Indonesia’s historic announcement proves the country’s transport future is electric

The government of Indonesia consistently signals that electric vehicles (EVs) are the nation’s transport future. The latest sign came on April 20, 2023, during a meeting of the Major Economies Forum on Energy and Climate (MEF). Indonesia’s President Joko Widodo joined 16 other leaders to announce global climate goals and national commitments under the provisions of the Paris Climate Agreement.

Specifically, MEF participants announced a zero-emission vehicles (ZEVs) collective goal that aims, by 2030, to electrify over 50 percent of light-duty vehicles (LDVs) and at least 30 percent of medium- and heavy-duty vehicles (MHDVs). ZEVs are defined as battery electric, plug-in hybrid electric, fuel cell electric vehicles. It is envisioned that each country will set their own national LDV and MHDV market share goals during COP28 this November in Dubai.

Indonesia is central to this global effort, not just as the largest vehicle market in the ASEAN region, but also as a major source of critical EV battery components. For example, Indonesia is the world largest source of nickel, and an important source of cobalt and copper. In the last 3 years alone, the government has signed deals worth more than US$15 billion with international companies for nickel mining, refining, and battery manufacturing in the country. The list of partners includes vehicle and battery manufacturers Hyundai, Ford, VW, Wuling, CATL, LG, and Foxxcon. This heightened focus on partnerships makes sense given Indonesia’s 2020 ban on raw nickel exports; local production greatly benefits the Indonesian economy.

Indonesia’s announcement of its ZEV goal at the MEF is a milestone. It is, in the ICCT’s assessment, one of the key steps in developing an EV policy roadmap in Indonesia. And it’s part of a broader set of recent policies Indonesia’s government has been implementing. In March 2023, the Ministries of Finance and Industry announced generous incentives for EV consumers. The government is offering around USD$500 for e-motorcycles, and a 10% value-added tax (VAT) reduction for cars and buses. To qualify for these incentives, EVs must meet a minimum of 40% local content.

The ICCT has been following these national and local policy announcements and actions and benchmarking them against global best practices for EV policy development. To continue its momentum and progress, the ICCT has identified six key near-term actions for Indonesia. Specifically, Indonesia’s government should consider:

  1. Adopting national commitments on new vehicle EV share by COP28, including not only LDVs and MHDVs, but also 2-wheelers (the largest vehicle market in the country and contributor to 26% of all transport greenhouse gas emissions).
  2. Reevaluating the Ministry of Industry’s industrial EV production targets to clearly define EV production, export, and national sales shares by 2030 and 2035, in alignment with upcoming national EV targets.
  3. Securing long-term funding and incentives to support EV demand. Current monetary and fiscal (VAT) incentives strain the national budget. One option to maintain incentives in the long term and support EV targets is to adopt a fiscal program that taxes high CO2 vehicle emitters and pays for EV purchase incentives with that funding. This type of feebate program has been extremely successful in driving EV demand in countries like France, Thailand, and Singapore.
  4. Setting EV sales mandates to signal to vehicle manufacturers that Indonesia’s future is electric. Indonesia already has a strong vehicle industry, but their decarbonization approach has focused on biofuels and hybrids. Securing the supply of locally manufactured EVs, aligning with national mining and battery manufacturing development, as well as with announced goals, will ensure the availability of a wide range of EV models for Indonesian consumers.
  5. Focusing on public transit electrification. The government of Greater Jakarta has already targeted 100% new bus electrification by 2030. The Ministry of Transport could follow up with similar national electrification targets for public transit, extending it to taxis, and ride hailing cars and motorcycles.
  6. Adopting a national EV infrastructure development plan. This would provide a national framework for EV infrastructure development while supporting provincial and municipal decision making, and could incorporate complementary policies (e.g., direct subsidies for chargers, preferential electricity rates).

The announcement at the MEF was historic. Indonesia’s government would achieve its climate and ZEV goals by acting now. They would build momentum to guide the national vehicle and EV supply chain industries into alignment with its goals. There can be no doubt: Indonesia’s transport future is electric.