Employment impact of shifting to electric power generation through renewable sources in Indonesia

The Indonesian transition to electric power generation through renewable sources will lead to changes in the structure of the economy with potential to create (green) job opportunities but also to trigger job losses.  

A new study commissioned by the International Labour Organization Country Office for the Indonesia and Timor-Leste produced by researchers at the University of Indonesia, titled Employment Impacts of Energy Transition in Indonesia, attempts to quantify the net impact of energy transition on jobs in the power generation industry in Indonesia, finding overall positive employment implications.  

Starting from the workforce currently employed by the industry, the authors estimated total losses (from the phaseout of fossil fuel based production) and gains (from development of production based on renewable energy) by evaluating three energy transition pathways: Business as Usual (adopting the least costly electricity planning without accounting for climate policies), Current Policy (aligning with national energy targets), and Paris Agreement (changing the energy mix to meet the Paris Agreement goals).  

The study first provides estimates of the direct impact on jobs of decommissioning fossil fuel-based power plants and of shifting to renewable energy in electric power generation for each of the four main phases of the value chain: decommissioning, plant manufacturing, construction and installation, and operation and maintenance. It does so through an adaptation of the methodology suggested by Rutovitz (2015) to the Indonesian context, computing tailored employment multipliers and applying them to increasingly restrictive scenarios (Business as Usual vs Current Policy vs Paris Agreement) for the total capacity to be installed until 2050. Once the direct impact of energy transition on jobs was known, indirect and induced impacts were estimated via economic modelling based on the 2016 Input-Output (IO) table produced by Badan Pusat Statistik Indonesia (BPS, 185 economic sectors) and on employment data derived from the labour force survey (Sakernas, to convert total wage compensation into number of jobs).    

Results indicate that:  

• Across the three energy transition scenarios, total direct jobs created in the electricity generation industry are cumulatively projected to reach between 3.2 (business as usual) to 5.86 million (Paris Agreement) between now and 2050. If the installed capacity follows the commitments of the Paris Agreement, solar projects will represent the lion’s share with 3.12 million total jobs.  
• In terms of phases of the energy production value chain, 4.37 million jobs or 75 percent of the total potential job creation will be generated within the construction and installation (of renewable energy plants) phase. 
• Relative to the Business-as-Usual scenario, a shift in production technology from fossil fuels to renewable energies will beget direct net job gains (discounting job losses) between 1.62 to 2.66 million.
• The shift to cleaner energy options for power generation shall trigger net positive spillovers. The study estimates that total economy-wide net job gain from transitioning into renewable energy can reach up to 12.17 million jobs. 
• The sub industries expected to experience the highest job gains because of the shift to renewable sources of electric power shall be the construction services (linked to construction of new plants), trade of goods (other than vehicles), manufacturing of machinery and equipment for electricity generation, and land transportation services. In addition, as electricity generation to enable the transition will itself need to increase, this augmented production will lead to additional jobs.  

The findings of the study have potentially large implications not only on investment decisions but also on the profile of the workforce of tomorrow, notably guiding the size and direction of investments in reskilling and upskilling workers to meet the requirements of the future jobs. 

The study is available here and here. 

For any further information please contact: Dina Novita Sari, Programme Officer (sarid@ilo.org)