Transitioning to Renewwable Energy: Challenges, Policies, and Economic Implications in Indonesia (1990-2023)

Muhammad Syahrul Hidayat; Ahmad Munir Hamid; Nurul Mazidah

doi:10.15642/oje.2025.9.2.93-114

Authors

Muhammad Syahrul Hidayat UIN Sunan Ampel Surabaya
Ahmad Munir Hamid Sekolah Tinggi Ilmu Ekonomi Cendekia Bojonegoro
Nurul Mazidah Universitas Islam Darul ‘Ulum Lamongan

DOI:

https://doi.org/10.15642/oje.2025.9.2.93-114

Keywords:

Renewable Energy, EconomicGrowth, Indonesia

Abstract

The Indonesian Government, through the National Energy Council, has set a roadmap for achieving zero emissions energy by 2060, with targets for increasing renewable energy use each year. Despite aiming for a 23% target by 2025, the current annual increase in new renewable energy in Indonesia is only 0.55%, far below the required 0.9%. This calls for more progressive policy planning to achieve the new energy target. Challenges include the dispersed nature of Indonesia's renewable energy potential, limited grid capacity, and domestic industry capability. This study examines the impact of renewable and non-renewable energy on Indonesia's economic growth from 1990 to 2023. Employing a quantitative approach with the Error Correction Model (ECM) statistical test, the research explores short-term and long-term relationships among variables. Findings reveal that non-renewable energy consumption (CONRE) positively and significantly impacts economic growth by 6.15%, while renewable energy for electricity (REFE) also has a positive and significant effect of 7.19%. However, renewable energy from water resources (REWR) shows no significant positive impact in the long term, at only 0.19%. In the short term, CONRE positively and significantly affects economic growth by 6.43%, whereas REFE and REWR exhibit insignificant impacts of 0.075% and 0.071% respectively. The study suggests the government should optimize renewable energy potential to achieve more environmentally friendly energy policies, considering factors beyond those studied, such as societal innovation and creativity in identifying energy source potential and gaps.

Downloads

Download data is not yet available.

References

Amigues, J.-P., Kama, A. A. L., & Moreaux, M. (2015). Equilibrium transitions from non-renewable energy to renewable energy under capacity constraints. Journal of Economic Dynamics and Control, 55, 89–112. https://doi.org/10.1016/j.jedc.2015.04.001

Anwar, A., Siddique, M., & Sharif, A. (2021). The moderating role of renewable and non-renewable energy in environment-income nexus for ASEAN countries: Evidence from Method of Moments Quantile Regression. Renewable Energy, 164, 956–967. https://doi.org/10.1016/j.renene.2020.09.128

Boudellal, M. (2023). Power-to-Gas: Renewable Hydrogen Economy for the Energy Transition. In Power-to-Gas: Renewable Hydrogen Economy for the Energy Transition. De Gruyter. https://doi.org/10.1515/9783110559811

Bukhari, W. A. A., Pervaiz, A., Zafar, M., Sadiq, M., & Bashir, M. F. (2023). Role of renewable and non-renewable energy consumption in environmental quality and their subsequent effects on average temperature: an assessment of sustainable development goals in South Korea. Environmental Science and Pollution Research International, 30(54), 115360–115372. https://doi.org/10.1007/s11356-023-30493-w

Byrne, J. (2017). Green energy economies: The search for clean and renewable energy. In Green Energy Economies: The Search for Clean and Renewable Energy. Taylor and Francis. https://doi.org/10.4324/9780203790434

Caldararu, A. E., Olaru, O., & Nicolescu, O. (2011). European approach concerning the synergy between environment and knowledge based economy. Quality - Access to Success, 12(SUPPL.1), 395–400. https://www.scopus.com/inward/record.uri?eid=2-s2.0-79956006234&partnerID=40&md5=7e9ae49e0fcc1ade997dfa03d70e0a89

Chakraborty, T., Ghosh, P., Mal, S., & Biswas, U. (2019). A modelling applied to active renewable energy for an existing building of higher educational institution. International Journal of System Assurance Engineering and Management, 10(5), 1361–1368. https://doi.org/10.1007/s13198-019-00890-x

Damodaram, A. K., Tulasi, C. L., & Reddy, L. V. (2022). Recent Decade Global Trends in Renewable Energy and Investments - A Review. International Journal of COMADEM, 25(3), 3–8. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85147333372&partnerID=40&md5=5e0aaf30f25fcb72abc5bf1b5f32d84c

Deka, A., Banga, C., & Rukani, S. (2024). The effects of energy efficiency, renewable energy and tourism development on the environment in Sub-Sahara Africa. International Journal of Environmental Science and Technology, 21(4), 3649–3660. https://doi.org/10.1007/s13762-023-05237-5

Eisgruber, L. (2013). The resource curse: Analysis of the applicability to the large-scale export of electricity from renewable resources. Energy Policy, 57, 429–440. https://doi.org/10.1016/j.enpol.2013.02.013

Elshimy, M., & El-Aasar, K. M. (2020). Carbon footprint, renewable energy, non-renewable energy, and livestock: testing the environmental Kuznets curve hypothesis for the Arab world. Environment, Development and Sustainability, 22(7), 6985–7012. https://doi.org/10.1007/s10668-019-00523-0

Fadilah, S., Lestari, R., Sahdan, M. H., & Khalid, A. Z. A. (2020). The impact of renewable energy consumption on the economic growth of the asean countries. International Journal of Energy Economics and Policy, 10(6), 602–608. https://doi.org/10.32479/ijeep.10589

Fareed, Z., & Pata, U. K. (2022). Renewable, non-renewable energy consumption and income in top ten renewable energy-consuming countries: Advanced Fourier based panel data approaches. Renewable Energy, 194, 805–821. https://doi.org/10.1016/j.renene.2022.05.156

Fazaalloh, A. M. (2022). FDI and Economic Growth in Indonesia: A Provincial and Sectoral Analysis. https://doi.org/10.21203/rs.3.rs-1607582/v1

Hall, C. M., Gössling, S., & Scott, D. (2015). The routledge handbook of tourism and sustainability. In The Routledge Handbook of Tourism and Sustainability. Taylor and Francis. https://doi.org/10.4324/9780203072332

Hanim, A., & Wilantari, R. N. (2022). The effect of investment and technology development on indonesia’s economic growth. 1(2), 131–140. https://doi.org/10.19184/jpsti.v1i2.187

Hao, Y. (2022). The relationship between renewable energy consumption, carbon emissions, output, and export in industrial and agricultural sectors: evidence from China. Environmental Science and Pollution Research. https://doi.org/10.1007/s11356-022-20141-0

Heeter, J., & Bird, L. (2013). Including alternative resources in state renewable portfolio standards: Current design and implementation experience. Energy Policy, 61, 1388–1399. https://doi.org/10.1016/j.enpol.2013.05.067

Irawan, C. B., Sasongko, B., Mukhlis, M., Yanto, D. D. G. F., & Wulandari, M. W. (2022). Trade and Foreign Direct Investment on Economic Growth in Indonesia: ARDL Approach. Tamansiswa Accounting Journal International, 5(1), 70–75. https://doi.org/10.54204/taji/vol512022011

Janiszewska, D. A. (2019). Diversification of energy production and consumption in European Union countries. Polityka Energetyczna, 22(2), 5–20. https://doi.org/10.33223/epj/109338

Jannah, S. R., Suriani, S., & Yulindawati, Y. (2022). Effect of labor and foreign investment on economic growth in indonesia. Jurnal Ekonomi Dan Kebijakan Publik Indonesia, 9(1), 51–67. https://doi.org/10.24815/ekapi.v9i1.28587

Jebli, M. B., & Hakimi, A. (2023). How do financial inclusion and renewable energy collaborate with Environmental quality? Evidence for top ten countries in technological advancement. Environmental Science and Pollution Research, 30(11), 31755–31767. https://doi.org/10.1007/s11356-022-24430-6

Joo, S., Miller, E. G., & Fink, J. S. (2019). Consumer evaluations of CSR authenticity: Development and validation of a multidimensional CSR authenticity scale. Journal of Business Research, 98, 236–249. https://doi.org/10.1016/j.jbusres.2019.01.060

Joshi, S. P., & Waghole, D. R. (2024). Enhancing thermal efficiency of cookware through fin implantation: experimental analysis and numerical validation. Journal of Thermal Analysis and Calorimetry, 149(3), 1283–1299. https://doi.org/10.1007/s10973-023-12627-x

Keshavarzian, M., & Tabatabaienasab, Z. (2021). Application of Bootstrap Panel Granger Causality Test in Determining the Relationship between Renewable and Non-Renewable Energy Consumption and Economic Growth: a Case Study of OPEC Countries. Technology and Economics of Smart Grids and Sustainable Energy, 6(1). https://doi.org/10.1007/s40866-021-00106-x

Khan, S. A. R., Zia-Ul-Haq, H. M., Ponce, P., & Janjua, L. (2023). Re-investigating the impact of non-renewable and renewable energy on environmental quality: A roadmap towards sustainable development. Resources Policy, 81. https://doi.org/10.1016/j.resourpol.2023.103411

Klass, D. L. (2003). A critical assessment of renewable energy usage in the USA. Energy Policy, 31(4), 353–367. https://doi.org/10.1016/S0301-4215(02)00069-1

Leal-Arcas, R. (2022). International Trade and Sustainability: Perspectives from Developing and Developed Countries. In International Trade and Sustainability: Perspectives from Developing and Developed Countries. Springer International Publishing. https://doi.org/10.1007/978-3-031-14068-6

Li, X., Gül, M., & Al-Hussein, M. (2015). Post-design system control for integrated space heating systems in residential buildings in cold regions. Building and Environment, 94(P1), 313–324. https://doi.org/10.1016/j.buildenv.2015.08.015

Midttun, A., & Witoszek, N. (2015). Energy and transport in green transition: Perspectives on ecomodernity. In Energy and Transport in Green Transition: Perspectives on Ecomodernity. Taylor and Francis Inc. https://doi.org/10.4324/9781315761138

Millia, H., Adam, P., Muthalib, A. A., Tajuddin, & Pasrun, Y. P. (2022). The Effect of Inward Foreign Direct Investment and Information and Communication Technology on Economic Growth in Indonesia. AGRIS On-Line Papers in Economics and Informatics, 14(1), 69–79. https://doi.org/10.7160/aol.2022.140106

Millia, H., Ernawati, E., & Heriberta, H. (2023). Do foreign direct investment, trade and their interactions affect economic growth in Indonesia? Jurnal Perspektif Pembiayaan Dan Pembangunan Daerah, 11(1), 1–16. https://doi.org/10.22437/ppd.v11i1.22698

Murniati, M. (2023). Impact of Economic Growth on Human Capital, Work Participation, and Emission Reductions: Case Study in Indonesia. Asia Pacific Journal of Management and Education, 6(1). https://doi.org/10.32535/apjme.v6i1.1647

Murshed, M., Rahman, M. A., Alam, M. S., Ahmad, P., & Dagar, V. (2021). The nexus between environmental regulations, economic growth, and environmental sustainability: linking environmental patents to ecological footprint reduction in South Asia. Environmental Science and Pollution Research, 28(36), 49967–49988. https://doi.org/10.1007/s11356-021-13381-z

Nepal, R., & Musibau, H. O. (2021). Energy security, renewable, non-renewable energy and economic growth in asean economies: New insights. Singapore Economic Review, 66(2), 457–488. https://doi.org/10.1142/S0217590819430045

Nugroho, H., & Fei-Lu, S. (2017). Developing renewable energy in developing countries: A lesson from Indonesia. Energy Sources, Part B: Economics, Planning and Policy, 12(4), 318–325. https://doi.org/10.1080/15567249.2015.1072599

Ohlan, R. (2016). Renewable and nonrenewable energy consumption and economic growth in India. Energy Sources, Part B: Economics, Planning and Policy, 11(11), 1050–1054. https://doi.org/10.1080/15567249.2016.1190801

Paramati, S. R., Apergis, N., & Ummalla, M. (2018). Dynamics of renewable energy consumption and economic activities across the agriculture, industry, and service sectors: evidence in the perspective of sustainable development. Environmental Science and Pollution Research, 25(2), 1375–1387. https://doi.org/10.1007/s11356-017-0552-7

Pata, U. K., Karlilar, S., & Eweade, B. S. (2023). An environmental assessment of non-renewable, modern renewable, and combustible renewable energy in Cameroon. Environment, Development and Sustainability. https://doi.org/10.1007/s10668-023-04192-y

Pishgar-Komleh, S. H., Keyhani, A., Mostofi-Sarkari, M. R., & Jafari, A. (2012). Energy and economic analysis of different seed corn harvesting systems in Iran. Energy, 43(1), 469–476. https://doi.org/10.1016/j.energy.2012.03.040

Ramedani, Z., Rafiee, S., & Heidari, M. D. (2011). An investigation on energy consumption and sensitivity analysis of soybean production farms. Energy, 36(11), 6340–6344. https://doi.org/10.1016/j.energy.2011.09.042

Scipioni, A., Manzardo, A., & Ren, J. (2023). Hydrogen Economy: Processes, Supply Chain, Life Cycle Analysis and Energy Transition for Sustainability. In Hydrogen Economy: Processes, Supply Chain, Life Cycle Analysis and Energy Transition for Sustainability. Elsevier. https://doi.org/10.1016/C2021-0-01531-5

Shah, S. Z. A., Chughtai, S., & Simonetti, B. (2020). Renewable energy, institutional stability, environment and economic growth nexus of D-8 countries. Energy Strategy Reviews, 29. https://doi.org/10.1016/j.esr.2020.100484

Shahbaz, M., Raghutla, C., Chittedi, K. R., Jiao, Z., & Vo, X. V. (2020). The effect of renewable energy consumption on economic growth: Evidence from the renewable energy country attractive index. Energy, 207. https://doi.org/10.1016/j.energy.2020.118162

Sharif, A., Raza, S. A., Ozturk, I., & Afshan, S. (2019). The dynamic relationship of renewable and nonrenewable energy consumption with carbon emission: A global study with the application of heterogeneous panel estimations. Renewable Energy, 133, 685–691. https://doi.org/10.1016/j.renene.2018.10.052

Smaili, S. M., & Gam, I. (2023). Dynamic effect of exchange rate depreciation on carbon emission in the Mediterranean basin: fresh insights from linear and non-linear ARDL approaches. Environmental Science and Pollution Research, 30(21), 59481–59498. https://doi.org/10.1007/s11356-023-26674-2

Sokoiowski, M. M. (2022). Energy Transition of the Electricity Sectors in the European Union and Japan: Regulatory Models and Legislative Solutions. In Energy Transition of the Electricity Sectors in the European Union and Japan: Regulatory Models and Legislative Solutions. Springer International Publishing. https://doi.org/10.1007/978-3-030-98896-8

Suhartina, S. (2023). The relationship between investment and export of livestock sector to economic growth in indonesia. Pattimura Proceeding Conference of Science and Technology, 17–24. https://doi.org/10.30598/pattimurasci.2023.iconbe2.17-24

Tateishi, H. R., Bragagnolo, C., & de Faria, R. N. (2020). Economic and environmental efficiencies of greenhouse gases’ emissions under institutional influence. Technological Forecasting and Social Change, 161. https://doi.org/10.1016/j.techfore.2020.120321

Tipantuña, C., & Hesselbach, X. (2020). Nfv/sdn enabled architecture for efficient adaptive management of renewable and non-renewable energy. IEEE Open Journal of the Communications Society, 1, 357–360. https://doi.org/10.1109/OJCOMS.2020.2984982

Triansyah, F. A., Gunawan, A., & Ramadhaniyati, R. (2023). Factors of Indonesia Economic Growth (2017-2022). Jurnal Pendidikan Ekonomi & Bisnis, 11(01), 51–65. https://doi.org/10.21009/jpeb.011.1.5

Wen, Y., Onwe, J. C., Haseeb, M., Saini, S., Matuka, A., & Sahoo, D. (2022). Role of technological innovation, renewable and non-renewable energy, and economic growth on environmental quality. Evidence from African countries. Frontiers in Energy Research, 10. https://doi.org/10.3389/fenrg.2022.958839

Wu, X., Xiao, X., & Cui, Q. (2020). Multi-objective flexible flow shop batch scheduling problem with renewable energy. International Journal of Automation and Control, 14(5–6), 519–553. https://doi.org/10.1504/IJAAC.2020.110071

Xu, L., & Wu, Y. (2023). Nexus between green finance, renewable energy and carbon emission: Empirical evidence from selected Asian economies. Renewable Energy, 215. https://doi.org/10.1016/j.renene.2023.118983

Yakubu, I. N. (2023). Governance Quality, Fiscal Policy, and the Path to a Low-Carbon Future: Perspectives From Developing Economies. In Governance Quality, Fiscal Policy, and the Path to a Low-Carbon Future: Perspectives From Developing Economies. IGI Global. https://doi.org/10.4018/978-1-6684-9272-7

Yalçın Dokumacı, K., Özbek, O., & Gökdoğan, O. (2023). Determination of Energy Balance and Greenhouse Gas (GHG): Emissions from Pomegranate (Punica Granatum L.) Cultivation in Turkey. Erwerbs-Obstbau, 65(6), 2597–2603. https://doi.org/10.1007/s10341-023-00960-2

Yu, C., Moslehpour, M., Tran, T. K., Trung, L. M., Ou, J. P., & Tien, N. H. (2023). Impact of non-renewable energy and natural resources on economic recovery: Empirical evidence from selected developing economies. Resources Policy, 80. https://doi.org/10.1016/j.resourpol.2022.103221

Yurioputra, A. D. (2022). Impact Of Foreign Direct Investment Of Indonesia Investment Authority On Economic Growth: Strengthening National Economic Recovery to Overcome Global Recession In 2023. Jurnal Pajak Dan Keuangan Negara, 4(1S), 404–413. https://doi.org/10.31092/jpkn.v4i1s.1920

Zainudina, N., Jusoha, Z. M., Zainalaludina, Z., Osmana, S., Nordinb, N., Paima, L., & Ramasamya, A. (2019). Climate change awareness and solar energy adoption of household. International Journal of Advanced Science and Technology, 28(8 Special Issue), 357–363. https://www.scopus.com/inward/record.uri?eid=2-s2.0-85081189733&partnerID=40&md5=0f7fb6dfa0daea2bbcaf289c801a635e

Zhao, H., Li, Y., & Mehmood, U. (2023). How human capital and energy prices play their role to enhance renewable energy: defining the role of innovations and trade openness in G-11 countries. Environmental Science and Pollution Research, 30(27), 71284–71295. https://doi.org/10.1007/s11356-023-27451-x