Government Regulation No. 73/2019Sets the amount of vehicle tax based on exhaust emissions, including BEVs
Minister Energy and Mineral Resources Regulation No. 13/2020Regulates the provision of electric vehicle charging infrastructure for BEVs
Minister of Home Affairs Regulation No. 56/2020Regulates the amount of vehicle tax and title transfer fees
Minister of Industry Regulation No. 36/2021Defines the low carbon emission vehicle (LCEV) program
Minister of Industry Regulation No. 6/2022Regulates the specifications, roadmap for development and provisions for calculating the value of local contents (TKDN) for BEVs
Minister of Transportation Regulation No. 15/2022Regulates the retrofitting of vehicles other than motorcycles, especially components, workshop regulations and procedures for submitting vehicles for retrofitting into electric vehicles
Presidential Instruction (Inpres) No. 7/2022Contains guidelines for the use of BEVs as operational service vehicles and/or personal service vehicles for Central and Regional Government Agencies
Minister of Transportation Regulation No. 39/2023Regulates the retrofitting scheme for two-wheeled BEVs
Presidential Regulation (Perpres) No. 79/2023Amends Presidential Regulation No. 55/2019 concerning the Acceleration Program for BEVs for Road Transportation. Some key points: Automakers receive tax incentives for purchasing completely built-up (CBU) EVs imported from abroadThe local content rule (TKDN) mandates 80% for both two and four-wheeled BEVs starting from 2030
Minister of Finance Regulation No. 8/2024Establishes VAT incentive for BEVs

Homework for the Next Administration

Based on the above assessment of the government’s position, existing energy sources and regulatory aspects, the author concludes that the current Indonesian government places more emphasis on economic gains from EV development than environmental imperatives.

With a new government that brings the agenda of continuity, it is reasonable to expect that the current EV trajectory will not undergo significant changes in Prabowo’s administration.

However, one aspect that should not be overlooked by the incoming government is that building an EV ecosystem should also consider the development of its human resources, particularly regarding product awareness.

Lack of environmental awareness and knowledge about SDGs prevent the widespread adoption of EVs in Indonesia. The more environmentally aware a consumer is, the more likely they are to choose technologies or products that are less harmful to the environment. Environmentally-conscious consumers prioritize products with a lower environmental impact, such as EVs.

The issue of awareness remains a significant barrier to the shift towards decarbonization efforts in Indonesia. While the government is not fully aware of the increasing threat posed by climate disasters, business actors are yet to realize the missing opportunities if they fail to act. Likewise, the public is not aware that they have both the voice and the capacity to influence the environmental and economic policies.

This may explain the current situation, where government policies and actions seem to prioritize economic aspects over environmental concerns when it comes to the EV ecosystem.

In this regard, the government should adopt a pentahelix approach, working collaboratively with automakers, academics/experts, media and CSOs to develop policies that comprehensively promote the environmental aspects of the EV ecosystem. This collaboration could also aim to educate consumers about the environmental benefits of EVs and how they are more cost-efficient in the long term.

This approach is expected to help the government achieve its ambition of making Indonesia an EV hub while also gaining environmental benefits and economic success.

In addition, some of the government’s homework to accelerate EV adoption includes ensuring the widespread availability of EV charging stations – considering the affordability of EVs to the public – and guaranteeing the availability of after-sales service so that people could feel more confident about switching to EVs.


The views expressed are those of the authors and do not necessarily reflect those of STRAT.O.SPHERE CONSULTING PTE LTD.

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Author

  • Rif’at Abdillah is a consultant at Asatu Research & Insights, specializing in Indonesia’s political dynamics and public policies. He monitors the development of EVs in the country. He can be contacted via LinkedIn at www.linkedin.com/in/rifat-abdillah.