State-Guided Capitalism as a Roadblock Toward Indonesia’s Green Future

Indonesia is blessed with its geographical position on the equator, with abundant potential resources for renewable energy, especially solar energy.

Indonesia is blessed with its geographical position on the equator, with abundant potential resources for renewable energy, especially solar energy. Renewable energy must replace fossil fuels in various economic sectors to prevent catastrophic global warming. Moreover, Indonesia’s reliance on fossil fuels has reached a crisis stage, with people unable to continue their everyday life without fossil fuel products. The disadvantages of fossil fuels, including their extraction and use, are greenhouse gas emissions and environmental devastation. Following the wave of eclectic-based vehicles, using renewable energy to charge the vehicle is also expected to do. Thus, the Indonesian government supported the emerging wave of transitioning from gasoline-based cars to electric vehicles (EVs). However, a hurdle is impeding the EVs transition wave, specifically the transition to electric vehicles without the accompanying energy revolution, such as solar panels. Additionally, private nickel mining in Indonesiasignificantly contributes to deforestation in Sulawesi, Indonesia (, 2022).  The primary issue in Indonesia is that private companies control and possess energy resources, prioritizing profit over the people’s welfare which is aggravated by government interference in the form of unclear regulations aimed at increasing state revenues. The issues can be analyzed through the lens of state-guided capitalism, in which private individuals own and control property according to their interests to make a profit with government interference (Jahan & Mahmud, 2023). Thus, this essay will explain the developmental imperfections of solar panels and the shortfall of nickel mining.

Capitalism is typically defined as an economic system in which private actors own and control property in accordance with their respective interests, supply and demand. Economists have recently identified several varieties of capitalism in relation to the role of entrepreneurship in driving innovation and the institutional context in which new ideas are implemented to enhance economic development (Baumol et al., 2009). One of the varieties is state-guided capitalism, which employs the government to regulate the expansion of multiple sectors, resulting in the exploitation of the people’s welfare. Initially motivated by development, this form of capitalism has several drawbacks, including excessive investment, selecting the wrong victors, corruption, and the inability to withdraw necessary supporti. From the perspective of state-guided capitalism, the government’s presence as a capitalist body disregards the welfare of the people by ignoring the urgency to switch to renewable energy, and it has become a capitalist body by supporting corporate avarice on nickel mining  (Jahan & Mahmud, 2023).

In Indonesia, the growth of solar power plants does not develop significantly due to several factors, such as a lack of support from the government in providing free land for the construction of solar power plants, high loan interest rates and tax burdens for investors, which resulted into the higher price of solar powered electricity (Amelia, 2018). Firstly, the land issues that hampered the growth of the solar power plant in Indonesia are because there are difficulties in getting free land to build solar power plants, which is very different from the UAE, where the government provides free land for investors to develop solar power plants ​​(Amelia, 2018). Second, because of the fiscal dilemma in the form of high tax rates and high-interest rates levied on investors. Compared to Arab countries, the interest rates in Arab countries are under 2% ​​(Amelia, 2018). In Indonesia, the interest rate is around 10-11%, aggravated by the imposition of an income tax of about 25% for investors ​​(Amelia, 2018). This ultimately led to investors’ reluctance to develop their solar panel production in Indonesia. With the cost of development expenses, such as land acquisition and income tax, the entrepreneur transfers the selling price of electricity to PLN as the buyer (Wicaksono, 2016). In answering the question of the lacking demand for installing solar panels, it is because the installation cost is expensive, and the efficiency is also low. Even though PLTS can reduce the cost of daily electricity consumption, it cannot be denied that the cost of installing and purchasing solar panels is still borne by consumers, even though we install them through PLN (KOMINFO, 2019). Then it can be concluded that the primary issue in Indonesia is that the government controls and possesses the energy resources, prioritizing profit over the people’s welfare or a form of state-guided capitalism. Those are the driving factors that create the investor’s reluctance to invest in Indonesia and the reason behind the low public demand for installing solar panels for their households.

Furthermore, nickel mining in Indonesia as the primary raw material for electric vehicle batteries is worrisome due to the lack of reclamation of formerly mined land. Indonesia is one country with significant potential mineral deposits, which might raise state revenue by allowing mining operations to begin.  Mining activities, on the other hand, not only increase state revenue but can also harm the environment. Wherever there is a mine, there is human anguish; whenever there is a mine, there is environmental damage and no escape (Johansyah, M., for BBC News Indonesia, Lumbanrau, 2021). However, the government has never been strict about enforcing regulations to safeguard the environment around mining lands, resulting in environmental damage and a decline in the surrounding community’s quality of life. For example, the environmental degradation and damage to the soil’s network structure caused by the nickel mining operations’ use of chemical substances and dredging techniques resulted in suffering for those living nearby. The worrying factor also arises from the transition from motorized vehicles to electric vehicles is their exploitation of nickel resources primarily performed by capitalist companies. The irony emerges under the guise of greening urban areas to promote changes in people’s mobility patterns yet harm nature; in other words, nickel businesses present greenwashing. To profit from nickel mining, these companies seized customary land to build roads to the added area, resulting in changes in social life in the community, such as what happened in North Halmahera in North Maluku (Pratama, 2021). The companies have damaged the land owned by the people, resulting in the loss of North Halmahera’s community space to find food. Moreover, significant natural damage resulted from the mining activity due to the improper disposal of mining refuse and deforestation not accompanied by replanting vegetation on ex-mining land. Ifishdeco Limited Company in South Konawe is an example of deforestation induced by nickel mining exploration that was not accompanied by replanting, causing environmental damage and a decline in the quality of life of the local population (Suriyani & Batara, 2018). It provides conclusive evidence that nickel mining activities have harmed the social conditions of the community’s economy through the occurrence of environmental damage. It can be interpreted that the government is failing to provide regulations that can regulate mining activities to minimize the impact on society.

The transition from motor-based vehicles to electric ones faced obstacles, primarily due to community reluctance towards using solar panels and the environmental repercussions of nickel mining. In the context of state-guided capitalism, the shift to solar energy faltered due to inadequate government support, deeming it unprofitable. The absence of clear regulations on mining operations, coupled with government prioritization of profit over public welfare, exacerbated the problem. Hence, it is crucial for grassroots communities to unite, raising awareness about the pitfalls of energy transition under state-guided capitalism and collectively advocating for government policies that prioritize social and environmental justice.

Aminah Rafa Laksita Azmi
Aminah Rafa Laksita Azmi
Aminah Rafa Laksita Azmi is an impassioned student immersed in the dynamic field of International Relations at Gadjah Mada University. Fueled by the electrifying wave of globalization and recognizing the pivotal influence of youth in sculpting its course, Aminah believes in the profound impact of international relations on the evolution of states, communities, and society at large. Her intellectual curiosity is captivated by the intersections of security, human rights, and the economy, propelling her to explore and unravel the intricate tapestry of these vital domains.