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The price cap on Russian oil: mechanism and its consequences

What is confusing at the moment is that there is no clarity on how life will play out in the coming year from an economic perspective. In 2023, Indonesia’s finance minister and Indonesia’s president said “the world is dark”. Uncertainty about many things, especially economic concerns, is referred to as “dark”. A recession that affected several major economies of the world. The biggest problems now are lack of energy and lack of food items. Politics no longer focuses on how to achieve power, as well as how to focus the world’s attention and power, but how to save tomorrow’s life and escape the dangers of hunger and cold.

After the implementation of Western sanctions on Russia, the political game has grown more attractive in terms of military and economics, but it has also affected the economy. Due to Russia’s high prices for oil and gas and the problem of energy shortages, various European countries have taken the initiative to generate electricity by burning coal. It has recently attracted a lot of attention in the media. A shift in energy sources is the polar opposite of the world’s current commitment to reducing emissions and environmental impacts. In the face of global uncertainty, the availability of coal as an energy source will help emerging countries with coal reserves like Indonesia. However, when the time frame and amount of coal is considered, it definitely accelerates the environmental impact. According to the BP Statistical Review of World Energy 2021 report, worldwide coal consumption in 2020 was 151.42 exajoules. This figure is down 4.2% from the previous year, which stood at 157.64 exajoules. China is the largest consumer, accounting for 54.3% of total spending worldwide, followed by the United States, India and Japan.

How does coal affect the environment?

According to Encyclopaedia Britannica (2015), coal is derived from animal and plant fossils that were destroyed and buried millions of years ago; Coal is currently the world’s largest fossil fuel compared to oil. Requires multiple operations and vast space. The following is an example of a coal processing route:

First, when coal is discovered, people and some groups plan to mine it. Then the project is carried out by constructing the mine. At this early stage, coal mines have a negative impact on the ecosystem, starting with changes in land cover, which reduces soil fertility. Biodiversity is under threat.

Second, various chemical reactions occur in nature during coal processing processes. When fossil fuels are burned to produce energy, the carbon in the fuel interacts with oxygen to form CO2 gas, much of which is emitted into the atmosphere. Burning coal emits CO2, but it also emits methane into the atmosphere. As a greenhouse gas, methane is twenty times more potent than carbon dioxide. Coal combustion emits CO2 and methane, but it also emits sulfur in the form of sulfur dioxide (SO2) gas. If these three chemical compounds are released into nature, they have severe impacts on the environment and humans, causing soil degradation, air pollution, and the sulfur content released is particularly toxic to water. According to Michael Economides, a professor of chemical engineering at the University of Houston in Texas, despite the new phrase and progress “clean coal,” “it is highly unlikely that clean coal can be created through carbon capture and storage (CCS). .”

Third, following a series of processes, coal mining and burning also leave visible traces. Former mining sites’ created craters and changing landscapes, of course, harming the ecology and former excavations often cost lives.

Indonesia and coal

Indonesia is one of the countries that have benefited from the current global energy restrictions. The Center for Mineral, Coal and Geothermal Resources reported Indonesia’s coal reserves as of January 19, 2022 at 31.7 billion tons. Indonesia not only uses coal for internal purposes but also exports it to other countries to earn foreign currency. When coal prices rise, it contributes to the state’s revenue, but these gains are temporary as the government provides additional compensation to coal service workers through electricity subsidies and compensation.

According to Investor.id data source Carbon Brief, the Indonesian government provides electricity subsidies and compensation with a budget of Rp. 127.9 trillion. This amount is higher than the previous year’s total of Rp. 74.4 trillion. The government provides subsidies and incentives so that PLN can continue to procure coal from the firm and keep electricity prices stable. Owners of coal mining industries earn more during this period of energy scarcity. In January-March 2022, coal mines saw a 457.6% rise in net profit. As of June 2022, Indonesia’s coal production has achieved 283.57 million tons, or about 42.77% of the 2022 target, which is 633 million tons. Meanwhile, national coal sales by June 2022, which includes both export and domestic sales, stood at 175.15 million tonnes.

The climate commitment challenge

Maintaining an environmental commitment is very difficult these days. On the one hand, humans are trying and committed to keep the environment stable by reducing the greenhouse effect that damages the ozone layer, but the current situation has not provided an opportunity to obtain clean and environmentally friendly energy. Apart from stones and coal, they are quickly produced in large quantities. Coal processing and use as a source of energy has been known for over a century and its impact has been felt in recent decades. However, coal consumption cannot be reduced or eliminated at this time. Germany in Europe, Poland, and India in Asia also ordered coal from Indonesia to meet their national energy demands. This happened after the implementation of Russian sanctions.

This scenario shows how the political system affects the food chain. As coal consumption increases in many regions of the world, the Paris Agreement and G20 statements and other environmental and climate related pledges are likely to be reconsidered. However, increased worldwide coal consumption will accelerate the depletion of global coal reserves. Remember that it takes nature thousands of years to produce coal, but human progress in this century has been much faster.

Conclusion

The human task of maintaining habitability in the face of global instability never diminishes. These barriers may arise from the environment in which humans live or from outside sources such as government policy, commerce, and conflict. The recent increase in the use of coal is a short-term effort by humans to survive and carry out their activities, but in the long run, human dependence on coal must be considered, as humans have the ability to grow and reproduce faster than nature. The ability for humans to produce coal, and even though they still depend on coal, accelerates environmental pollution, which then affects the weather and climate. It is essential to examine how the commitment to environmental protection is followed in local and international obligations.

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