The competition to replace coal in Indonesia, the world's largest coal exporter, is intensifying between the United States and China. This contest is not only crucial for Indonesia's climate future but also significant for determining which superpower will influence the energy landscape in the developing world.

Indonesia, like many developing nations, faces two contrasting energy trajectories. In 2023, Chinese companies secured more than $54 billion in agreements with the Indonesian state utility PLN. Additionally, a visit by Indonesian President Prabowo Subianto to Beijing in 2024 resulted in another $10 billion in commitments. Consequently, Chinese firms are rapidly integrating themselves into Indonesia's clean-energy supply chain, encompassing solar energy, critical mineral mining, and electric vehicle (EV) production.

Such investments significantly overshadow the $20 billion Just Energy Transition Partnership (JETP) signed in 2022 between Indonesia and a coalition of wealthy countries, aimed at facilitating the country's shift away from coal, which currently constitutes 3.6% of Indonesia's GDP. Before U.S. President Donald Trump's administration withdrew from the agreement in March, the program was already struggling, disbursing only $1.2 billion—around 6% of the pledged funds—while Indonesia assessed that it would need over $97 billion for a successful transition.

The U.S., as the world's leading oil producer, has promoted liquefied natural gas (LNG) during negotiations to mitigate tariffs impacting Indonesia. This strategy is part of a broader agenda to achieve "energy dominance," reducing reliance on competitors like China. Meanwhile, Beijing is banking on large-scale renewables to solidify its position as the foremost supplier of clean energy technology. However, the U.S. strategy raises concerns about increased fossil fuel dependence, while China guarantees jobs and cleaner energy with fewer environmental safeguards.

“These two countries... they’re shaping two different visions of the future,” remarked Putra Adhiguna from the Energy Shift Institute.

Although the U.S. withdrawal in March affected political leadership regarding JETP, it did not derail investment prospects, analysts indicated. When the deal was initially established, U.S. climate envoy John Kerry claimed the groundwork had been laid, but after Trump dismantled previous climate policies, Indonesian officials began to question their commitment to transition if the U.S. was not following suit.

Initially, JETP's early conversations set "unrealistically high expectations," leading to challenges in meeting ambitious targets regardless of U.S. policy changes. The U.S. pledged $2 billion, with about half still available through loan guarantees. However, JETP was always intended as a partial solution to the estimated $97 billion required for Indonesia's energy transition. Foreign investment is essential, especially considering Indonesia’s solar and wind energy sectors currently account for a mere 0.24% of total energy production, significantly lower than the Philippines' 3.8% or Vietnam's 13%.

Additionally, the JETP served as a collaborative platform for various stakeholders, enabling Indonesia to form partnerships with new countries such as the UAE and Saudi Arabia.

China presents a distinct model of energy security by promoting solar panels to replace imported fossil fuels, according to Adhiguna. Major Chinese initiatives in Indonesia include a $6 billion supply-chain project by battery manufacturer CATL and BYD's $1 billion EV plant, which is projected to produce 150,000 vehicles annually and create 18,000 jobs. Furthermore, China's BTR New Material Group has committed to a $478 million factory to manufacture anode materials for EV batteries, generating approximately 8,000 jobs. The anticipated LONGi solar panel factory, operating at an annual capacity of 1.6 gigawatts, is set to commence in 2025.

“It’s a whole-systems change,” noted Dinita Setyawati, an energy analyst with Ember, emphasizing that a nation can purchase Chinese solar panels and concurrently utilize clean energy to charge Chinese-manufactured electric vehicles. The speed of deployment for these projects is critical for Indonesia's political cycles, even if Western investments offer more protective measures. POWERCHINA managed to construct a 100-megawatt solar park in a mere seven months in 2024.

Yet, Chinese investments frequently involve high environmental costs. Many of Indonesia’s nickel mines are Chinese-owned and heavily rely on coal-fired power plants built nearby to supply electricity, raising concerns about pollution and long-term sustainability. A 2024 study showed that emissions from smelters and coal plants would incur economic costs of $2.6 billion in 2025, escalating to $3.4 billion by 2030, alongside thousands of attributable deaths from pollution during the same period.

In April, Indonesian Energy Minister Bahlil Lahadalia announced plans to boost LNG imports from the U.S. by approximately $10 billion, integrating these deals into tariff negotiations. While LNG is cleaner than coal, it still contributes to greenhouse gas emissions, and there are fears that such agreements might further tie Indonesia to fossil fuels. Long-term contracts with gas could leave infrastructure outdated as global markets rapidly shift towards renewable energy sources like solar and wind.

Analysts caution that Indonesia risks lagging in the clean energy transition, potentially missing out on investment opportunities, especially from data centers seeking sustainable energy options in Southeast Asia. "And once they realize it, it might be too late,” Setyawati warned.

Despite these concerns, Indonesia's dependence on coal remains profound. It uniquely proposed new coal plant constructions and ranked third globally in coal capacity in 2024. Approximately 80% of Indonesia's 1.9 gigawatts of coal capacity was dedicated to captive coal plants supplying smelters for minerals essential in EV production, according to reports from Global Energy Monitor.

Adhiguna remarked, “The Indonesian government needs to realize that this is where the world is heading, like it or not.”