Does Indonesia's job creation law miss the mark on environment?

People hold a sign reading "The people's assembly revokes the omnibus law" in Sukabumi, Indonesia. Photo by: Antara Foto / Iman Firmansyah via Reuters

TOKYO — On Nov. 2, Indonesian President Joko “Jokowi” Widodo signed into law the Job Creation Bill, referred to as the omnibus law. At over 1,000 pages long, it is the broadest amending of Indonesia’s legal code in decades, modifying 79 different laws that govern land use, environmental impacts, energy development, and much more.

The government’s goal is to grow the economy by reducing logistical costs, partly in response to the economic slowdown caused by the COVID-19 pandemic. There are concerns, however, that the law could have detrimental impacts on tropical landscapes by incentivizing land-use change, increasing greenhouse gas emissions, and weakening environmental governance.

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“The stated aim is to improve the ease of doing business, especially, it seems, for extractive industry and fossil energy businesses,” said Irwansyah, a lecturer at the Department of Political Science at the University of Indonesia.

“It is not aimed at investors and businesses who already comply with international standards on climate change, environmental protection, and human rights.”

Since the law was passed, Indonesia has seen widespread protests by environmental, land rights, and Indigenous groups. The main environmental concerns can be grouped around a few key factors — the law’s seeming promotion of fossil fuels over renewable energy, the removal of key environmental impact analysis requirements, and changes in land regulations that could increase deforestation and emissions.

Coal and palm oil over renewables

Indonesia has long been a major exporter of coal, leading the world in 2019 by sending 455 million tons to India, China, Japan, and other countries. However, the drop in global energy demand due to the pandemic has led to a significant fall in exports and challenges for the domestic coal industry.

"It is difficult to see how Indonesia will honor its Paris Agreement if the omnibus law continues to prioritize business interests over public interests, and to marginalize the participation of civil society and the public.”

— Irwansyah, Department of Political Science lecturer, University of Indonesia

As a response, the omnibus law includes several provisions that benefit the coal industry, mostly notably removing royalties for coal destined for certain domestic use, such as gasification. It also promotes domestic use of palm oil based biofuels — a crop that has been connected to deforestation and showing little to no climate benefit. 

What is missing from the omnibus law is renewable energy.

“There is no direct mention of clean energy development, which would reduce greenhouse gas emissions,” said Tommy Pratama, executive director at Traction Energy Asia, an NGO based in Jakarta.

This is worrying because Indonesia is already unlikely to meet its goal of getting 23% of energy needs from geothermal, solar, and wind by 2025. Moreover, Indonesia is lagging behind neighboring countries such as India, Thailand, and Vietnam in reducing costs and increasingly financing for renewables.

“We’re still some way from the renewable energy mix that is supposed to be achieved by 2025,” said Tiza Mafira, associate director at the Climate Policy Initiative. “There’s a huge investment gap, and right now policies around renewable energy are not attracting the necessary private investment.”

Climate and sustainable development commitments at risk

Indonesia is the world’s fourth most populous country, and, depending on the scale of emissions from forest fires, anywhere from the fourth to eighth largest emitter of greenhouse gases. That makes it key to the success of global climate goals.

The country is a member of the Paris Agreement on climate change, and committed to reducing emissions by 29% as compared to a business-as-usual scenario, by 2030. There are concerns, though, that the omnibus law will impact those climate goals.

"It is difficult to see how Indonesia will honor its Paris Agreement if the omnibus law continues to prioritize business interests over public interests, and to marginalize the participation of civil society and the public,” Irwansyah said.

There are also concerns that the omnibus law could increase deforestation, as it removes a requirement for all regions to maintain a minimum 30% of their land area as forest. It also makes it more difficult for local communities to file lawsuits against projects that violate environmental regulations.

Indonesia is among the world leaders in emissions from land-use, which, globally, account for about a quarter of all emissions. These are primarily due to forest fires, a method of clearing land for agriculture use, and the degradation of carbon-rich peatlands.

“There is a serious risk that deforestation will expand rapidly,” said Teguh Surya, executive director at the Madani Foundation, a Jakarta-based research group. Based on the group’s analysis, “the revision of existing laws will give opportunities for the business sector to cut down more forest.”

Particularly worrying to Teguh are the requirements for oil palm concession holders to plant on all their land — or risk losing it.

Altogether, this puts the country’s existing commitments to reducing deforestation at risk. Earlier this year, Indonesia started receiving payments from Norway as part of the REDD+ program. This was the culmination of a decade-long effort to build domestic capacity to manage forests, and the first payment of toward a $1 billion program announced back in 2010.

“What is the future of Indonesia’s sustainable forestry commitments?” asked Teguh. “The deforestation moratorium from 2011? Our commitment with the Global Climate Fund? Peatland restoration? REDD+? This law potentially breaches all of these commitments.”

The push back

Civil society groups are actively pushing back against some of the most controversial elements in the bill.

The removal of environmental impact assessment requirements, and its replacement by a vague and yet-defined risk analysis, could weaken a process already rife with issues.

Another concern is how it limits the role of NGOs in providing oversight for projects, such as dams, power plants, and infrastructure, located in remote regions.

“The law … defines the public as only the people who live within a certain radius of a business or project site, thereby excluding the most experienced and knowledgeable NGOs from Jakarta and other cities from performing their watchdog role,” Pratama said.

There have been global concerns too. In October, a group of 36 investors, including Green Century Capital Management, Pax World Funds, and Socially Responsible Investment Coalition, sent a letter to the Indonesian government expressing concerns about the omnibus law, urging it to “preserve and advance legislation that supports the conservation of forests and peatlands,” and “hold proper consultations with environmental and civil society groups.”

Teguh hopes to see more action from global financial institutions and development banks, in particular those with strong climate and no-deforestation commitments, because Indonesia forests and climate are of global importance.

“Economists all around the world agree that the paradigm of investment has to become more sustainable,” said Teguh. “This law has implications for the whole world.”

About the author

  • Nithin Coca

    Nithin Coca is a Devex Contributing Reporter who focuses on social, economic, and environmental issues in developing countries, and has specific expertise in Southeast Asia.