Towards Greener and More Inclusive Societies in Southeast Asia

Report

Development Centre Studies

11 March 2024

4. Labour market implications of the energy transition: Indonesia case study

Abstract

The global implementation of emissions reduction policies is expected to affect the demand for labour and skills in different ways. The transition towards low-carbon energy will undoubtedly create winners and losers in the labour market. A simulation exercise conducted for Indonesia shows that a global energy transition would concentrate employment losses along the fossil fuel value chain, while employment gains would occur across multiple sectors such as electricity and gas, construction, and mining of metals. To mitigate the adverse social consequences of the energy transition, policy makers should provide early support before layoffs, implement social protection measures, and invest in local development for negatively affected areas.

Southeast Asian countries are committed to reducing their reliance on fossil fuels as they battle with the twin environmental challenges of climate change and air pollution. Indonesia will play a key role in the region’s energy transition, as it is the largest economy in Southeast Asia and the world’s largest exporter of coal. The Indonesia Long-Term Strategy for Low Carbon and Climate Resilience 2050 (Republic of Indonesia, 2021[1]) sets ambitious goals to transition from fossil fuels to renewable energy. This represents opportunities but also challenges from a labour market perspective: it will likely create winners and losers across industries, skill types and geographies. To maximise the benefits from the energy transition, it is essential to understand such redistributive effects and to implement accompanying measures, such as early support before layoffs, social protection interventions, and investments in local development of negatively affected areas.

This chapter presents the results of a simulation exercise which involved assessing the labour market consequences in Indonesia of a hypothetical energy transition at the global level. While Indonesia was the only Southeast Asian country for which the analysis was possible due to data limitations, it offers relevant insights for other countries in the region. As a country that is heavily reliant on coal, Indonesia’s experience also sheds light on other countries in this situation, such as the Philippines and Viet Nam (BP, 2022[2]). Indonesia is also well positioned to provide the critical minerals needed for the energy transition (IEA, 2021[3]). As such, comparisons can be drawn with Myanmar and the Philippines, which also produce large amounts of these resources (IEA, 2021[3]).

This exercise compares a “business-as-usual” emission scenario (referred to as a 6 degrees scenario (6DS)) with a “sustainable development” scenario (referred to as a 2 degrees scenario (2DS)) in 2030. It identifies sectors that will lose or gain employment and it provides a profile of the workers in the affected sectors. Policy implications to prepare the labour market for these changes are discussed for Indonesia as well as for the region as a whole.

Indonesia’s commitment to a just energy transition

The preservation of the environment is key to Southeast Asia’s inclusive growth, and Indonesia is no exception. The region is highly vulnerable to climate change. By 2030, heat stress (individuals’ reduced physiological capacity to work due to high temperatures) is set to increase. It is expected to cost the country 3.0% of its labour productivity, up from 2.1% in 1990 (Figure 4.1, Panel A). Moreover, fossil fuels produce immediate costs related to air pollution. The burning of coal, diesel and petrol is a major source of fine particulate matter (PM 2.5), ground-level ozone and other pollutants. Fine particle air pollution is the cause of one in three deaths from stroke, lung cancer and heart disease worldwide (WHO, 2021[4]). The trend is worsening in Indonesia: death rates from outdoor air pollution increased from 38 per 100 000 inhabitants in 1990 to 58 per 100 000 inhabitants in 2019 (Figure 4.1, Panel B). While many countries across Southeast Asia have also experienced an increase in outdoor air pollution deaths since 1990, the situation in Indonesia is particularly worrying.

As a country exposed to climate change and air pollution, Indonesia has set ambitious targets to phase out fossil fuels and transition towards renewable energy, a policy set out in Indonesia Long-Term Strategy for Low Carbon and Climate Resilience 2050 (Republic of Indonesia, 2021[1]).

According to the Long-Term Strategy, Indonesia plans to:

increase its renewable energy to at least 23% of primary energy demand by 2025, and at least 31% by 2050
reduce its greenhouse gas (GHG) emissions by 29% (unconditional target) compared with a business-as-usual scenario and by 41% (conditional on international support) by 2030
as part of the implementation of these objectives, a carbon tax was to be implemented in 2022, focusing on coal power plants (Republic of Indonesia, 2022[5]), but likely to be in place for 2025.

Figure 4.1. Indonesia suffers from climate change-induced heat stress and air pollution

Indonesia is currently heavily reliant on fossil fuel consumption and exports. In 2020, 82% of power generation in the country came from fossil fuel: 62% from coal, 18% from natural gas and 2% from oil (US EIA, 2021[8]). Mineral fuels, mineral oils and products of their distillation represented 15.4% of national exports in 2020 (OEC, 2022[9]). In particular, Indonesia is the world’s largest exporter of coal by weight (US EIA, 2021[8]). The country specialises in lignite extraction (also known as “brown coal”) (OEC, 2022[9]). These industries would be particularly affected by the energy transition.

At the same time, metal mining offers Indonesia opportunities to thrive. Indeed, technologies that are essential for the energy transition, ranging from electric cars to wind turbines, require large amounts of certain minerals. Nickel is one of these important resources and Indonesia is its largest producer, accounting for 33% of global extraction. Other resources important for the energy transition are currently produced in Indonesia (e.g. copper), or represent potential future opportunities (rare earth elements).

Understanding and anticipating the reallocation of labour across industries will be key to ensuring a just transition, which is a necessary condition for the political acceptability of these reforms. The next section therefore attempts to analyse the sectors likely to gain employment and those likely to lose employment from the energy transition, and the profiles of affected workers.

Opportunities and challenges in the labour market from the energy transition

The Paris Agreement, ratified by Indonesia in 2016, lays out the objective of “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels” (UN, 2015[10]). The goal can be achieved in particular by: 1) increasing both the share of low-carbon sources in the energy mix and energy efficiency, and 2) by modifying agricultural practices and favouring natural carbon sequestration.

The current study focuses on the former approach: increasing the share of low-carbon sources in the energy mix and improving energy efficiency. By applying two future carbon dioxide (CO₂) emissions scenarios, it assesses the consequences of the energy transition on the labour market. The analysis is based on two scenarios, developed by the International Energy Agency (IEA) (2015[11]), which describe the possible evolution of energy generation over the coming decades in terms of energy supply and final energy demand throughout the economy at the global level.

The first scenario is the “business-as-usual” or 6DS. It should be interpreted as a particularly pessimistic pathway, where CO₂ emissions reach 44 gigatonnes globally in 2030. In this scenario, global average temperature is on a path to increase by approximately 5.5°C by 2050 and then stabilise at approximately 4°C by 2100. The second scenario is the “sustainable development” or 2DS. It consists of a hypothetical pathway where there is at least a 50% probability of the average global temperature not increasing by more than 2°C compared to pre-industrial levels. This means reducing the 34 gigatonnes of CO₂ emissions recorded globally in 2019 to 27 gigatonnes in 2030, which is 39% lower than the emissions in the 6DS.

The current analysis builds on a model by Montt et al. (2018[12]) and the International Labour Organization (ILO) (ILO, 2018[13]), where specific emissions trajectories are then developed for 44 countries, including Indonesia. The 2DS presented here for Indonesia has both similarities and differences compared with a specific official scenario developed by the Government of Indonesia, known as the Low Carbon Scenario Compatible with the Paris Agreement (LCCP). While net emissions targets in the LCCP are comparable with the 2DS, the LCCP includes in addition actions on agriculture, forestry and other land use targets. The methodology used for carrying out this analysis can be found in Annex 4.A Annex 4.A.

In some countries, including in Indonesia, the energy transition could generate a net employment gain. In the event of a global reduction in emissions compatible with the Paris Agreement, it is estimated that Indonesia would be among the largest beneficiaries of the energy transition in terms of net employment creation (Montt et al., 2018[12]) – see Annex 4.A. for details on methodology. If the world adopts sustainable energy production and use (the 2DS), employment in Indonesia would be 0.86% higher in 2030 compared with the employment level in the 6DS in 2030. It is estimated that more than 1 million new jobs would be created, and about 31 000 jobs would be destroyed (Table 4.1). Compared with other countries and regions studied, Indonesia exhibits a large net employment gain (Figure 4.2). Only Chinese Taipei and Bulgaria are expected to record higher net employment creation rates by 2030 from this scenario. Note that all countries and regions are expected to experience a net gain in employment, with the exception of the Middle East.

Net job creation does not give the full picture of the impact of an energy transition on the labour market. The transition may increase overall employment, but at the same time it would require the reallocation of labour from one sector to another. In particular, fossil fuel-related sectors would lose employment, whereas sectors involved in renewable energy production would gain employment. This implies retraining and reskilling a large number of workers. The following analysis therefore looks in more detail at the particular sectors that would be affected in terms of employment by a potential energy transition.

Total employment, 2016 (baseline)	Total estimated employment, 2030, 6DS	Employment loss estimate, 2030, 2DS compared to 6DS	Employment gain estimate, 2030, 2DS compared to 6DS	Total estimated employment, 2030, 2DS	Estimated employment change, 2DS relative to 6DS (%)
120 648 000	126 300 000	31 000	1 120 000	127 389 000	0.86

Note: The employment forecast compares the 2DS with the 6DS in 2030. Employment loss and gain estimates are the difference between 6DS and 2DS. Net employment effect of 2DS compared to 6DS is 1 089 000 jobs created.

Source: Authors’ calculations based on the Indonesia National Labour Force Survey, 2016 and Montt et al. (2018[12]).

Figure 4.2. Indonesia could be among the largest beneficiaries of the global energy transition

Net employment change by 2030 under the 2DS compared with the 6DS

Employment losing sector: fossil fuel-related activities

Sectoral analysis shows that the mining and processing of fossil fuel are the only sectors exhibiting a decline in employment. Under the 2DS compared to the 6DS, about 31 000 jobs are expected to be destroyed and 1 120 000 jobs created. In 2020, the coal mining businesses employed about 250 000 people (about 0.2% of total employment) (IESR, 2022[14]) including about 160 000 coal miners (Global Energy Monitor, 2023[15]). The “Electricity and gas” sector, as well as “Trade, except vehicles”, “Construction” and “Manufacturing” sectors capture the largest employment gains. Public sector-oriented activities, such as those in the “Human health, social work”, “Education” and “Public administration” sectors, remain virtually unaffected (Figure 4.3).

Figure 4.3. Fossil fuel-related activities will be most negatively impacted from an energy transition in Indonesia

Estimated employment losses in the fossil fuel sector would occur in various activities of the value chain: the “Manufacture of coke and refined petroleum products” sector would account for 75% of the employment losses, followed by “Mining of coal and lignite” (14%) and “Extraction of crude petroleum and natural gas” (11%) (Figure 4.4).

Figure 4.4. Employment losses would be concentrated in fossil fuel extraction and processing in Indonesia

Distribution of the employment losses by sector (%)

Understanding the profiles of at-risk workers is key to designing support policies. The workers who would be negatively affected by an energy transition would mostly be men working in the formal economy. The findings of the simulation exercise conducted on sectors are combined here with labour force data – see Annex 4.A for the methodology. “Potentially lost jobs” refers to jobs that would be destroyed assuming that the sector characteristics (i.e. the profile of employed workers) would remain unchanged between 2016 and 2030. It appears that these jobs are overwhelmingly held by men (94% of average at-risk workers) and are more urban (76%) than the economy average (Figure 4.5). Workers in such jobs are also less likely to be young (aged 15‑24 years) compared with the economy average.

Figure 4.5. At-risk workers are for the large majority male and urban workers

Demographic characteristics of workers in losing sectors, share of workers (%)

The employment status, i.e. whether workers have a formal job, matters for their capacity to cope with potential job loss. Under Indonesian Labour Law 13/2003, employees with a formal contract obtain up to nine months in severance payments in the case of employment termination (ILO, 2020[16]). In contrast, informal employees, as well as employers and own-account or contributing family workers (irrespective of their formal or informal status), do not benefit from this protection. In Indonesia, workers in the “losing” sector are predominantly wage employees. Estimates show that jobs at risk of being lost in fossil fuel-related activities are largely held by wage employees (more than 99%, compared with 48% across the economy). Out of fossil fuel workers, 44% of them are informal workers, compared with the country average of 83%. Workers in the “Mining of coal and lignite” sector are 62% informal (Figure 4.6).

Figure 4.6. Workers in fossil fuel extraction and processing tend to be employees, with formal contracts

Jobs in fossil fuel extraction and processing tend to pay higher salaries than other sectors of the economy. In fact, the median wage in the “Mining of coal and lignite” and “Extraction of crude petroleum and natural gas” is 2.5 times the national median wage and that of workers in the “Manufacture of coke and refined petroleum products” sector is 1.4 times the national median wage. Workers in these sectors are also more educated than the national average, with 46% having advanced education, compared with 27% on average for the country (Figure 4.7).

Figure 4.7. Workers in fossil fuel extraction and processing are more educated than the average Indonesian worker

The relatively better working conditions in the fossil fuel extraction and processing sectors can be explained by the fact that mining fossil fuel is a relatively capital- and skill-intensive activity (Peszko et al., 2021[17]). The fact that current fossil fuel industry workers are more formal, relatively better paid and relatively more educated than the average worker in Indonesia might represent a source of resilience in facing the negative consequences of the energy transition: formal employee status generally implies severance payments in case of layoff; higher wages may be associated with higher savings, thus enabling workers to cope with job loss; and higher education is likely to favour reallocation to another sector. According to the Institute for Essential Services Reform, an Indonesian think tank, by 2050, job losses in coal industries could be anywhere between 25 000 and 252 000 depending on how rapid coal is phased-out and labor intensity decreased through improved productivity and automation (IESR, 2022[14]).

A more alarming aspect of this forecast is that job losses will be geographically concentrated in a specific region, namely the Kalimantan region (the Indonesian part of the island of Borneo), which specialises in fossil fuel extraction. The geographic concentration of extractive industries has important implications for the equity and acceptability of the energy transition. This geographic concentration poses challenges for labour reallocation given the possible lack of local employment alternatives and the difficulty for workers to relocate.

Relatedly, localised adverse economic shocks tend to induce a range of social challenges. Studies show that local shocks induce crime, illegal drug abuse, poor mental health and lower life satisfaction (Bartik, 2020[18]). In addition, geographic concentration of job losses has political economy implications, with often strong political backlash (Rodríguez-Pose, 2018[19]) and increased support for political movements that are opposed to environmental reforms (Lockwood, 2018[20]). In a developing country context, two patterns further aggravate this geographical concentration of job losses (Grover, Lall and Maloney, 2022[21]). First, it has been observed that internal mobility is much weaker in developing economies than in high-income countries, according to World Bank research. This lack of mobility prevents people in negatively affected regions from seeking opportunities elsewhere. Second, when internal mobility does occur, it often results in “sterile agglomeration”; that is, urbanisation without the productivity gains observed in high-income countries. Tackling these challenges requires policies that either help workers relocate to more productive areas or that invest in local development.

Employment winning sectors: Electricity and gas, trade, and construction

Employment gains would encompass a broad range of activities. The “Electricity and gas” sector would account for 27% of estimated new job creation from an energy transition. Indeed, under the 6DS, Indonesia would develop electricity generation with lower emissions technologies, including biomass and photovoltaic as well as gas, which have lower emissions per kilowatt-hour of electricity. The “Trade, except vehicles” sector would account for 23% of estimated job creation. This is the result of both indirect and induced effects: investments in new electricity technologies would increase demand for intermediary inputs, which would be provided by the “Trade, except vehicles” sector. In parallel, the overall increase in employment would result in higher overall demand, which would also contribute to increasing certain types of employment in the “Trade, except vehicles” sector. The “Construction” sector would account for 21% of employment gains by 2030 under the 2DS, which would largely be an indirect effect of the new infrastructure that will be required for the new power generation (Figure 4.8).

Figure 4.8. The job gains will be spread across several sectors

A disaggregated analysis of the electricity production sector shows that the largest increase in employment would occur in solar photovoltaic, increasing national employment by 0.23% (Figure 4.9). Other renewable energy sources would also see employment gains, in particular waste and biomass, as well as geothermal. Yet, production of electricity by gas, and to a lesser extent petroleum, would also see small gains due to their use as transition technologies to phase out the production of electricity by coal. Indeed, switching the production of electricity from coal to natural gas can play a role in reducing GHG emissions, as the latter typically emits 50% less carbon per kilowatt-hour (IEA, 2019[22]).

Figure 4.9. Among electricity producing sub-sectors, solar photovoltaic will experience the most employment gains

In terms of the profiles of workers in the sectors expected to experience employment gains from the energy transition, they tend to have a higher percentage of male and urban workers compared with the national average they tend to be more male and urban workers compared with the national average (Figure 4.10). The profiles of workers are similar to those in the sectors expected to experience employment losses. However, job requirements are not necessarily the same, therefore not interchangeable.

Assuming that sectors would keep the same gender composition, the “Manufacturing” and “Trade, except vehicles” sectors, where more women tend to be employed, will see the largest increase, and thus contribute to increasing female employment. These two sectors also typically employ younger workers (aged 15‑24 years).

Figure 4.10. The energy transition is expected to create employment for women and youth

Demographic characteristics of workers in main gaining sectors, share of workers (%)

Status in employment is relatively similar in the sectors expected to gain employment compared with the economy average (Figure 4.11, Panel A). Yet, it depends on the sector: In the “Trade, except vehicles” sector, 55% of employment would be composed of own-account and contributing family workers. In contrast, in “Construction” and “Electricity and gas” sectors, most workers would be employees (90% of “Construction” sector workers and 92% of “Electricity and gas” sector workers). Informality remains high in Indonesia, at around 80% of total employment in 2019 (OECD, 2021[23]). Under 2DS, the winning sectors, particularly in “Construction”, “Manufacturing” and “Trade”, are estimated to have high shares of informal workers (Figure 4.11, Panel B).

Figure 4.11. Employment gains might result in more workers with employee status and formal contracts

Status in employment of workers in main gaining sectors, and average potentially gained job (%)

The energy transition would require workers to retrain and reskill. Newly created jobs would require higher levels of skills than those currently possessed by the average worker in Indonesia (Figure 4.12). An estimated 51% of these potential new jobs would require an intermediate education level or higher; however, only 39% of workers in Indonesia had reached this level of education in 2016. Less than one-half (49%) of these new jobs would require basic education or less, whereas 61% of jobs currently require such education. The requirements regarding advanced education achievement would be similar to the economy average, at 11%. The education requirements may vary across sectors with employment gains, however. For example, both the “Construction” and “Trade, except vehicles” sectors have educational profiles close to the national average. In contrast, the “Electricity and gas” sector will require a much higher level of skills.

Figure 4.12. Some of the main winning sectors will require more education than that of the average Indonesian worker

In focus: Pros and cons of metal mining as an alternative to fossil fuel mining

A world powered by low-carbon energy technologies will have different mineral resource needs compared with the 6DS (business-as-usual scenario) (Figure 4.13). Solar photovoltaic installations, wind farms and electric vehicles generally require more minerals to build than their fossil fuel-based counterparts (IEA, 2021[24]). For example, an electric car requires six times the mineral resources of a conventional car, and an onshore wind farm requires nine times more mineral resources than a gas-fired plant.

Figure 4.13. Low carbon technologies require more mineral inputs than fossil fuel-based equivalents

Indonesia plays a large role in fossil fuel extraction. It is also the world’s largest producer of nickel and is among the world’s top 20 producers of copper, cobalt and manganese (World Mining Data, 2021[25]). There is also the potential for rare earth elements extraction in Indonesia (Handoko and Sanjaya, 2018[26]). For these reasons, the energy transition in Indonesia would produce both employment gains and losses in mining and quarrying. While most of the employment losses induced by the energy transition would be concentrated in the “mining of fossil fuels” sector, these losses would be more than offset by growth in the mining of metal ores, as well as in mining support services activities and other activities related to mining and quarrying (Figure 4.14).

Figure 4.14. Mining of metal ores and service activities could largely compensate employment losses in fossil fuels extraction

Employment change induced by the energy transition (2DS vs. 6DS), by sectors (thousands)

Despite this potentially good news, it is worth noting that working conditions vary across types of mining activities. Workers in the “Mining of fossil fuels” sector tend to have higher shares of formal employment, be more educated, and are less likely to be own-account and contributing family workers. They are also older and more urban. For all of these reasons, a policy aimed at reallocating workers from the “Mining of fossil fuels” sector to other forms of mining should also aim to improve working conditions in this latter sector (Figure 4.15): in the “Mining of fossil fuels” (coal, lignite, petroleum and natural gas) sector, only 1% of workers are own-account or contributing family workers (a status that is considered precarious), compared with 24% of workers in the “Mining of metal ores” sector. Similarly, informal employment is more prevalent in the “Mining of metal ores” sector (93%) than in the “Mining of fossil fuels” sector (55%). Education requirements are much lower in the “Mining of metal ores” sector (73% of workers have a basic education or less) compared with the “Mining of fossil fuels” sector (23% of workers have a basic education or less).

Figure 4.15. Mining of fossil fuels is very different from metal mining

Workers’ characteristics, by type of mining (%)

In addition to the relatively poorer working conditions in metal mining compared with coal mining, the metal mining sector causes environmental degradation, which can itself affect working and living conditions (see Chapter 2). Globally, 79% of metal ore mining in 2019 was located in five of the six most species-rich ecosystems (Luckeneder et al., 2021[27]). Moreover, one-half of the world’s metal mining takes place within 20 km of protected areas. In Indonesia, the Grasberg gold and copper mining site (one of the world’s largest metal ore extraction projects) is located close to the Lorentz National Park, a World Heritage Site (Luckeneder et al., 2021[27]). The mine has polluted rivers and lakes in the area (Martinez-Alier, 2001[28]).

Developing circular economies could spur a more efficient use of mineral resources and therefore limit the need for additional metal mining. While this comes with clear environmental benefits, it also presents employment trade-offs. The ILO (2018[13]) estimates that adopting a circular economy that prioritises the reuse, recycling, remanufacturing, and repair of goods is projected to generate approximately 6 million net jobs globally by 2030. Yet, employment would be reduced in mining and manufacturing. Given their comparative advantage in manufacturing, Southeast Asian countries could face a small net employment loss with the adoption of a circular economy.

Policy implications: Active labour market policies needed to tackle the near-term unemployment effects of a green transition

Active labour market policies (ALMPs) can provide the job opportunities and skills needed for workforce reallocation during the green transition while social protection ensures a basic standard of living. ALMPs aim to create strong attachment to the labour market and good jobs, and can fulfil four main objectives: 1) retaining and/or creating employment; 2) supporting job-seeking activities; 3) developing human capital; and 4) improving labour market matching (Arthur and Hondo, 2022[29]). ALMPs’ income-generating potential for the unemployed and at-risk workers is particularly relevant to Southeast Asia, whose workforce is greatly affected by environmental degradation and the green transition (Figure 4.2). However, the ALMP package has been underfunded and underutilised in Southeast Asia, and this is reflected in low programme participation rates, ranging between 1.2% (Cambodia) and 11.9% (Viet Nam) of the total population in 2006‑19 (Niño-Zarazúa and Torm, 2022[30]).

	National	Poorest quintile	Rural	Urban
Cambodia	1.22	0.56	1.27	1.02
Indonesia	5.62	4.79	7.48	5.33
Myanmar	2.34	0.78	1.26	5.41
Viet Nam	11.92	29.28	18.00	4.56

Note: ALMPs include training programmes (e.g. vocational training, life skills training, financial training assistance), employment incentives and wage subsidies, employment measures for people with disabilities, entrepreneurship support and start-up incentives (i.e. cash, in-kind, microcredits), and labour market services and intermediation through public employment services. Data from other ASEAN countries are unavailable.

Source: Niño-Zarazúa and Torm (2022[30]), Active labour market policies in Asia and the Pacific: A review of the literature.

Governments in Southeast Asia should create green job opportunities in order to address the problem of local unemployment in the areas most affected by decarbonisation policies. The job creation potential of a green transition could be limited in the absence of policies to support green jobs and industries. Through incentives for businesses and investments in green infrastructure and industry development, countries could seek to retain and create employment within the green transition hotspots. Supporting businesses that promote green practices and a green economy may increase the supply of green job opportunities that could absorb the displaced workforce from carbon-intensive sectors. For example, the Philippines passed a law that provided various financial incentives for green jobs creation, including tax deductions for skills training, research and development (R&D) for green jobs, and tax-free imports of capital equipment directly and exclusively linked to green jobs promotion (World Resources Institute, 2021[31]). Another way to retain and create local employment is to reuse the existing fossil fuel infrastructure to generate clean energy. Countries could consider supporting technical solutions, including retrofitting fossil fuel power plants with carbon capture, utilisation and storage (CCUS) technology or repurposing these sites for other energy sources (e.g. small modular reactors). By doing so, existing power supply infrastructure could continue to function for a longer period and could contribute to increasing local employment while satisfying climate objectives.

At the same time, it is important to develop pre-emptive plans for supporting workers’ career transition and job seeking in declining sectors and to communicate with these workers at an early stage. Establishing a transition plan could begin with assessing the unemployment risk related to the green transition by sector and by workers’ profiles. Employment services and supports for workers should be designed differently according to the sector and the risks assessed, providing more intense job search support for those workers facing a higher risk of losing their jobs. Separate sectoral policies might be required in order to support the re-employment of workers in those sectors anticipating large labour fluctuations, such as agriculture, tourism, built environment, energy and environmental services (e.g. water, wastewater, waste). Transparent communication with at-risk workers and trade unions should precede the phase-down/closure of the affected industries so as to reduce tensions and anxieties among workers. Indonesia’s Pre-Employment Card Programme (Kartu Prakerja) is a competency development programme for job seekers. The programme combines temporary social assistance with skills development to help laid-off workers and job seekers (SPEC, 2020[32]). Poland offers a good example in creating effective communication when downsizing the fossil fuel sector. Information about generous retirement package and other transitional support was shared at an early stage in the divestment process for the coal sector and the gradual closure of coal mines by 2049 was successfully negotiated with trade unions (World Bank, 2018[33]; ETUC, 2020[34]).

Sharing the most recent information on green jobs and green skills vacancies with affected workers is also important. Governments can assist at-risk workers in carbon-intensive sectors with finding jobs in emerging green sectors by publishing vacancies in person or online by qualifications, sectors, locations and remuneration, preferably in partnership with public employment services. Canada has established the Industrial Adjustment Service to support workers in communities facing large-scale labour redundancies, such as due to mining closures. The service is rated as cost effective in reducing the duration of unemployment primarily by sharing information on early retirement options, employment programmes and action planning (World Bank, 2018[33]). Countries with stable Internet connection may prefer launching a national employment portal where green job vacancies are updated in real time by individual employers and employees. Like local employment service centres, an online employment portal should also provide information on relevant legislation and employment services; referral options for individualised worker profiling; and skill audits, job counselling and placement services.

During the green transition, ALMPs need to co‑ordinate closely with social protection and other employment policy frameworks (e.g. for minimum wages and occupational health and safety) in order to create decent jobs and allocate displaced workers to those jobs (ILO, 2021[35]). Ideally, the ALMP frameworks can be developed in joint consultation with businesses and trade unions to make the desired policy effects durable and work well in the current and changing business environments regarding green growth.

Skills development is an important part of ALMPs that can address structural unemployment most effectively (ILO, 2022[36]). Investing in skills can help to increase the (re-)employability of the workforce affected by the green transition and to build capacity for green businesses. As a green growth process is known to favour a skilled workforce, developing skills for displaced low-skilled workers is a vital factor in facilitating their inclusion in a green economy. Upskilling and reskilling are also important for small and medium-sized enterprises (SMEs) to increase their capabilities to thrive in a new business environment (OECD, 2014[37]). It is encouraging that ASEAN has recently recognised the importance of upskilling and reskilling the region’s workforce for green jobs (ASEAN-ILO, 2021[38]). However, in most ASEAN countries, the workforce’s skills are largely distributed between medium and low levels of skills (Niño-Zarazúa and Torm, 2022[30]).

Governments need to increase training opportunities targeting green skills and transferable skills in order to accelerate workforce reallocation during the green transition. The absence of an agreed operational definition of green sectors/jobs/skills across Southeast Asia is a barrier to creating training for skills required by green sectors (ASEAN-ILO, 2021[38]). The training for green skills should aim at tackling the skills shortage in defined green sectors by retraining experienced workers in non-green sectors (and recruiting new trainees with little experience). The mode of training should be developed considering the skill distance between green and non-green skills and participant availability, accessibility and preference. For example, skills formation with short skill distance can be learned during on-the-job training with the same employer (ASEAN-ILO, 2021[38]). In addition, on-the-job training focused on transferable skills can facilitate job transitions, particularly for low-skilled workers from certain non-green sectors (e.g. construction, manufacturing) transitioning to similar green sectors in a relatively short period of time (ADB, 2022[39]; Bowen, Kuralbayeva and Tipoe, 2018[40]). This green skills training should be available for all individuals, but workers in need of immediate career transition due to environmental impacts or the green transition should be prioritised.

It is important to ensure that access to skills training for green jobs is available for all, particularly for workers most affected by the green transition. The workforce affected by green growth strategies is likely to be geographically concentrated in rural areas with limited access to training programmes and providers. Southeast Asia can make use of a network of public and private technical and vocational education and training (TVET) institutions to reduce the access gap for green skills development programmes in green transition hotspots. Creating opportunities for dialogue and knowledge sharing between policy makers, TVET experts and other relevant stakeholders could help them work towards a solution for improved training delivery (ASEAN-ILO, 2021[38]). Promoting enterprise awareness of and engagement in on-the-job training for green skills is also essential in order to broaden access to training. Countries can use various policy instruments to promote enterprises’ participation, including financial incentives, awareness campaigns and information sharing, with prioritised support for SMEs (ADB, 2022[39]). On the participant side, removing barriers to training participation among workers is also crucial. Training cost, location, family obligations and low motivation are some of the known barriers to training participation, particularly for low-income and poor workers. Policy makers need to develop and implement policy support for reducing these barriers.

An integrated approach to skills development in co‑ordination with social protection and other ALMPs is the key to maximising the policies’ desired social impacts. Skills development training cannot be a stand-alone measure to facilitate the green transition in the labour market. Indeed, ALMPs (of which skills training is a component) and social protection often intersect with and complement each other. Examples include unemployment insurance benefits or cash transfers that require enrolment in job-seeking or training programmes (e.g. the Philippines) (Niño-Zarazúa and Torm, 2022[30]). The right mix and good co‑ordination of different policies could lead to greater employability of workers, better matching of skills, and eventually a smooth green transition in the labour market (ADB, 2022[39]; Niño-Zarazúa and Torm, 2022[30]).

Conclusion

Global efforts to achieve the energy transition will result in profound changes in energy demand and production. The Government of Indonesia is committed to mitigating GHG emissions through the Indonesia Long-Term Strategy for Low Carbon and Climate Resilience 2050. This represents a significant challenge for the country, as it is highly dependent on fossil fuels, both for its own consumption and for its exports.

The results of the simulation exercise presented in this chapter show in particular that Indonesia is projected to experience a net gain in national employment if ambitious GHG emissions reduction policies are implemented globally by 2030. Employment losses are small but concentrated in relatively high-earning, high-skilled and formal sectors related to fossil fuel extraction and processing. While other forms of mining (e.g. mining of metal ores) could potentially see employment gains, their working conditions are currently worse than those in mining of fossil fuels. Moreover, mining of metal ores entails the risk of environmental degradation. Employment losses will also be geographically concentrated in the Kalimantan region, due to local specialisation in coal extraction.

Therefore, mitigating the distributional effects of the energy transition in Indonesia will require ALMPs, especially reskilling for affected workers. Only careful consideration of the social consequences of climate action can ensure broad public support and unlock a “triple dividend” of environmental sustainability, economic efficiency and equity (Vona, 2021[41]).

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Annex 4.A. Methodology

There are two simulation methods available to assess the future effects of environmental policies on the economy: computational general equilibrium and input-output. The former generally does not enable us to assess the effects on employment levels (yet, it enables to assess the effects on wages). As the primary policy concern is often stated to be employment levels, input-output is more suitable here.

The sector-level estimates of employment gains and losses in Indonesia in 2030 are based on a previous modelling exercise (Montt et al., 2018[12]), where two scenarios of global energy production are implemented in a multi-regional input-output model, resulting in direct and indirect employment change estimates.

The two scenarios, developed by the IEA (2015[11]), describe the possible evolutions of energy generation over the coming decades in terms of the energy generation sector (energy supply) and the construction, industry and transport sectors (final energy demand). The two scenarios are summarised as follows:

The “business-as-usual” scenario, or the 6DS, should be interpreted as a particularly pessimistic pathway, where CO₂ emissions reach 44 gigatonnes in 2030. In that case, the global average temperature is on a path to increase by approximately 5.5°C by 2050 and then stabilise at approximately 4°C by 2100.
The 2DS consists of a hypothetical alternative pathway ensuring that there is at least a 50% probability of the average global temperature not increasing by more than 2°C compared to pre-industrial levels. This means reducing the 34 gigatonnes of CO₂ emissions recorded in 2012 to 27 gigatonnes in 2030, 39% lower than the emissions in the 6DS, limiting the atmospheric concentration of GHGs to 450 parts per million. This entails, on the one hand, a transition to low-carbon energy technologies that help ensure secure and affordable energy in the long term, and, on the other, increased efficiency across industry, transport and construction. In this regard, by 2030, total energy demand would drop by 20% in the industrial sector, 29% in the transport sector and 14% in the construction sector when compared with the 6DS.

This latter scenario is close to the Sustainable Development Scenario presented in a more recent IEA publication and is less ambitious than the global “Net Zero Emissions by 2050” case (IEA, 2020[42]). The Sustainable Development Scenario is slightly more pessimistic, in terms of 2030 emissions, than the Stated Policies Scenario (STEPS), where all policy intentions and targets that were announced as of 2020 are implemented, insofar as they are backed up by detailed measures for their realisation, resulting in 36 gigatonnes of CO₂ emissions in 2030.

From the 2DS and 6DS, one obtains the demand (final and intermediate) for the different types of electricity sources, which are then used as exogenous shocks in a multi-regional input-output model (EXIOBASE 3), which enables us to estimate resulting employment changes in 44 countries and 5 world regions across 163 industries. Importantly, the model enables us to estimate indirect employment for the industries connected to the energy sector through value chain linkages.

The model follows typical key assumptions that are common to all multi-regional input-output scenario exercises: 1) Prices are not endogenised (in other words, relative prices between products do not change); changes in relative prices resulting from technological change would, for example, lead to changes in the production structure and location through substitution or complementary effects; 2) all changes implemented in the model are exogenous, implying that general equilibrium rebound effects, such as macroeconomic growth effects, are not taken into account; and 3) market shares and bilateral trade shares remain constant.

Based on this procedure, we obtain employment gains and losses in the “green” (2DS) scenario relative to the business-as-usual scenario (6DS) in 2030 at the sector level, which are then linked to the characteristics of workers active in those sectors, in order to provide profiles of likely winners and losers.

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