By: Akhmad Hanan, Mayora Bunga Swastika
Since Russia invaded Ukraine in February 2022, Europe has been forced to seek alternative energy sources other than Russian gas. Previously, Russia supplied around 40% of Europe’s gas needs through pipelines owned by Russia’s Gazprom. However, Russia decided to cut their gas supply to Europe as a counter action of US and its ally economic sanction. As a result, Europe has left no choice but to buy expensive LNG, optimize renewable energy sources, and tap other coal-producing countries.
Winter came, and it tormented Europeans even more. The energy scarcity due to the absence of Russian gas put many European countries into crisis. They had to pay higher for alternative energy sources as a domino effect of the Russia-Ukraine war. They also decided to utilize coal, contradicting their robust commitment towards energy transition goals and the Paris Agreement. Europe’s decision to turn back on coal has also altered the global energy transition’s geopolitical landscape. Europe is seen as a region supporting accelerated energy transitions and encouraging countries outside the region to follow suit. However, currently, Europe is taking steps contrary to efforts to accelerate the energy transition.
At the same time, Indonesia got their windfall profit through the European situation due to the rising coal price in the market. Europe has been one of Indonesia coal exporters, and following the disruption in Europe’s energy supply, Indonesia attempted to capitalize on the situation by increasing export quotas to Europe. This strategy was taken since Indonesia is one of the world’s largest coal producing countries.
Indonesia’s Ministry of Trade reports coal exports to Europe reached 6.6 million tons in December 2022. Previously, Indonesia only exported less than 1 million tons per year to the same region at the same time. The main reason was some European countries such as Spain, Italy, Switzerland, Greece, Poland, the Netherlands, and Germany increased their demand for Indonesian coal significantly.
Additionally, Indonesia became the top global coal exporter in 2022, with a total of 469 million tons, 9% higher than the previous year. Indonesia used to export coal to developing countries, mainly in Asia. As a result, Indonesia’s state revenue exceeded the targets by almost three times higher than expected. The Indonesia’s ministry of finance calculated the realization of state revenue reached 7.8 million USD, 2.8 million USD higher, and it was highly contributed from the coal trading.
Relations between Indonesia and Europe regarding energy commodities are indeed often tug-of-war. Hitherto, the European Union’s relationship with Indonesia was strained due to Indonesia’s decision on palm oil and nickel commodities. Indonesia’s decision to utilize palm as a biofuel source was feared to increase land use change in tropical forests and reduce its capacity to be a natural based solution in climate change mitigation.
Indonesia’s decision to ban nickel export was also being challenged by the European Union at the WTO in November 2019. The EU claimed this decision was unfairly harming its stainless steel industry. However, Indonesia insisted this decision was made for national development. From Indonesia’s point of view, Indonesia’s decision is one of the efforts to protect its national interests to fulfill domestic supply. Indonesia’s downstream plans will be threatened if Indonesia lifts the nickel export ban as desired by the EU. The Indonesian government has a target to build a nickel smelter in Indonesia. However, Indonesia lost the EU lawsuit regarding the nickel export ban.
Indonesia-Europe relations and Indonesia’s defeat in the nickel export ban lawsuit show that the issue of international relations is still closely interdependent. A country cannot only pay attention to its domestic interests but also pay attention to common interests. In this case, Indonesia and EU benefit from each other when conducting economic cooperation, especially export-import. This can be seen from the benefits when coal exports to the EU increase. Of course, the benefits of this cooperation will not be obtained if the two countries do not cooperate.
Apart from Indonesia’s interest in securing domestic supply, Indonesia should be able to take opportunities to cooperate with other countries, including the EU, in the energy sector. Cooperation between countries that cannot be avoided in the era of globalization should be the foundation for Indonesia in making and carrying out foreign policy. Indonesia must find a win-win solution in its relations with other countries because doing protection in this era is not a solution.
The opinion has been published on The Modern Diplomacy.
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