Implementation of Islamic Economics in Indonesia By Developing Green Economy through Renewable Energy Technologies


Recent development trends in conventional economy have caused serious systematic problems. It is a violation towards the goal of the implementation of economic activities themselves. The intentions of economy are not only to protect the wealth (hifdzu-l-maal), but also to protect life (hifdzu-n-nafsi) and descendant (hifdzu-n-nasli). Therefore, it demands a fundamental correction.

Green economy needs to be implemented as a part of Islamic economy to provide fundamental correction to conventional economy. Green economy emphasizes on three basic principles: 1) economic growth, 2) eco-efficiency, and 3) quality of economic growth. It is a paradigm that is able to protect the ecosystem in reaching economic growth to reduce prosperity gap.

Utilization of various renewable energy technologies is one of the keys to successful implementation of green economy in Indonesia. This technology promises huge tangible and intangible benefits, e.g. providing green jobs, reducing CO2 emissions, reducing the rate of coal exploration which thereby reducing complex problems related open coal mining, and enhancing the welfare of low-income people.

These benefits show that the use of renewable energy helps fulfilling the targets of economic growth, eco-efficiency and quality of economic growth, which are in line with Islamic principles of economy.

Keywords: Islamic economics, green economics, renewable energy


Disampaikan pada: First Gadjah Mada International Conference on Islamic Economics and Development (Yogyakarta, 12th-14th May 2016)

Penulis: Rachmawan Budiarto1,2*), Ahmad R. Wardhana3), Aishah Prastowo4)

1)Centre for Energy Studies, Universitas Gadjah Mada Indonesia

2)Dept. Of Engineering Physics, Fac. of Engineering, Universitas Gadjah Mada

3)Magister of Technology for Sustainable Development, School of Post-Graduate Universitas Gadjah Mada

4)Osney Thermo-Fluids Laboratory, Department of Engineering Science, University of Oxford, United Kingdom

*Corresponding author:


1. Maqashid Sharia (The Enactment Of Sharia)

In addition to the nash of al-Qur`an and Sunnah, Islam has Maqashid Sharia as a reference, which is obatained from inductive study (istiqra’) towards the texts of law, the laws derived from it, causes of law (‘illat), and the wisdom of law. This inductive study leads to the conclusion that there are intention and purposes of the enactment of sharia to mankind, which are to achieve benefits (mashlahat, kemashlahatan) to the human being in the dunya (world) and akhirah (afterlife) (Muhajir, 2015).

Mashlahat can be interpreted as the usefulness and advantages. The scholars agreed that the benefit in maqashid sharia should cover the five principal purposes, commonly referred as al-khamsah Kulliyat. Imam asy-Syatibi in al-Muwafaqat stated that the Five Principal Purpose are 1) hifdzu-d-din, to protect religion, 2) hifdzu-n-nafsi, to protect life, 3) hifdzu-l-‘aql, to protect mind, 4) hifdzu-l-maal, to protect wealth, and 5) hifdzu-n-nasli, to protect descendant (Muhajir, 2015, Sahroni and Karim, 2015).

Based on the level of urgency, there are three types of mankind needs that must be fullfilled in order to achieve mashlahat, which are: (1) dlaruriyat needs or primary needs, 2) hajiyat needs or secondary needs, and 3) tahsinat needs or needs complementary (Sahroni and Karim, 2015, Khallaf, 1977). Dlaruriyat needs are the needs that must be fulfilled, otherwise would bring destruction and damage. Hajiyat needs are the needs that lead to ease and convenience, which if not achieved would cause trouble and hardship. Fulfilling hajiyat needs can also be interpreted as a waiver those who bear the burden, and ease the social interaction and live (Khallaf, 1977).

Meanwhile, tahsinat needs come from human needs of dignity, norms and lifestyle. Tahsinat needs also beautify human condition to fit the demands of dignity and righteous attitude . Failure to achive these needs would cause discomfort or sense of alienation (Khallaf, 1977, Sahroni and Karim, 2015). The Maqashid Sharia meanings are shown schematically in Figure 1.1. (modified from Sahroni and Karim, 2015 and Muhajir, 2015).

2. Limitation of The Mashlahat And The Status, Functions And Benefits of Maqashid Sharia

The mashlahat – as the intention of human being – have some boundaries tied on it so that it can be attributed to its legal proposition (dalil), and get a legal position in sharia. There are three boundaries as the following. Firstly, the mashlahat should be covered in the Five Principle Purposes of Maqashid Sharia. Secondly, it should not be in conflict with the nash of al Qur’an and Sunnah. And lastly, it should not be in conflict with a greater mashlahat. (Sahroni and Karim, 2015).

Muhajir (2015) also explains that there are at least two important rules on Maqashid Sharia. First in the process of understanding nash of Sharia, attention to Maqashid Sharia would produce a law that does not always textual but also contextual; and second, in finding solutions to problems that do not have a direct reference to nash, one needs to pay attention to the secondary legal proposition (besides al-Qur`an and Sunnah), such as ijma`, qiyas, istihsan, saddu-dz-dzari’ah, ‘urf, mashlahah mursalah, and others.

Maqashid Sharia is not a stand-alone legal proposition as well as al-Qur`an, Sunnah, ijma’ or qiyas, because mashlahat should have foundation from first or secondary legal proposition or at least there is no legal proposition against it. Without any legal proposition, mashlahat is not applicable and can not be used as reference, because its legalities must be supported by sharia/legal proposition (Sahroni and Karim, 2015, Muhajir, 2015).

Fiqh Institutions of Organization of Islamic Conference also stressed out the fact that the fatwa should bring out Maqashid Sharia, due to three important benefits: 1) to understand nash al Qur`an and Sunnah as well as its legal proposition, comprehensively, 2) to do tarjih (legal review) one opinion of mufti/faqih based on Maqashid Sharia as standard (murajjihat), and 3) to understand ma’alat (long-term considerations) human activities and policies and then associate them with the legal provisions (Sahroni and Karim, 2015).

3. Economic Activity As A Form of Hifdzul-Maal

Sahroni and Karim (2015) stated that economic activity is a form of maqashid Sharia to protect wealth (hifdzu-l-maal) which consists of two types of activities: 1) min janibi al-wujud (from the point of view on how to get it) and 2) min janibi al-‘adam (from the point of view to maintain wealth). Two types of sharia economic objectives were described in this study, i.e. 1) maqashid ‘ammah or general purpose of sharia economy, which consist of 10 general principles, and 2) maqashid kashshah or special purpose of sharia economy that addresses 32 specific principles in various forms of economic sharia practices.

Muslimin (2011) stated that there are three values as the basis of the legal system of Islamic economics, i.e. ownership, mashlahat, and distributive justice. These values were further described as follows.

  1. Ownership

According to Islam, in fact, the owner of the whole universe is only Allaah SWT, while human beings are created to rule and manage it. This concept of ownership differs from communism which recognizes joint ownership and the capitalism in which includes mainly private ownership. The concept of ownership in Islam is an integration between private ownership, collective and state ownership.

Also according to Islamic principles there are three principles of ownership. Firstly, ownership is not an absolute control over economic resources, but instead the ability to use it. Secondly, the duration of ownership is limited to the length of human life in the world, which after his death, the property owned should be distributed to the heirs in accordance with sharia. The last principle is, natural resources that related to public interest should be collectively owned or state for mutual benefit (Ali and Daud, 1995).

2. Mashlahat

From economic aspect, in fulfilling human needs a lot of factors are involved, such as a medium of exchange, the market, manufacturers, and consumers. However, not everyone is able to uphold Islamic values in fulfilling these needs, thus causing fraud and violations of the rules of Islam. This is called al-mafsadah, meaning something out of the straight path.

The way Islam deals with economy is not only considering the aspect of fulfilling one’s needs, but also the value of collective mashlahat. Mashlahat is synonymous with benefits and the opposite is mafsadah or damage. So mashlahat can also be interpreted as good human deeds which bring benefits to himself or others in the vicinity. In this case the Islamic law enforced through by the general principle of jalbul-mashlahah (taking mashlahat) and dar’ul-mafasid (refuse mafsadah or damage), included in the practice of the economy.

3. Fair Distribution

The concept of fair distribution is an Islamic solution to the problem of global economy, due to its comprehensive scope, which, according to Zarqa (1995) consists of: 1) meeting the needs of all beings, 2) giving positive effects for those involved, 3) benefiting all people (rich and poor), 4) reducing the inequality , 5) using natural resources and fixed assets properly, and 6) giving hope to others through giving.

According to Antonio (2009), Islamic economy has three distribution systems. The first one is the commercial distribution system through economic activities, e.g. trading. The second system is social distribution through alms (shadaqah), infaq, charity (zakat), grants (hibah) and endowments (wakaf), which aim to redistribute income. The third one is inheritance.

Those three distribution system are regulated in Islam, showing that the economy according to Islam contains at least two essential elements: 1) to meet not only personal needs, but also the whole of humanity, and 2)  to meet the needs of both physical (jasmaniyah) and spiritual (ruhaniah) as a form of religious obedience.

Muslimin (2011) concluded his explanation on the three basic values in Islamic economic by elaborating those values (ownership, mashlahat, and fair distribution) as a base of five instrumental values: zakat, the prohibition of usury (riba) and gambling, economic cooperation, social security, and the role of the state.

Meanwhile, according to Shihab (1996), Islamic economics has four main principles, i.e. 1) monotheism (tauhid), 2) balance, 3) free will, and 4) responsibility. Tauhid  takes people to the oneness of Allah SWT, where everything comes from Allaah SWT and in the end, shall return to Allaah SWT. This principle makes economic players no longer oriented to material benefits (dunya) only but also to the benefits in the afterlife (akhirah), by sharing with others as a form of social function of wealth (Surat an Nuur (24) verse 33), and avoiding exploitation.

The principle of balance means that Allaah created everything in balance and harmony (al-Qur`an letter (QS) al-Mulk (67) of verse 3), so human is required to live balanced and in harmony with himself, others (in society), and even the universe. The principle of balance also encourages people to prevent monopoly, capital centralization (Surat al-Hashr (59) verse 7), hoarding a commodity to push up prices, and consumptive attitude (Surat at-Tauba (9) verse 34, Surah al A’raaf (7) verse 31).

The principle of free will is interpreted as a principle that drives a Muslim to believe that Allaah SWT has the absolute power, but He has also granted human the freedom to choose their own paths: good or bad. The ideal man at the side of Allah SWT is a man who with his free will is able to apply the principles monotheism and balance. So then came the fourth principle as a consequence of monotheism, balance, and free will: the responsibility, both individually and collectively. These four principles should be practiced in the economic activities of each Muslim, according to Shihab (1996).

4. Environmental Damage As An Impact Of Economy: Islamic Overview

Economic state reflects the life quality of human being, especially in the last two centuries. However this advancement in economic state costs some damage to the environment. Approximately half of the forests on earth have been lost; biodiversity has severely declined; the groundwater has been drained and contaminated continuously; air pollution is increasing; and disasters/potential for further disasters caused by global climate change continue to emerge. Meanwhile, about one-fifth of the world’s population today still lives in poverty. Improving the living standard of the population demands advancement in economy. If this kind of growth pattern continues, then the destructive pressures on the carrying capacity of the environment and the availability of natural resources will increase. These problems also found in Indonesia.

Environmental damage caused by human activities, including economic activities, is depicted in al Qur`an as the destruction of the balance. Shihab (2003) in interpreting al Qur`an letter ar Rum (30) verse 41 stated that the meaning of fasaad is something out of balance or the opposite of ash-shalaah which means useful and benefits. Therefore that verse describes damage, imbalance, and lack of benefits on land and at sea, which leads to a chaotic environment balance. Fasaad is done by humans and will lead to torture to humans. The more destruction is happening to the environment, the greater the bad effects to humans, because Allaah SWT creates all things correlated one another. Interference with the harmony and the balance definitely has an impact on all parts of nature, including human beings, both the offender and who approved the destruction.

Destruction of the environment as a result of the economic activity was also condemned and forbidden by Islam in the judgment of 29th Nahdlatul ‘Ulama (NU) Congress in Cipasung, Tasikmalaya, on December 4, 1994. The Congress was asked the following question;

Industrialization that now being promoted by the government, turned out to brings quite a serious excesses and the impact is also detrimental to the interests of the people, which is usually only pursue their own advantage, and forget the obligation to deal with the impact of the waste generated by the plant. (A) What is the legal value for acts that pollute the environment? (B) How does the concept of Islam in dealing with environmental pollution excesses?

And their answer was;

(A) Polluting the environment, (air, water, and soil), if the causing dharar (damage), then it is haraam (prohibited) and classified as criminal act (jinayat). (B) The concept of Islam in dealing with environmental pollution excesses were: 1) if there is damage, it must be replaced by the polluters, 2) provide deterrent punishment (the polluter) which the implementation with ma’ruf amar nahi according to its level.

That answer then described with quotes from the 9 books of reference: 1) al-Tafsir al-Kabir/Mafatih al-Ghaib (Muhammad al-Razi), 2) al-Jami ‘li Ahkam al-Qur`an (Muhammad bin Abi Bakr al-Qurthubi), 3) al-Mawahib al-Sharh al-Fawa’id Saniyah al-Bahiyah (Abdullah bin Sulaiman), 4) Tabyin al-Haqa’iq Syarh Kanz al-Daqa’iq (Uthman bin Ali al- Zaila’i), 5) al-Kharraj (Abu Yusuf), 6) al-Ahkam al-Sulthaniyah (Abu Ya’la al Farra ‘), 7) Majma’ al-Dhamanat (Ghanim bin Muhammad al-Baghawi), 8) Mirqah Su’ud al-Tashdiq Syarh Taufiq al-Sulam (Muhammad Nawawi bin Umar al Banteni), 9) Ihya` ‘Ulum al-Deen (Abu Hamid al-Ghazaki), and two other references that are not quoted (Hasyiyah al -Jamal, Section V, page 196 and Tafsir Ibn Kathir, Section II, page 222).

Tafsir of the Qur’an letter ar Rum (30) verse 41 and the 29th NU Congress’ legal decision about the destruction of the environment reflect the consistency of Islamic views on the economy, that the purpose of the economy as hifdzu al-maal (to protect wealth) in order to achieved mashlahah of the people have not allowed to cause damage to the environment, because it would threaten the other Maqashid Sharia, as hifdzu-n-nafs (to protect life) and hifdzu-n-nasli (to protect descendant).

5. Demand of A New Way in Economy

Fundamental correction is needed to find a new way of development. A new way should be taken to repair the ecological damage, sustaining capacity of the environment and bring a decent life for mankind.

Dalgaard and Strulik (2011) explained in their study that Herbert Spencer in 1862 has shown that economic growth is driven and constrained by energy. According to Spencer evolution of a society depends on its ability to harness energy continues to increase for production purposes. In 1907, Nobel laureate Wilhelm Ostwald developed the idea further. According to Ostwald, economic and cultural development of a society is not determined by its energy consumption, but rather on the level of efficiency of utilization of energy sources for a variety of purposes.

Indonesia’s role in the economy’s energy sector is often associated with the mineral resources sector. According to the Ministry of Energy and Mineral Resources (ESDM, 2008), these two sectors serves as 1) a source of domestic energy, 2) a source of state revenue, 3) supporting regional development, 4) an important factor in the trade balance, 5) source investment target, 6) burden from subsidy, 7) important factor in Jakarta Composite Index, 8) industrial raw materials, and 9) triggers a chain of positive effects. Longer explanation of these nine aspects can be read, for example, in Budiarto (2011).

Renewable energy technologies play a vital role in green economy. These technologies provide great potential to reduce emissions of greenhouse gases as well as to prevent other various environmental damages, create new jobs and improve the quality of economic growth (e.g. by contributing to the fight against poverty).

This study was driven by the need for the dissemination of the importance of the economic system and the fundamental correction potential strategic role of renewable energies in such a noble mission. The description in this article is based on a thorough analysis of various relevant literatures (literature review).

6. Renewable Energy in Indonesia

Renewable energy comes from four major groups of sources, i.e. nuclear power, solar, geothermal, and gravity and movement of planets. Renewable energy is usually defined as energy that is produced from sustainable source naturally (e.g. solar, wind, geothermal and water) or through a intentional activity (e.g. biomass). Natural cycles renew this energy source in a short span of period (in months or years, not centuries). Utilization can be directly (e.g. solar cookers), electricity directly (through solar cells), or the generation of electricity through the mechanism of advance (e.g. with geothermal, wind or water).

OECD/IEA (2007) divided renewable energy technologies in three groups: first generation, second generation and third generation. In this categorization, hydroelectricity, biomass combustion, and geothermal utilization, in terms of heat and for the generation of electricity, considered as the first generation. Second generation includes heating and cooling technologies with solar, wind turbines, modern forms of bioenergy utilization (e.g. integration of biomass gasification and gas turbines), and solar cells. Third generation includes concentrating solar power technologies, marine energy, a system of hot dry rock geothermal and integrated bioenergy systems. This classification is based on the maturity of the technology in the energy market and the status of research and development. Table 1 below describes the potential and actual utilization of renewable energy in Indonesia.

Presidential Decree No. 5 of 2006 (Perpres No. 5 Tahun 2006) mandated that by 2025 the total portion of the utilization of new renewable energy technologies in the energy mix Indonesia shall reach around 17%, i.e. 476 million barrels of oil equivalent (BOE). This figure consists of 2% target obtained from the Nuclear Power Plant (NPP), 5% biofuel, geothermal 5% and 5% a combination of wind, solar, biomass and hydropower. Using the business-as-usual scheme, the portion of renewable energy in 2025 was only 3% (2% water and geothermal 1%), which is about 155 million BOE.

In the newer regulations, Government Regulation No. 79 Year 2014 (Peraturan Pemerintah/PP No. 79 Tahun 2014) on National Energy Policy mandates that by 2025 Indonesia’s primary energy will reach around 400 MTOE (million tons of oil equivalent), or 2.8 billion BOE and by 2050 around 1,000 MTOE (7 billion BOE), in which renewable energy would supply at least 23% (92 MTOE or 657 million BOE) in 2025 and 31% (310 MTOE or 2 billion BOE) in 2050. However, PP 79/2014 is difficult to be used as a basis for calculation in this paper due to the absence of details on the types and amount of renewable energy supply.

7. The influence of Renewable Energy on Green Economy

Economic principles are applied to solve the challenges of distributing rare resources to various users who compete with each other. Various issues on sustainable development, including the urgency of the need for sustainable energy systems, provide a big opportunity to make corrections to the economic system. The correction is a fundamental review of the objectives of economic growth, which usually gets higher priority than less important targets such as environmental preservation and social justice.

Green economy highlights the mainstream economic system errors in today’s modern life (Kennet, 2008). The green economy is a new paradigm that is capable to protect the ecosystem to follow a new way of economic growth that is able to reduce poverty (DESA, 2011). This new paradigm recognizes that the poors suffer more from environmental damage. That is why green economy is managing poverty, climate change and biodiversity simultaneously (Kennet, 2008).

Green economy is widely known as an economic system that meets environmentally-friendly principles and able to promote social justice. In carrying out investment activities, production, purchase, distribution and consumption, the system is not only environmentally friendly, but also provides products and services that can improve the quality of the carrying capacity of the environment (UNEP, 2010). In any transaction activity, but aims to achieve a variety of economic reasons, green economic system also includes a variety of ecological considerations. The system also accommodates externalities commonly overlooked by conventional economic systems (Saumya, 2007).

Green economy emphasizes three basic principles: 1) economic growth, 2) eco-efficiency, and 3) quality of economic growth (Regionomica, 2012). The growth remains a concern in the implementation and development of the green economy. It is still portrayed as a tool of achievement of various objectives, such as the eradication of poverty and the creation of welfare in general.

However, there need a great effort in correcting economic activity in order to achieve this growth. Currently, economic growth is focused on quantity measurement on the market. Economic practices implemented by many countries – especially in the developed countries – have been proved to cause systemic damage to the environment with serious impact. It is then usually overcome by improving the environment by utilizing a portion of the economic development. In a nutshell; grow first, then correct the damage.

In a green economy, the high quality of the growth can be achieved by implementing eco-efficiency strategy. The limitation of the environmental capability to sustain economic activity becomes an important consideration. Green economy also stresses the importance of a paradigm shift from quantitative GDP into qualitative measure of GDP. Emphasis is placed on the meaning of quality of growth that seeks to realize the sustainable carrying capacity of the environment to achieve the quality of life. Here lies the quality of the ecological, economic and social quality.

This means that not only allows the occurrence of environmental damage and repaired later, so it becomes a deduction from GDP performance. Since the beginning, various economic activities need to be designed to minimize damage.

7.1. Economic Growth Aspect

World population growth, income per capita, the utilization of energy and natural resources, as well as wastes and pollutants (including greenhouse gases) are all increased since the first industrial revolution. One proposed solution is to limit production growth, which was motivated by the effort to limit wastes and pollutants buildups. Nevertheless, it is generally seen as not in accordance with the reality particularly in developing countries, where  welfare improvement still becomes the top priority.

This is where technology as one of the keys to successful green economy finds its relevance. With technology, the development and fulfillment of economic goals remain possible while reducing the consumption of energy resources and other resources are non-renewable, reduce pollution, and mitigate the impact of the biodiversity reduction (see, for example, DESA, 2011).

Economic growth is calculated from the change in the amount of the Gross Domestic Product (GDP) per year. Basri et al. (2008) explained that this growth is the result of the accumulation of utilization of physical resources (technology, factories, and infrastructure) and human resources (knowledge, skills). Asset is used to increase productivity to produce goods and services with the value increasing as well. Application of various methods and more efficient production technologies as well as the knowledge and skills to produce better products became the mainstay in achieving increased productivity. Meanwhile, economic growth in Indonesia is connected directly or indirectly to environmental issues and natural resource management.

Here, a variety of renewable energy technologies have proven their reliability to supply energy needs for a variety of economic activities, both in large and small scales. These technologies are able to provide the energy needed for various production activities by simultaneously using renewable sources and minimize the negative impact on the environment. On the other hand according to Basri et al. (2008) low electrification ratio, particularly in rural areas and access to energy for Micro, Small and Medium Enterprises (SMEs) shall be the keys of economic growth in Indonesia. A comprehensive program to build and operate an off-grid power plant based on renewable energy in a sustainable way in rural area that far from grid, could be driving further growth of SMEs in bulk. Appropriate technology can be applied also to convert various bio wastes in various rural areas to energy (e.g. biogas).

Furthermore, the development of renewable energy industry has been proved to be capable of creating new jobs. The level of global investment in renewable energy is predicted to reach 250 million euros in 2020 and continued to increase to 460 million euro in 2030 (Carvalho et al., 2011). Along with the growth of investment and increased production capacity, new jobs in the renewable energy sector projected to increase in the coming years. Employment in this sector is included in a group of green jobs.

Song (2009) briefly defines green jobs as activities that are beneficial to environmental conservation. Renner et al. (2008) defines green jobs as work in agriculture, manufacturing, construction, installation, maintenance, R & D, administration, and various other services that substantially contribute to the improvement and conservation of environmental support. This group includes, certainly, the variety of jobs related to the protection and improvement of ecosystems and biodiversity, energy conservation, water conservation, economy decarbonizing, and related occupations to waste reduction and pollution. With the focus on energy, UNEP (2007) defines green jobs as a variety of jobs that contribute to energy conservation and use of renewable energy sources in order to accelerate the transition to low carbon-emission economic system (low carbon economy).

In every sector, including green jobs in renewable energy, according to the degree of involvement of the sector, there were three categories of employment, i.e. direct, indirect and induced. Direct employment includes design work, manufacturing, shipping, construction/installation, project management, operations and maintenance of various renewable energy technologies. Indirect employment includes work within the scope of the downstream and upstream supply of renewable energy technologies (‘‘supplier effect’‘). For example, the installation of wind turbines is included in direct jobs, while the manufacturing of steel or other components to make wind turbines are included in indirect employment. Induced employment is entrained categories that represent a variety of jobs related to economic activity and spending parties included in employment directly and indirectly. These include, teachers, employees of freight forwarding agents, clerks around the site, etc. (Wei et al., 2010). Employment in the field of renewable energy can be classified into groups of free-fuel based technology and fuel based technology. The two groups have different patterns related to the value chain which is also different (IRENA, 2011).

In comparison with fossil-based energy generation, renewable energy technology applications create more jobs for each installed power or per unit of investment funds (Renner et al., 2008). Each euro invested (and each produced kWh) of renewable energy sources capable to creating jobs 3 to 5 times more than fossil energy sources (Carvalho et al., 2011). It is similar also shown by Carley et al. (2011), who conducted an analysis of 16 studies on the benefits of renewable energy development in the form of new job creation in various countries in Europe and various states in the US.

Currently the renewable energy industry (manufacturing, operation and maintenance) provides about two millions jobs around the world (Carvalho et al., 2011). Similarly, according to Renner et al. (2008), worldwide approximately 300,000 people work in the field of wind turbines, 170,000 in solar cell (PV), solar thermal 600,000, and about 1.2 million in the field of biomass energy (mostly in biofuel). For all types of renewable energy around the world there recorded approximately 2.3 million people, which is a conservative figure.

Meanwhile, CO2 mitigation policies implemented by the government of People’s Republic of China in power generation in the period from 2006 to 2009 resulted in a loss of 44 thousand jobs. However as the role of renewable energy increases, primarily in 2010, during the year 2006 until 2010 a total of 472 thousand jobs related directly or indirectly to the power generation business were created (Cai et al., 2011).

Chua and Oh (2011) cited a recent report in Asia Business Council (ABC) entitled “Addressing Asia’s New Green Jobs Challenge”. The report, measuring the green jobs index from green job vacancies standpoint, green market potential, the availability of green job labor and green policies in 13 countries in Asia showed that People’s Republic of China has the best conditions in terms of green job creation in general.

Various articles, such as by Wei et al. (2010), CEC (2009), Kammen et al. (2006), Heavner and Churchill (2002) and Peterson and Poore (2001), analyzed various studies to predict the number of jobs that can be provided by increasing application of various renewable energy technologies. Table 2 displays estimated number of jobs created by the development of renewable energy.

It also means that the development of renewable energy in Indonesia has the potential to generate additional benefits in the form of new jobs as well. Predictions about this case are shown in Table 3.

As a side note, the new direct employment figures are  predictive figures that include the stages of manufacturing, installation, operation and maintenance. These figures also indicate the benefits that can be achieved only if the renewable energy industry can grow rapidly in Indonesia so the domestic content in the form of goods and related services can be optimally supplied. Furthermore, the benefits could even be greater because there is still the possibility of creation of new jobs in the category of indirect and shipped; and not limited to direct new jobs.

7.2. Eco-Efficiency Aspect

Many elements make up the final cost of primary energy. These elements are exploration costs, exploitation cost, operating costs (wages, maintenance costs, taxes, insurance, dividends, investments, costs of social relations, etc.), transportation and distribution of energy cost, the political costs and external fees (Pykh and Pykh, 2002). External costs (also known as externalities) emerges if an activity carried out by the first impact on both sides while the impact is not fully calculated or paid compensation by the first party. The impact can be positive or negative.

Negative externalities will be the challenge in the economy. Studies show that power generation based on fossil fuels in Thailand significantly gains negative impact of the level of premature mortality and morbidity. In the period 2006 – 2008, cost of the negative impact on public health has reached an average of US $ 600 million per year; 0.3% of Thailand’s GDP at that time. That amount is equivalent to between US$ 0.05 to 4.17 cents per kWh, depending on the type of fuel. The greatest negative impact is caused by power plants that are not equipped with emission control (Sakulniyomporn et al., 2011).

Comprehensive study of the European Commission (2003) formulated the external costs of various types of resources as a result of internalization (see table 4). Internalization of external factors will provide funding to address the negative impacts of fossil fuel. However if internalization is conducted, the price of energy would increase.

Lenzen (2009), for example, showed that in general for each kWh, provided energy from renewable energy technologies, the CO2 emissions resulted is much smaller than fossil fuel-based technologies (see Table 5). Data from the European Commission (2003) above which exposes externalities also gave similar facts. Therefore, renewable energy technology is believed to play a major role in the long-term vision of economic activity to cut down carbon emissions (economy decarbonizing). Aswathanarayana et al. (2010), for example, described the potential of renewable energy in moving towards zero carbon emissions in electricity generation, transportation, industry, and industry.

Eco-efficiency aspects manifested as 1) internalizing various ecological costs, 2) maximizing the efficiency of utilization from various resources, and 3) minimize the impact of pollution (Regionomica, 2012). Because it is based on renewable energy sources, in total application of renewable energy technologies will be able to improve the efficiency of utilization of various resources. Moreover, renewable energy reduces pollution along with its impact. As a consequence of the inherent nature of environmentally friendly with all the positive effects that belongs to various renewable energy technologies, internalization of externalities (e.g. the costs of ecological damage compensation) would be relatively easy to be implemented into economic calculations.

Ministry of Finance (2009) explained that Indonesia’s energy demand continue to grow by about 7% per year. In line with that in the past decade Indonesia’s Greenhouse Gas (GHG emissions per unit of energy consumption) in the energy sector continues increase. This is because electricity generation relies on various sources of fossil energy, especially coal.

Within the period of 1990 to 2006, emission level in Indonesia has increased 309% from electricity sector, 192% from industry and 127% from transportation. Meanwhile the electrification ratio is targeted to be 93% in 2020 from currently around 66%. Consequently, without a proper control, the emission level from electricity sector in Indonesia would be the highest among other sectors in one or two decades from now (Ministry of Finance, 2009). This trend has been indicated by the increase of electricity consumption of 137% from 79.165 GWh in 2000 to 187.541 GWh in 2013. A significant increase from the year 2000 to 2013 can also be observed from fuel consumption for PLN’s power plants: 1) coal from 13.1 million ton to 39.6 million ton, 2) oil (HSD, IDO, FO) from 5.02 million kL to 7.47 million kL, and 3) natural gas from 228 thousand MMSCF to 409 thousand MMSCF (ESDM, 2014).

Similar results was shown by Resosudarmo et al. (2009), who combined predictive emissions from deforestation (based on data from the World Resource Institute) and emissions from the use of fossil energy resources (data from the International Energy Agency).

Presidential Decree (Decree) No. 61 Year 2011 on the National Action Plan for Greenhouse Gas Emission Reduction (RAN-GRK) affirmed the commitment of the Indonesian government to reduce greenhouse gas emissions by 26% by his own efforts or reaching 41% with international assistance in 2020. The potential contribution of the utilization of renewable energy technologies the achievement of these targets is shown in Table 6.

The deforestation rate in Indonesia is 500 thousand to 1.5 million hectares per year. The high rate has resulted in loss of about 30 million from about 127 million hectares of forests in Indonesia within the last 30 years. The main purposes of opening/conversion of primary forests are primarily for agricultural activities, development of residential areas, and mining. Mining of coal and other minerals are often carried out by open-pit mining that heavily damaged the forest. Ecosystem disruption would be then caused by extensive logging which forces animals to migrate and massive soil convertion. Reclamation is often only done in a smaller area than the affected area. Trees planted are often not of the native species. Ex-mining areas are left without refertilization, causing only few species can regrow (Resosudarmo et al., 2012). Open pit mines of coal could potentially lead to, among others, dust pollution, noise pollution, water pollution, interference with the formation of groundwater and degradation of biodiversity. As a result of damage to ecosystems, major disruption could also occur in plants, animals and even humans. The damages caused by it can reach levels that can no longer be recovered (Mamurekli, 2010).

In Indonesia and other developing countries, the closure of mining activities could raise more complex and serious problems compared with in developed countries. The closure of the mine in Indonesia would mean the loss of a source of economic activity. This could results in significant disruption to the economic and social aspects of the area concerned. Government revenues will also decrease (Cronin and Pandya, 2009).

Coal production in Indonesia is projected to continue to increase from 240 million ton in 2010 to 370 million ton in 2025. In 2025 the consumption of coal for domestic needs far greater than those exported (Widajatno and Arif, 2011). While the majority of Indonesian coal production resulting from an open pit mine, located in remote areas and often took place in the virgin forest areas. This is certainly the potential to cause a variety of problems such as those described above. From this perspective, increase in the utilization of renewable energy would successfully reducing the portion of the role of coal in the energy mix. It has the potential to contribute in reducing the rate of environmental damage caused by mining coal, mainly carried openly.

7.3. Quality of Economic Growth Aspect

Broadly speaking, within the framework of sustainable development, renewable energy has the potential to provide broad benefits in terms of economic, social and environmental (Van Dijk et al., 2003). Benefit to the economy includes job creation, development of competence in the country, increase of foreign markets, improved security and reliability of supply, reduction of fuel costs, optimize the cost of opening a remote area, development of tourism potential, as well as improving the distribution of welfare at the local level. On the social side benefit includes improving health and overall quality of life, reduction of urbanization, increase in the local community pride, and increased participation of local communities. Meanwhile benefit for the environment may include the reduction of greenhouse gas emissions, creation of new habitats, protection of the environment, reduction of potential flooding, waste volume reduction, and reduction in the use of conservation land.

Meanwhile, from the point of view of national security, the utilization of renewable energy sources will provide a variety of benefits: enhancing conservation of energy supply in the long term, reducing the rate of dependence on overseas energy supply, the increased stability of the socio-economic and political, as well as increased stability of the socio-political economy would be achieved with increased susceptibility to fluctuations in supply and fuel prices (see, for example, Budiarto, 2011).

Various targets of poverty reduction, environmental conservation and guarantee in energy supply can be simultaneously achieved. Investment in order to increase the application of various renewable energy technologies (along with other environmentally friendly energy technology) is able to create new jobs, meet energy needs for a variety of social and economic activity and simultaneously reduce carbon emissions (see eg Aswathanarayana et al., 2010). Investing in a variety of environmental programs can be enabled as well as a base income for local communities and the development of Micro, Small and Medium Enterprises (MSMEs). This makes the program in the environmental sector (including renewable energy) can be simultaneously played to create jobs for low-income people (Song, 2009).

The data indicates that to utilize low-quality energy sources, low-income people have to pay a high price in terms of money, time and energy. Families in rural areas in developing countries averages must pay about US $ 10 per month to get the low quality and unreliable energy services (USAID, 2007). Farming is still the main occupation of most low-income people in Indonesia, again mainly in rural areas, which signifies the application of renewable energy. Utilization of farming and agricultural waste as bioenergy materials can provide additional benefits to farmers. It can revolutionize waste management that was once an additional burden for farmers (Kothari et al., 2010). Data from August 2015 showed that Indonesian livestock population has reached 17.8 million (cattles, dairy cows, buffalos and horses), 43.4 million small livestock (goats, sheep and pigs), and 1.9 million poultries (chickens and ducks) (Ministry of Agriculture, 2015). These figures show an example on the potential of renewable energy development (for electricity or fuel through bio digester technology with other results in the form of solid or liquid organic fertilizer) which can be integrated in farms.

Various positive potential of renewable energy technologies enable economic growth to be achieved simultaneously by expanding the acquisition of tangible and intangible benefits to the community. Life quality variables would be likely to be better calculated, and the quality of economic growth would be enhanced.

8. Conclusion

Currently Indonesia still relies on unsustainable energy systems. The impacts become a great burden for the national development. A fundamental change to implement green economy in Indonesia should be heavily encouraged.

 The application of renewable energy is one of the key aspects in implementing green economy. Renewable energy technologies offer some huge tangible and intangible benefits which would not be gained by using fossil energy resources to meet the basic principle of green economy. These benefits include such as creating new green job markets, reducing CO2 emission, reducing the rate of coal production and enhancing the life quality of people in low income. It can be concluded that the utilization of renewable energy resources can enhance economic growth and eco-efficiency.

The utilization of renewable energy resources also fits to the maqashid sharia in Islamic economic practices. Not only it is a form of hifdzu-l-maal (wealth protection) but also it prevents environmental damage as a realization of hifdzu-n-nafsi (life protection) and hifdz-n-nasli (descendant protection) for the sake of sustainable human life.


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