Stranded Assets in Indonesia’s Coal-Dependent Regions: Implications for Workers and Local Economies
Author: Fahad Babangida
Decades of economic growth in the region, particularly in East Kalimantan, South Sumatra, and Central Kalimantan, have been closely tied to the Indonesian state's reliance on coal. Coal mining and coal-generated power generation have generated substantial government revenues and jobs in the region, to the extent that these activities have led to regional concentration on a single extractive industry. However, the global energy outlook is rapidly evolving. There is a tendency for international demand to shift, financial markets and insurers are becoming more cautious about funding coal, and renewable technologies are becoming increasingly competitive. This, in turn, has exposed Indonesia to a plausible risk whereby coal-related infrastructure, mines, and power plants have become stranded assets, i.e., investments that are no longer valuable or become liabilities before their economic lives come to an end. This brief evaluation assesses the socioeconomic and environmental impacts of stranded assets in coal-reliant areas and identifies policy solutions that can mitigate the damage to the affected population and facilitate a just transition.
Stranded assets occur when regulatory changes, market forces, and technological disruptions make previously economically viable investments unviable. According to the literature on stranded assets, the risk is not only theoretical: in any jurisdiction, policy and demand changes already necessitate the premature retirement of fossil infrastructure and sudden declines in the value of resources, with the impact spreading to employment and state budgets (Caldecott, 2018). These forces in Indonesia are strengthened by the country's openness to global coal markets, as well as its local commitments to reduce emissions. According to the international analysis, the coal demand patterns are becoming soft in all the key buyer markets, and the renewable sources are increasingly competitive substitutes to new and existing coal production (IEA “Coal,” 2023). In addition, Indonesia has been participating in global programs and domestic policies to make its energy industry compliant with its national decarbonization objectives, even further enhancing the likelihood that some of its coal resources will not be economically viable to serve their initially planned lifespan (IEA “Energy Road Map,” 2022).
Asset stranding has socioeconomic effects that are particularly pronounced in areas where local economies are highly integrated with coal operations. The most direct and immediate effect is the employment effects. Indonesia has tens of thousands of people directly employed in mines, and the number of individuals in the service and supply sectors is even higher; these industries support mining operations. According to the statistics of the national statistical agencies, employment in the mining sector is large in the region, and ethnography and case-study research done in coal areas show that there is low occupational mobility in the mining profession, particularly in the places where education and other opportunities are poor (Badan Pusat Statistik, 2023). The abrupt elimination of mine operations or the premature shutdown of plants poses a threat of sudden unemployment not only to formally employed miners but also to a significant number of informal workers, such as truck drivers, mechanics, small-scale suppliers, and service providers who generally do not receive social protection or severance benefits. The findings of international studies indicate that uncontrolled transitions will most likely raise the likelihood of long-term jobless status, negative social mobility, and other social problems, including mental-health decline and outmigration by impacted communities (Newell & Mulvaney, 2013; Bößner et al., 2023)
In addition to employment, the financial implications for subnational governments are tremendous. A large proportion of the operating budgets of many coal-producing districts is comprised of royalties and taxes directly linked to mining and power production. In other districts, the figures are very high, with coal accounting for over a third of the local income. A decline in coal activity thus translates into steep cuts in the amounts available for spending on health, education, and infrastructure investment, making governance more difficult at the local level and increasing its reliance on central transfers. In turn, fiscal fragility may slow down the process of economic diversification and intensify social distress, as basic services will lack adequate budgetary allocations. In addition, as financially strained companies may be unable to finance mine reclamation, environmental liabilities may be transferred to local governments with limited funding sources, presenting a multi-year liability for post-coal recovery.
Environmental legacies increase the human and economic impacts of the stranded assets. Uncompensated land degradation, disrupted hydrology, abandoned surface pits, and contaminated runoff decrease the ability of the impacted landscapes to enable agriculture, fisheries, and other livelihood practices. In certain coal provinces, the lists of abandoned and poorly rehabilitated pits underscore the extent of the environmental task. In cases of delay or incompleteness of reclamation, people must contend with continuous risks and miss opportunities for land-use diversification, which could be used to support post-coal communities. A coordination problem is archetypal: local governments must deal with damaged land and health risks at a time when their fiscal capability is decreasing due to environmental cleanup requirements.
The size of these risks is enhanced by policy gaps at both national and sub-national levels. Despite Indonesia developing energy transition policies and discussing managed transition programs with foreign partners, gaps in implementation are still observed, especially in labour retraining, fiscal reform to decrease reliance on extractive rents, and the implementation of mine-closure requirements. The transition programs that have been in place to date have been either fragmented or concentrated in urban centres or very small as compared to the number of potentially affected workers/communities. There are no strong, enforceable reclamation financing structures, so environmental liabilities are likely to be underfunded when firms' balance sheets are stretched. The lack of certainty surrounding the dates of cessation of coal-generated power plants and the form of compensation or acquisition of generators creates reluctance to invest in the market and disrupts regional planning.
The response to the policy should therefore be coherent and put fair results at the centre. First, a national just transition framework ought to be formalised to determine priority areas, cross ministry action and offer a predictable pipeline of funding for retraining and social protection. These instruments must encompass long-term financial tools, such as a transition fund, which can be utilised to underwrite wage insurance, reskilling, and seed capital for local entrepreneurs in the green economy. Second, worker-oriented policies should incorporate income support coupled with market-based retraining to match workers' skills to new areas, including renewable energy installation and maintenance, agro-processing, sustainable forestry, and ecotourism, among others, based on regional competitive advantages. Third, to decrease the susceptibility to fluctuating coal incomes at the subnational level, fiscal reforms are necessary, which may include modifications to revenue-sharing formulas, incentives for local governments to engage in diversification, and interim fiscal transfers to territories in transition. Fourth, the environmental policy should be stringent: Pre-funded reclamation bonds should be implemented, the closure plan should be transparent and community-monitored to prevent shifting remedial expenses onto taxpayers.
Lastly, energy planning must be understandable and believable. National electricity planning must release plans for the phased retirement of coal-fired power plants in a manner that signals policy stability to both investors and affected areas. In cases where early retirements are to be implemented, the mechanisms for repurposing infrastructure or financing the buyout must be clear and incorporated into the national infrastructure, allowing local governments to plan for the expected revenue and labour changes.
The post-coal future of Indonesia will not be automatic. The cost of stranded assets can be profound, permanent, and inequitable to workers and local economies without the implementation of appropriate policies promptly, which are coordinated and distributed. Nonetheless, a properly thought-out, well-invested, and locally dependent just transition can provide the nation with an avenue for transforming its exhaustible coal-based fortunes into diversified and sustainable livelihoods and regional economies. The future of stranded assets today hinges on whether they become a cause of social trauma or a means to economically revitalise through the policy decisions made today in planning, financing, and social protection.
The coal phase-out in Indonesia will only succeed when fairness and stability inform the entire policy process. There is a need for a formal national just transition framework to coordinate ministries, ensure long-term funding, and provide a clear direction to workers and local governments. The measures that may help cushion economic shocks and accelerate the shift back into new labour markets may involve targeted worker support, including income protection, skills matching, and opportunities in new green sectors. Simultaneously, fiscal policies should be implemented to reduce the regions' reliance on coal payments and encourage economic diversification. Effective environmental management, including pre-funding reclamation and open closure strategies, will prevent future liabilities and protect the local population. Lastly, credible and honest energy planning, especially regarding the retirement of coal plants, will increase investor confidence and enable subnational authorities to be prepared for the necessary changes. The combination of these measures can provide a fair, organised, and cost-effective transition of the Indonesian coal areas.
