By Michael Sheldrick, Featured on climateandcapitalmedia.com
How to use a fleeting fossil-fueled opportunity as a path to a low-carbon future instead of a fast track to stranded assets
A few years ago, Dr. Fatih Birol, head of the International Energy Agency, declared that “the old king — coal — is over.” Yet since then, coal-rich countries like Indonesia have ridden a wave of profits. Surging global demand and energy shocks in the wake of Russia’s invasion of Ukraine triggered a temporary boom, delivering record earnings to Indonesian coal firms. But far from signaling a revival, this windfall, as a new report suggests, offers a fleeting chance to fund a cleaner, more resilient future.
The real question is: will Indonesia use this moment to lead the energy transition, or fall victim to the plunderer’s curse?
Notwithstanding Indonesia’s target to phase out coal power by 2040, the country’s near-term coal production outlook stands in sharp contrast to global trends; countries like the US, Germany, and even China are scaling back domestic output. A new report by the Energy Shift Institute reveals that Indonesia produced a record 836 million tons of coal last year, with the sector contributing nearly 3.6% of national GDP. Remarkably, just 28 companies generated more than $31 billion in net income between 2019 and 2023, second only to the country’s banking sector. Indeed, coal represents 30%-35% of regional GDP in provinces like East Kalimantan, and up to 11% of employment in such areas.
Will Indonesia use this moment to lead the energy transition, or fall victim to the plunderer’s curse?
A boom built on borrowed time
Indonesia’s coal sector remains highly profitable, not due to long-term fundamentals, but because of a mix of short-term advantages: the industry has low debt, low tax rates, reliable customers, lower shipping costs compared to other competitors (like, say, Australia or South Africa), and mature, efficient mines that don’t require significant investments to operate. In other words, Indonesian coal firms can produce profitably even at relatively low prices. In contrast, coal plants in many other countries are being retired early or are running at a loss, while domestic mining in those regions are increasingly struggling to remain profitable amid shrinking margins, rising costs, and tightening regulations.
“Today’s strength is underpinned by stable prices, steady demand, and mature coal operations,” says Hazel Ilango, principal researcher at the Energy Shift Institute. “But short-term resilience does not guarantee long-term certainty. The paradox is that coal is strong today, but the long-term outlook is increasingly uncertain.”
The Energy Shift Institute warns that while Indonesia’s coal sector is expected to remain profitable in the near to medium term, roughly the next 3 to 5 years, coal prices have already dropped more than 60% since their 2022 peak and are projected to decline further as clean energy, especially solar, becomes increasingly cost-competitive. With solar entering a phase of exponential adoption and ongoing cost declines, it is poised to outcompete coal, even when coal prices temporarily spike.
The hidden risks behind the coal windfall
Another looming risk is Indonesia’s dependence on just a few key buyers: China and India together account for over 60% of its coal exports. Both countries are ramping up domestic coal production for energy security, but at the same time, they’re investing heavily in renewables and reducing coal’s share of future electricity growth. China, for example, met over three-quarters of its electricity demand growth last year through clean energy. Underscoring this risk, earlier this year, Indonesia’s coal exports dropped to a three-year low after both China and India scaled back imports. Although imports have since recovered, the short-term drop remains a warning shot for what overdependence looks like.
Additionally, according to the report, many of Indonesia’s biggest coal firms rely on a single mine for up to 90% of production. This makes them highly vulnerable to disruption from weather, regulation, or operational failure. Investing in resilience measures is key.
“The paradox is that coal is strong today, but the long-term outlook is increasingly uncertain.”
“A sharp drop in coal prices or demand could trigger widespread financial losses, shrink government revenues, and lead to job cuts… The risks are too big to ignore,” Ilango warned.
Four moves to make the transition beyond coal real
If Indonesia fails to diversify or invest in alternatives soon, it could face shrinking demand, falling revenues, and stranded assets — all within the next five to ten years. That’s why the report recommends that policymakers and coal firms alike:
1. Use today’s profits to plan for tomorrow.
“Policy leadership would look like a shift in incentives that support credible transition or diversification plans for coal companies… so the sector can pivot away from coal while maintaining national economic resilience,” said Ilango.
To this end, instead of focusing solely on short-term gains, the government and coal firms should invest now in cleaner industries that can create future jobs for the country’s 250,000-strong coal workforce, particularly in coal-dependent regions like East Kalimantan. Take Collie, Australia, for example, a successful case study I explore in From Ideas to Impact. The town once relied almost entirely on coal, but rather than waiting for the industry to collapse, the Western Australian government used public funds to invest early in clean industries, such as battery storage and green steel. That forward-looking approach is now creating jobs and attracting new businesses, which have given the town a future beyond coal.
2. Turn national goals into corporate transition planning.
The government has announced a plan to phase out coal by 2040, but most coal companies haven’t yet shown how they’ll actually get there. The report says it’s time for companies to step up, set clear goals, invest in alternatives, and prove they’re serious about the future if they do not want to be left with stranded assets and an unviable business model.
3. Fix the rules that make change more complicated.
Coal companies pay some of the highest royalties in the country, far more than sectors like copper or gold. These costs eat into profits, leaving companies with less flexibility to try new ideas or invest in cleaner alternatives. The government could reverse this dynamic by offering lower royalty rates or tax breaks to companies that commit to transition plans — for example, by investing in renewable energy, battery storage, or green minerals. That would shift the system from penalizing all producers equally to rewarding those planning for the future.
4. Make transition finance easier.
Transition finance, the targeted flow of capital to help companies decarbonize, diversify, or manage the phase-out of high-emitting assets, is essential for any coal company serious about moving beyond business as usual. As Robin Castelli writes in Principles of Transition Finance Investing, it’s “the single-greatest economic opportunity of the 21st century,” with capital needed not only for clean tech, but also for the credible transformation of fossil-heavy sectors. That means supporting companies that commit to change, not just punishing those that haven’t yet.
With coal revenues high (for now), the country has a chance to shape its own transition before the economics turn against it. History reminds us of the power of the plunderers’ curse — that few countries use resource windfalls to prepare for the future.
With the right financial instruments and governance structures, Indonesia’s coal firms could tap new sources of funding for a future beyond coal. A good example is Adaro, one of Indonesia’s largest coal companies. In 2024, it established a separate company to manage its renewable and aluminum businesses, allowing it to raise capital from investors who would not directly fund coal.
Another example is the emergence of energy transition credits — a new type of carbon credit that rewards countries or companies for keeping coal underground. A Singapore-based company, TransEnergy Global, is pioneering this model in South Africa. After acquiring a major coal reserve, TransEnergy plans to leave the coal unmined and instead issue credits for the avoided emissions, selling them to corporations with climate targets. The revenue will be reinvested in clean energy, job creation, and the development of new industries for coal-dependent communities. If successful, the company aims to expand to countries such as Indonesia, where similar financing tools could help facilitate a just transition, particularly in regions that struggle to access climate capital.
Beware “the plunderers’ curse”
Indonesia, along with its coal firms, still has a narrow but powerful window of opportunity. With coal revenues high (for now), the country has a chance to shape its own transition before the economics turn against it. Unfortunately, history reminds us of the power of the plunderers’ curse — that few countries use resource windfalls to prepare for the future. Australia, despite benefiting from decades of coal booms, largely failed to reinvest those profits into a long-term, coordinated transition. Many coal communities were left behind when closures occurred abruptly, with the notable exception of towns like Collie in Western Australia, where proactive planning, government investment, and local engagement made all the difference.
“Indonesia’s coal sector is still strong, giving it a chance to plan a more orderly transition. The question is whether that strength will be used to lead or simply held back by a wait-and-see approach,” Ilango concluded.
This moment of opportunity won’t turn itself into a just transition. After all, few fossil fuel firms shift course without clear incentives and strong policy direction. This will take bold leadership and the kind of policy entrepreneurship that gets things done. That means finding leverage points, building unlikely coalitions, and making accountability non-negotiable. Indonesia has the cash, the capacity, and a closing window. What it needs now is the courage to break with business as usual and build a future beyond coal, not after collapse, but by design.
