Impact of carbon price on Indonesia’s power sector up to 2050

Abstract

This study uses TIMES model to assess Indonesia’s power sector’s carbon price impact from 2020 to 2050 and the price needed by 2030 to meet the Paris Agreement NDC target. Four scenarios are used to model the impact of carbon price up to 2050: no carbon price, Indonesia’s current price of USD 2.02/tCO2e, ICPF middle- and high-income countries, USD 50/tCO2e and USD 75/tCO2e. Four price scenarios—10, 25, 35, and 150 USD/tCO2e —are added to better understand the carbon price’s effects. As carbon prices rise, installed capacity and power generation will shift to lower-carbon technology. Ultracritical coal, gas-fired, solar, geothermal, and hydropower plants will replace subcritical coal. Investment, fixed, and variable costs would exceed BaU with a higher carbon price. 2.02 to 25 USD/tCO2e can start the coal-to-gas switch but not significantly change the generation profile. The generation will change significantly above 35 USD/tCO2e. Carbon emissions peak lower with rising carbon prices. USD 25 carbon price reduces emissions significantly; a carbon price below that is costly and ineffective. Indonesian Law No. 16 of 2016 ratified the Paris Agreement NDC, committing Indonesia to reduce greenhouse gas emissions by 29% by 2030 or 41% with international assistance. Energy sector emissions need to decrease by 11% for a 29 percent reduction and 14% for a 41 percent reduction. A 29% reduction requires USD 39.65/tCO2e carbon price, while a 41% reduction requires USD 43.78/tCO2e. These prices are still within the reasonable ICPF price limit for Indonesia to approach the middle-income country price floor.