This is not about rejecting downstreaming. Rather, it is an invitation for all of us to reflect on the government’s ambition to downstream natural resources, particularly coal.
Coal downstreaming, mandated by Indonesia’s Mineral and Coal Mining Law (Minerba Law), has been promoted by the Indonesian government as a path toward energy sovereignty and economic progress.
Coal downstreaming is said to be a step toward sovereignty and national advancement. As Arief Budiman explained in his book “The Theory of Third World Development”, underdevelopment in many countries is partly due to their reliance on exporting raw materials. Much of their infrastructure is a colonial legacy designed to support raw exports, not industrialization. The spirit of downstreaming is actually a strategic effort to break away from this underdevelopment.
Downstreaming refers to the processing of raw materials into semi-finished or finished goods to increase added value and reduce reliance on raw exports. In the context of coal, the Prabowo-Gibran administration aims to produce Dimethyl Ether (DME)—an alternative fuel to replace Liquefied Petroleum Gas (LPG)—as part of the national energy self-sufficiency program. The state investment fund Danantara Indonesia is planned to finance this project in four locations: Muara Enim and Ogan Komering Ilir (South Sumatra), Tanah Bumbu (South Kalimantan), and East Kutai (East Kalimantan).
However, coal downstreaming is neither that simple nor easy. The obligation to add value to coal products has been a policy focus since 2009, especially with the passage of Law No. 4/2009 on Mineral and Coal Mining. This law mandates mining companies to process and refine their products, including coal. Yet to this day, the implementation of coal downstreaming continues to face many obstacles and challenges—especially as the world has been moving away from coal in the past decade as part of efforts to address climate change.
This leads to a pressing question: in an era of global energy transition toward net-zero emissions, is coal downstreaming still relevant—or is it time to shift to a more sustainable approach? Again, this is not about rejecting downstreaming, but about finding the best path forward for the nation.
The Challenges of Coal Downstreaming
First, coal downstreaming is considered economically unfeasible. According to the Institute for Energy Economics and Financial Analysis (IEEFA, 2020), the production cost of DME ranges from US$470 to US$651 per ton—far more expensive than LPG at US$365 per ton. The DME project requires massive investment, such as US$11 billion for the four planned sites, creating high debt risks. The withdrawal of Air Products and Chemicals from the Muara Enim project in 2023 exposed the uncertainty of the project’s viability. Additional subsidies to lower DME prices would only burden state finances, contradicting the efficiency goals of downstreaming.
Second, coal downstreaming prolongs dependence on fossil fuels and increases carbon emissions. DME production generates 412 kg of CO₂ per barrel of oil equivalent—higher than LPG at 386 kg CO₂—plus additional methane emissions from the gasification process (JRCEC, 2020). Indonesia’s Low Carbon Development (2022) study projected that replacing just 12% of LPG with DME could increase emissions by 2.4 million tons of CO₂ by 2030. Meanwhile, coal production in 2024 reached 800 million tons, twice the limit set in the National Energy Plan (RUEN) of 400 million tons. Downstreaming could exacerbate this overproduction, pulling Indonesia further away from its Paris Agreement commitments to limit global warming to 1.5°C and achieve net-zero emissions by 2060.
Third, technological and policy challenges hinder downstreaming. Coal gasification technology still relies heavily on imports, which drives up costs and weakens technological sovereignty—as also analyzed by Arief Budiman in his theory of Third World development. Policy uncertainty further damages the investment climate. The adoption of Carbon Capture and Storage (CCS) technology to reduce emissions would cost an additional US$50–55 per ton of CO₂, making projects even less competitive.
Fourth, coal downstreaming runs counter to global energy trends. While the world moves toward renewables, Indonesia continues to depend on coal for 67% of its electricity (as of 2024). Renewable energy only made up 13.1% of the energy mix in 2023—well below the 23% target by 2025. Downstreaming reinforces fossil fuel infrastructure, delaying the necessary energy transition.
An Alternative Path: Toward a Sustainable Energy Transition
Indonesia stands at a crossroads. We need viable alternatives to move toward a more sustainable future.
First, accelerate renewable energy development. Indonesia has a solar energy potential of 3,294 GW, yet the installed capacity was only 537.8 MW in 2023. Solar energy costs just US$30–50 per MWh (IRENA, 2023)—far cheaper than DME. Redirecting Danantara’s funding toward rooftop solar (targeting 3.61 GW) or floating solar (26.65 GW by 2030) could reduce emissions by 18 million tons of CO₂ and save 12 million tons of coal. Vietnam, for example, increased its solar capacity from 134 MW to 5.5 GW in just two years, showing that similar progress is possible in Indonesia.
Second, invest in clean technology R&D. Instead of importing gasification technology, the government could fund green energy research centers. Local manufacturing of solar panels, wind turbines, and batteries could add US$8–10 billion to GDP and create 530,000 jobs. Collaborations with universities and the National Research and Innovation Agency (BRIN) could fast-track low-emission innovation.
Third, diversify local economies. Coal-producing regions like Muara Enim and Tanah Bumbu could pivot to agribusiness or renewable-based tourism. Reskilling coal workers to become solar technicians could create 96,000 jobs with a US$9.4 billion investment. For example, the “Energy Independent Villages” program in East Nusa Tenggara integrates solar power with agricultural irrigation, strengthening local economic resilience.
Fourth, integrate energy transition policies. The government should revise the RUEN with more ambitious renewable targets and begin retiring coal power plants older than 30 years by 2025, as recommended by IESR. Redirecting the LPG subsidy (Rp83 trillion in 2024) to renewables would fast-track the green energy mix. Germany cut its coal dependency by 50% in a decade through phased plant closures and green energy subsidies—a model worth considering. While coal down streaming promises added value, it comes with significant risks.
Its high costs, carbon intensity, and reliance on foreign technology make it increasingly irrelevant. With coal production exceeding RUEN limits and renewable adoption lagging, the need for change is urgent.
By prioritizing renewable energy, investing in clean technology, diversifying local economies, and adopting consistent transition policies, Indonesia can achieve true energy sovereignty, without sacrificing the environment. It is time for the government and society to unite in building a sustainable energy future, not just a strategic move, but a necessary one.
Writer: Ariyansah NK
Reviewer: Aryanto Nugroho