In regions where economic activity has long revolved around fossil-fuel extraction, ensuring a just transition requires developing alternative livelihoods that account for each community’s specific needs. Regional endowment funds could be a useful vehicle for funding these local initiatives.
Please log in to listen to this commentary
0:00 / 0:00 Narrated by AI
JAKARTA—When the energy transition confronts difficult economic conditions within a country, addressing the transition’s unequal impact becomes both more challenging and more imperative. In Indonesia, with an economy recently described as a “ticking time bomb,” coal mining has long been the main driver of GDP in certain regencies and provinces. Pursuit of the energy transition in such places raises the tricky political question of how to support economic diversification, and boost economic growth, in these areas while also combating climate change.
The answer may seem obvious: reducing vulnerability to economic shocks caused by the shift away from fossil fuels requires broadening income sources. But that is easier said than done. A just energy transition requires a wider transformation that includes creating meaningful job opportunities, closing human-capital gaps, and alleviating poverty. Most importantly, these efforts must be highly localized to account for each area’s unique strengths and each community’s specific needs.
Pulau Panggung, a village located in Muara Enim, one of Indonesia’s most coal-dependent regencies, in South Sumatra province, illustrates this vulnerability starkly. According to research by WALHI Sumatera Selatan (Friends of the Earth South Sumatera) and the Indonesian Center for Environmental Law, 56.7% of the village’s residents are employed as mine workers, including casual laborers. When coal mining arrived in the early 1990s, the community largely abandoned farming, its main economic engine at the time. Now, as mining firms face expiring contracts and begin implementing efficiency measures, villagers’ livelihoods are under threat, but this time without a ready-made substitute.
The village’s post-coal economy could return to agriculture and embrace nature-based tourism. But shifting to these sectors requires a healthy ecosystem, making it essential to force companies to fulfill their obligations to restore mined land. Moreover, because villagers gave up farming decades ago, they would need training in sustainable agriculture techniques and opportunities to develop skills for other alternative livelihoods, such as digital-based marketing.
Some of the barriers to creating new livelihoods in Pulau Panggung are structural, such as the ambiguous legal status of land, a long-standing problem across Indonesia. But the bigger challenge, both here and elsewhere, is the lack of formal channels for developing effective local initiatives. Each village’s strengths must serve as the foundation for community-based economic transformation. Unfortunately, Indonesia’s top-down policymaking and regulatory regime, particularly in the energy sector, hinders efforts to maximize local strengths.
The Indonesian government directs transition planning by providing general guidance, which provincial and regency plans should theoretically elaborate on, identifying what is unique to each place. Yet the 2025–2029 South Sumatra medium-term regional development plan gives no clear direction on how economic transformation will be carried out, only that efforts to move away from a coal-based economy remain suboptimal. The plan recognizes that natural resources must play a role but does not explain how to use them in a way that fits the needs of each village and avoids harming ecosystems.
This problem is not unique to Indonesia. Many other governments have similar gaps in their energy-transition policies. The key is for policymakers to enable a more bottom-up approach by focusing on two objectives.
First, policymakers must directly involve affected communities. Entrusting transition planning to local governments and giving communities a genuine role in the decision-making process would help officials and companies design tailored interventions that expand employment opportunities for workers at risk of displacement.
Embedding community-driven initiatives in these policies must begin with local assessments. Before any plan is approved, the government should conduct participatory mapping of livelihoods, land status, workforce skills, and local strengths. In Pulau Panggung, this kind of mapping would highlight its agricultural and tourism potential.
Second, policymakers should explore the possibility of a regional fund that could redirect government revenue derived from mining and fossil-fuel production toward supporting community-based transitions. One model to follow is the Alaska Permanent Fund, whereby the state government invests a portion of its oil and mining revenues for the long-term benefit of all current and future Alaskans.
Managed by a state-owned corporation, this sovereign wealth fund helps finance public services like education, health care, and basic infrastructure. Policymakers, in both developed and developing countries alike, can use such a vehicle to ensure a sustainable economic transition by operating transparently and allowing local communities to direct the proceeds toward their chosen priorities.
Time is running out to establish regional endowment funds. Policymakers in Indonesia and other countries must act before mining and fossil-fuel revenues stop flowing. As a first step, they can run pilots in affected regions—like Muara Enim—to show what is possible. Waiting too long risks leaving these communities with a plan but no capital to implement it.