Context
Indonesia aims to reduce greenhouse gas (GHG) emissions by 31.89% independently (unconditionally) and up to 43.2% with international support (conditionally) by 2030, compared to a business-as-usual (BAU) scenario, targeting net zero by 2060. Indonesia’s energy sector alone contributes 44% of the country’s emissions. Projections foresee a twofold rise in oil demand and a fourfold increase in natural gas demand by 2050. As a major agricultural exporter, Compressed Biomethane Gas (CBG) is a crucial renewable energy source to meet Indonesia’s escalating energy demand and decarbonise various sectors.
The production of CBG faces financial, regulatory, and market barriers, including limited access to collateral and inconsistent regulations. While a few CBG plants are already operational, 25 more are under development through contracts with Palm Oil Mills (POMs), farmer groups as waste suppliers, and industries as off-takers, effectively overcoming technical adoption barriers.
Goals and approach to transformational change
To address high upfront technology costs, the “Decarbonisng Indonesia through Biogas” (“Indonesia – Biogas”) project introduces a financing model, distributing financial responsibility among developers, technology providers, POMs, and farmers. This approach reduces entry barriers and accelerates the scaling of CBG, enabling sustainable transition toward low-carbon energy in the sector.
Components and support mechanisms
To incentivise private sector participation, a Biogas Guarantee Facility (BGF) will be established within the project’s Financial Cooperation (FC) component, offering credit guarantees covering up to 50% of the credit risk for biogas facility developers.
The Technical Cooperation (TC) component strengthens the regulatory environment, enhance stakeholder coordination, develop capacity and raise awareness. Key measures include developing regulations to support CBG utilisation and grid injection, streamlining licensing processes, redirecting subsidies to the biogas sector, and ensuring sustainable funding for the BGF through reallocation of palm oil export tax levies.
Together, these mechanisms foster a carbon-neutral energy transition and establish replicable, sustainable risk-sharing solutions.
Long-term impact
The project will directly mitigate 4.46 MtCO2e during the lifetime of its intervention, escalating to an impressive 21.5 MtCO2e in the span of an additional ten years.
