Session 7a: Part II -Decarbonising industry - Hakimul Batih-CEFIM
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Presentation by Hakimul Batih, Indonesia CEFIM Programme Representative, OECD.
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Session 7a: Part II -Decarbonising industry - Hakimul Batih-CEFIM
- 1. FRAMEWORK FOR INDUSTRY’S NET-ZERO TRANSITION 1 8 March 2023 Hakimul Batih Indonesia CEFIM Programme Representative Developing financing solutions in emerging and developing economies
- 2. Solutions for a net-zero transition requires understanding of industry / country considerations Technology transfer & R&D Carbon Markets Asset stranding High costs of transition & competitiveness A flexible approach is needed to develop solutions that encompass many considerations for emerging and developing economies • Improving enabling market conditions • Financing
- 3. Min. of Industry Min. of Finance Min. of Energy Min. of Environment Min. of Planning Other government Financial regulator … Motors Cement … MSMEs Clusters Iron / steel … Heavy industry Supply chains R&D Tech. transfer Assets Key stakeholders and Framework’s 3 Pillars Develop financing solutions for a pipeline of bankable projects Solutions to improve the enabling market conditions Support international dialogue by sharing of best practices Understanding benefits & risks of industry’s low- carbon transition 2. Implementation Outcomes 3. Framework benefits 1. Focus Area Finance institutions Policy makers Energy system and infrastructures Regulation, target setting Implementation, reporting Industry
- 4. The Framework is a step-by-step guide on how to approach industry transition Deliverables Activities Step 1 Stakeholder Engagement and Focus Area Step 2 Background Research Step 3 Business Cases and Pipeline of Projects Step 4 Market and Financing Solutions Step 5 Disseminate Framework outcomes Pillar 1 Focus Area Pillar 2 Implementation Outcomes Pillar 3 Framework Benefits Report: Country status and Focus Area Slide deck: pathway, projects, business cases Market & Financing solutions Policy brief(s) Use cases Bilateral meetings Workshops Desktop Research Workshops In-house analysis Plenary session Workshops Consultations Plenary session Meetings and conferences Website communication Envisaged Framework implementation period: around 12 months
- 5. 5 Overview of Pillar 1: Focus Area Steps 1 and 2 Engage with the OECD CEFIM programme counterpart Identify and understand the stakeholder groups’ priorities Agree on the Focus Area 1.1 1.2 1.3 Set up a Steering Committee and prepare Terms of Reference and work plan 1.4 2.3 2.2 2.1 Desktop research on current status of technology, policy and financing Regulatory, policy, financial and business status Inform Step 1 to confirm the Focus Area
- 6. 6 Overview of Pillar 2: Implementation Outcomes Step 3: Business Cases and Pipeline of Projects Evaluate business cases and identify a pipeline of projects and financing needs Assess investment needs Choose a net zero pathway for the Focus Area Choose a Current Policies scenario as a reference 3.1 3.2 3.3 3.4 Technology solutions to close the transition gap: • Energy efficiency • Direct use of renewables • Switching to low-carbon fuels and feedstocks • Circular economy • CCUS Investment needs for the technology solutions Based on quantification of technology solutions (how many tons of low-carbon fuels, % of recycling, ...) 2020 2050 2030 2040 Emissions of Focus Area [Mt CO2/yr] Current policies scenario Net-zero transition pathway Choice of scenario/pathway based on existing analyses for the Focus area Business Cases and pipeline of projects Based on a subset of technology solutions consistent with the net- zero transition pathway Selection of relevant technologies and projects: • Technical parameters • Economic parameters (CAPEX, market prices, …) • Selection of indicators and metrics (Internal Rate of Return, public money spend…)
- 7. 7 Overview of Pillar 2: Implementation Outcomes Step 4: Market and financing solutions 4.1 4.3 4.4 4.5 Agree on a monitoring and evaluation mechanism Identify financing gaps in the available financing instruments Match low-carbon projects and financing solutions Establish the financing and market barriers Develop market enabling solutions 4.2 Develop financing solutions Analysis of gaps and barriers Based on extended desktop research and work with stakeholders, supported by output of business cases in Step 3 Internal Rate of Return [ % ] Low-carbon Conventional Development of solutions Based on policy toolboxes and workshops with stakeholder groups; covering the capital and the operation and maintenance costs Internal Rate of Return [ % ] Low-carbon Conventional Matching of solutions with projects Based on quantitative KPIs (required financing, CO2 improvement, ...) Definition of country-level mechanisms for monitoring and evaluation Policy maker Industry Finance institutions
- 8. Contributing to broader energy, climate and financing policy dialogue and international cooperation 3. Framework benefits Framework for Industry’s net-zero Transition Country priorities Market & Financing solutions Trade Industry Value Chain Net-Zero Pathway Just Transition Carbon markets Technology & Digitalisation Transition finance Blended finance Emissions tracking & ESG Projects develop ment Standards & certification Finance institutions Industry Policy makers CEFIM coordination of the Framework Stakeholder groups September 2022: Framework launch 2022-2024: Indonesia & Thailand Timeline Engage new countries: Egypt, India, South Africa and others
- 9. • In 2022 the Government of Indonesia pledged to reduce emissions from 2020-2030 by 31.89% (unconditionally) up to 43.20% (conditionally) against the 2030 business as usual (BAU) scenario. • 6 strategic steps identified in MEMR's Roadmap for NZE 2060 for the industry sector: 9 Introduction Nationally Determined Contribution & Net-zero Emission Fuel switch Energy efficiency Electrification in industry Hydrogen Biomass Carbon Capture and Storage (CCS) • Electricity share increase from 24% in 2020 to 51% in 2060 • Reduce coal share from 33% in 2020 to 7% in 2060 • Reduce natural gas share from 27% in 2020 to 15% in 2060 • Reduce specific energy consumption of equipment by 50-60% by 2060 • For low temperature processes (e.g., food & beverage, textile, electronic devices), assuming 55% electrification in 2060 • Replace fossil natural gas by green hydrogen in high- temperature processes from 2036 • Replace fossil fuels with biomass in high- temperature processes, especially in the cement industry • Use CCS in the cement and steel sectors starting from 2036 • Potential to reduce 13 million tons CO2 emissions from the use of coal and gas in these sectors..
- 10. 10 Introduction Energy mix outlook for industry in Indonesia September 2022: Energy Sector Roadmap to net zero emissions by 2060 in Indonesia by Ministry of Energy and Mineral Resources (MEMR) and the International Energy Agency (IEA) Based on the IEA’s Announced Pledges Scenario (APS), with net zero emissions in Indonesia by 2060 Accelerated scenario: Net Zero Emissions by 2050 (NZE) Decarbonisation solutions vary for each industry subsector Source: IEA, 2022
- 11. 11 Introduction Focus Area selection: underlying questions Role of industry subsectors decarbonisation to achieve Indonesia’s energy/climate goals? Which sectors will benefit from the “market” and “financing” solutions that the OECD Framework offers? What is the outlook of industry towards decarbonization: which subsectors face the highest urgency and biggest challenges? What are the strategic industry subsectors for Indonesia’s economy and society?
- 12. Breakdown by industry sub-sectors [%] (2016) 12 Contribution to Gross Domestic Product Manufacturing industry: 20% of Indonesia’s GDP in 2020 Food and beverages, 32.8% Tobacco products , 5.2% Textile and apparel, 6.4% Paper and paper products, 4.0% Chemical and pharmacy, 9.9% Rubber and plastics, 3.5% Non-metallic mineral, 3.9% Basic metal, 4.0% Fabricated metal, 10.7% Transport equipment, 10.5% Furniture, 1.4% Wood products, 3.6% Machinery and equipment, 1.8% Source: UNDP, 2018
- 13. [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] 19 Products from Coal and Petroleum Refinery 33 Repair and Installation for Machines and Equipment 28 Machines and Equipment That Cannot Be Classified Elsewhere 21 Pharmaceuticals, Chemical Medicinal Products and Traditional Medicines 30 Other Transport Equipment 18 Printing and Reproduction of Recording Media 26 Computers, Electronic and Optical Goods 27 Electrical Equipment 17 Paper and Paper Goods 24 Metal Base 11 Beverage 29 Motorized Vehicles, Trailers and Semi Trailers 20 Chemicals and Articles of Chemicals 31 Furniture 25 Metal Goods, Not Machinery and Equipment 22 Rubber, Rubber and Plastic Products 32 Other Manufacturing 15 Leather and Leather Goods and Footwear 12 Tobacco Processing 23 Non-Metal Excavated Goods 13 Textile 16 Wood, Wood and Cork Products Excluding Furniture and Woven Products… 14 Apparel 10 Food 0 1,000,000 2,000,000 3,000,000 4,000,000 Total Workers by subsector in 2020 (2-digit ISIC) 13 Employment structure varies widely according to the industry subsector considered Source: BPS, 2022 Ratio of the workers in large and medium companies to the total number of workers Number of workers Sectors dominated by large and medium companies Large and medium companies: annual revenue above IDR 2.5 billion (USD ~155,000)
- 14. - 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000 45,000,000 50,000,000 Chemicals Fuels Mach and Elec Metals Minerals Plastic or Rubber Stone and Glass Textiles and Clothing Food Wood, Pulp and Paper 14 Export/Trade: Indonesia had a neutral balance of payments in 2016-2020, turning positive to USD 34 bln in 2021 Trade flows of the main industrial sectors in Indonesia, in 1000 US Dollars, 2019 Source: Government of Indonesia, 2021 Main contributor to trade balance Ferro-nickel and Stainless steel Copper ores and concentrates Natural rubber and gums Coal, briquettes, lignite Plywood, chemical wood pulp and uncoated paper Palm oil, coconut, palm kernel
- 15. 15 Total final energy consumption of the industry sector Total final energy consumption of industrial subsectors, in Mtoe/y, 2000-2019 Caveat: Based on OECD/IEA data, almost half of the energy consumption of the industry is not allocated to a specific subsector. Note: Mtoe = million tonnes of oil equivalent Source: OECD, 2022 0 10 20 30 40 50 60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Non-energy use Industry not elsewhere specified Textile and leather Wood and wood products "Paper, pulp and printing" Food and tobacco Machinery Transport equipment Non-metallic minerals Non-ferrous metals Chemical and petrochemical Iron and steel Construction Mining and quarrying Total final consumption [Mtoe/year] Total final energy consumption of the industry sector by energy source (left axis, in %) and total in Mtoe/y (labels) [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] 0% 20% 40% 60% 80% 100% Coal Gas Oil Biomass and waste Electricity District heat Total final energy consumption [Mtoe/year]
- 16. 16 CO2 emissions breakdown by industry subsectors 284 Mt CO2e in 2019 Contributions of subsectors of the manufacturing industry to the GHG emissions, 2019 b) Industrial Process and Product Use: 58 Mt CO2-eq/yr Source: Government of Indonesia, 2021 Iron and Steel, 18.4% Chemical, 7.7% Pulp, Paper, and Print, 9.5% Food Processing, Beverages, and Tobacco, 10.4% Non- Metallic Mineral Industry, 14.9% Non-specified Industry, 39.0% Cement production, 51.8% Ammonia production, 16.7% Iron & Steel production, 11.9% Paraffin wax use, 6.7% Others, 12.9% a) Energy-related emissions: 136 Mt CO2-eq/yr c) 30% of electricity generation: 90 Mt CO2-eq/yr e
- 17. 17 Scenario analysis Industry sector energy use and CO2 emissions CO2 emissions reach a peak around 2030 in a net-zero scenario. The majority of CO2 emissions are energy-related in the next decades. As renewable electricity develops in a net-zero scenario, the relative share of industry emissions increases. CO2 emissions by sector in a net-zero emission pathway Source: MEMR's Roadmap for NZE 2060 (modeling result) -600 -400 -200 0 200 400 600 800 1000 1200 1400 1600 2010 2020 2030 2040 2050 2060 Electricity Industry Transportation Buildings Total Energy Energy-related CO2 emissions breakdown -600 -400 -200 0 200 400 600 800 1000 1200 1400 1600 2010 2020 2030 2040 2050 2060 Mt CO2-eq / yr Waste Industrial Processes and Product Use Agriculture Energy Food and Land Use Net emissions
- 18. [CELLRAN GE] [CELLRAN GE] [CELLRAN GE] [CELLRAN GE] [CELLRAN GE] [CELLRAN GE] [CELLRAN GE] -5 0 18 Strategic matrices of sectors Strategic matrix – Economic and social criteria Bubble size: % of fossil fuels in subsector energy consumption [CELLRANG E] [CELLRANG E] [CELLRANG E] [CELLRANG E] [CELLRANG E] [CELLRANG E] [CELLRANG E] [CELLRANG E] 2 20 30000 600000 Strategic matrix – Environment criteria GDP Contribution (% of GDP) Number of employees High Low Low High Bubble size Trade balance (USD) Blue: Positive Orange: Negative High Low Low High Energy use (Mtoe) GHG emissions (Mt CO 2 ) Caveat: all bubbles have the same size, because in the OECD/IEA data, the share of fossil fuels is 100% for every industry sector
- 19. 19 Discussion for Focus Area selection • Which subsectors combine a strategic importance for Indonesia’s economic and social indicators and are large emitters of CO2? • Which subsectors will need to transform their industrial processes to achieve the country’s objective of net-zero emissions? • Which technology or fuel switch could have the highest impact to reduce CO2 emissions? • Which sectors, technology and low-carbon fuels face barriers to finance investments in projects consistent with a net-zero pathway?
- 20. 20 Please visit our webpage: www.oecd.org/cefim/ For more information, please contact: Hakimul Batih Hakimul.BATIH@oecd.org Joseph Cordonnier Joseph.CORDONNIER@oecd.org
Hinweis der Redaktion
- Worldwide, the manufacturing industry contributes to 16% of the global GDP. In ASEAN countries, this indicator ranges between 8% in Lao PDR and 26% in Thailand. The manufacturing industry contributed to 20% of Indonesia’s GDP in 2020. In 2016, food and beverages was the industry sub-sector that contributed the most to GDP. Energy-intensive industries such as chemical, basic metal, non-metallic mineral account to 3-9% of the GDP. In addition to manufacturing, mining and quarrying contributed to 6-10% of GDP over the last years.
- Indonesia had a close to neutral balance of payments over 2016-2020. Since 2020, the balance of payments improved, reaching a 2021 surplus of USD 34 bln, driven by the non-oil and gas activities. At high-level, fuels are the main contributors from the industry to the positive trade balance. At lower granularity, the main contributors are: In food products: Palm oil, coconut, palm kernel, ... In minerals: copper ores and concentrates In fuels: coal, briquettes and lignite In rubber and plastics: natural rubber and gums In metals: ferro-nickel and stainless steel In wood: plywood, chemical wood pulp and uncoated paper
- Today, the industry sector accounts for more than 40% of final energy consumption in Indonesia It corresponds to more than half of CO2 emissions from the three main end‐use sectors – industry, transport and buildings. Non-metallic minerals and Iron and steel are the two sectors consuming the most energy. Caveat: Based on OECD/IEA data, almost half of the energy consumption of the industry is not allocated to a specific subsector. Most of the industry subsectors rely on different fossil fuels: Non-metallic minerals, iron and steel and pulp and paper rely mainly on coal. Textile and leather and food and tobacco rely mainly on oil. Chemical and petrochemical rely mainly on gas Caveat: Based on OECD/IEA data, almost half of the energy consumption of the industry is not allocated to a specific subsector. In particular, all biomass and waste and electricity consumptions are not allocated. E.g., we expect that Pulp and Paper industry consumes a significant share of biomass, and that Iron and Steel industry consumes a significant share of electricity. Evolution: The recent development of Blast Furnaces in Iron and Steel sector may increase coal consumption for non-energy use
- The sectors contributing the most to Greenhouse gases (GHG) emissions in Indonesia are dominated by CO2 emissions. Industrial Process and Product Use (58 Mt CO2e): Cement production (30 Mt CO2e), followed by ammonia and iron and steel production, is the major contributor. For energy-related emissions of the manufacturing industry (136 Mt CO2e), the main contributors are Iron and Steel (25 Mt CO2e) and Non-Metallic Mineral Industry (20 Mt CO2e). Electricity generation is responsible for additional 274 Mt CO2e, out of which 30%, i.e. 90 Mt CO2e, can be allocated to the industry Caveat: data not allocated to industry subsector as per OECD/IEA data.
- Ministry of Energy and Mineral Resources (MEMR) and the International Energy Agency (IEA) have been working on an Energy Sector Roadmap to net zero emissions by 2060 in Indonesia. The report was released in September 2022. The analysis is centred on the IEA’s Announced Pledges Scenario (APS), in which Indonesia reaches net zero emissions on an economy‐wide basis by 2060. The report also develops an accelerated scenario, the Net Zero Emissions by 2050 Scenario (NZE). CO2 emissions reach a peak around 2030 in a net-zero scenario. The majority of CO2 emissions are energy-related in the next decades. As renewable electricity develops in a net-zero scenario, the relative share of industry emissions increases.