- Indonesia is reviving plans to develop coal gasification plants to produce hydrogen and dimethyl ether (DME), aiming to reduce reliance on imported liquefied petroleum gas (LPG), with funding from the newly launched Danantara sovereign wealth fund.
- Experts warn that coal gasification is economically unviable, with previous plans falling through due to high costs, and that the government may need to provide large subsidies to make the initiative financially feasible.
- Environmental concerns include high carbon emissions from DME production, increased air pollution, deforestation, and biodiversity threats, contradicting Indonesia’s energy transition commitments.
- Critics argue that using state funds for coal gasification poses financial risks, urging the government to prioritize renewable energy investments instead for a more sustainable and cost-effective energy transition. coal combustion and threatens air quality, water sources, and biodiversity.
JAKARTA — A renewed plan by the Indonesian government to turn coal into gas or liquid fuel forms has received mounting backlash from climate experts who say it will be ecologically and economically disastrous.
The coal gasification proposal was among the orders issued by President Prabowo Subianto at a meeting with his energy economics team in Jakarta on March 3. The plan is to develop gasification plants on the islands of Sumatra and Borneo that will process low-grade coal to produce hydrogen and dimethyl ether (DME). The latter is a gas that can replace liquefied petroleum gas (LPG), a cooking fuel that Indonesia currently has to import.
Bahlil Lahadalia, the energy minister and head of energy economics team, said funding for the coal gasification plants would come from another of Prabowo’s recent initiatives, the Danantara sovereign wealth fund.
“We don’t need [foreign] investors. All state matters are through the president’s policies by utilizing domestic resources,” Bahlil said as quoted by local news media, adding, however, the government would still need to import the technology to produce DME.
In 2022, Indonesia, the world’s top thermal coal producer, announced a planned $15 billion investment from U.S.-based Air Products and Chemicals to build a coal gasification plant. Less than a year and a half later, the company pulled out of the project due to high costs. An “entity from China” was later reported to have been interested in taking Air Products’ place in the projects, but that too didn’t pan out.
“I think this time there’s no dependency on other stakeholders,” Bahlil said.
While details about the financing mechanism for the coal gasification plants through Danantara, which was launched in February, are unclear for now, climate and energy experts have already warned of the potential downsides to the country’s economy and environment from the plan.
“The real issue for any type of coal downstream project is always the capital cost and the return on that capital,” Ghee Peh, finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), told Mongabay in an email.
IEEFA’s analyses in 2020, 2022 and 2023 suggested that any Indonesian DME project in the form touted by the government wouldn’t be profitable, and that the country’s downstream coal plans ended in a black hole. The think tank calculated that the Indonesian government would have to provide hundreds of millions of dollars in subsidies, which would come from the state budget, for the project to make any economic sense.
“For 2025, it gets harder to justify,” Peh said, citing higher oil prices, the current cost of debt, and the possibility that the DME producer would want a higher return to compensate for the risk of building the project.
Four coal gasification projects in South Sumatra and East Kalimantan provinces are set to advance, according to Bahlil. While he didn’t disclose how big each project is, he said they’re part of a broader effort to accelerate 21 natural resource processing projects worth a combined $40 billion.
In addition, the government plans to expand fuel storage capacity and develop a 500,000-barrel-per-day oil refinery to boost its energy security. The energy ministry estimates the refinery investment at $12.5 billion.
The sovereign wealth fund, meanwhile, is expected to oversee more than $900 billion in assets, predominantly stakes in dozens of state-owned companies. President Prabowo has pledged $20 billion for Danantara’s initial investments, focusing on natural resource processing, artificial intelligence, and energy and food security.
IEEFA’s Peh said the cost of processing and the capital to build a coal gasification plant would have increased by more than 30% since 2020. “It is possible [that] for the same scale of DME plant in 2025, the subsidy from the Indonesian government may be much more than the 2020 calculation. If there is no subsidy, then it is unlikely that investors or banks will provide the capital for this project,” he said.
The revival of coal gasification projects has signaled a step back in Indonesia’s commitment in its energy transition pledge to phase out its use of coal, and in its global climate targets to reduce greenhouse gas emissions, environmental experts say.
Although DME itself is a cleaner-burning fuel than coal, the process of producing it is highly carbon- and energy-intensive. Jakarta-based think tank Institute for Essential Services Reform (IESR) estimates that the full life cycle of converting coal to DME and then into energy emits 1,031 grams of carbon dioxide equivalent per kilowatt-hour — exceeding the less than 1,000 gCO2e/kWh of emissions from directly burning coal. DME’s carbon footprint is also at least 25 times higher than that of renewable energy sources like solar power, according to the IESR.
“Relying on coal as the primary raw material risks worsening air quality and increasing health hazards for communities near the project site,” Bondan Andriyanu, climate and energy campaigner at Greenpeace Indonesia, told Mongabay in a text message. “Additionally, mining expansion to meet the project’s coal demand could accelerate deforestation, increase water pollution, and threaten biodiversity.”
Bondan noted that the coal gasification project risks violating Indonesia’s existing environmental policies and commitments, namely the 2009 Environmental Law, which mandates that industrial projects follow sustainable development principles. He added it also contradicts a 2014 government regulation aimed at expanding the renewable share of the energy mix.
Bondan also noted that financing the project using funds from Danantara would increase financial risks to the state if the gasification drive fails to generate sufficient returns. This could force the state to tap into public finances, ultimately burdening the broader population, he said.
“Considering these factors, it is clear that coal gasification is not a sustainable energy transition solution,” Bondan said. “Instead, the government should prioritize accelerating investments in renewable energy, which is more competitive, environmentally friendly, and equitable for society.”
Basten Gokkon is a senior staff writer for Indonesia at Mongabay. Find him on 𝕏 @bgokkon.
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Coal gasification, an old technology, is quietly expanding across Asia
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