Environmental related energy risks

Abstract

Indonesia highly depends on fossil fuel for its energy. This creates problems of climate change and air pollution. In order to mitigate the environmental problems, the government and international organizations planned to implement several policies. The paper aims to explore business risks related to: the impacts of climate change and air pollution, the policies and the opportunities created from the problems and the policies. Keywords: energy, business risk, climate change, air pollution. The energy sector in Indonesia is largely constrained by uncertainties in various fonns. We can group these risks into two categories: one, the risks associated with energy price volatility (i.e. energy market fluctuations) and two, risks that are related to the impact of energy use. The first type or risk is mainly fonned by the interaction of energy supply and demand in the market, in which not only the demand side plays a major role (i.e. increasing energy demand as the result of economic growth), but the supply side as well (i.e. energy production and geopolitics of energy). In the second category, we deal more with the impacts caused by energy usage, environmental impacts ("externalities") in particular. Without neglecting the importance of market (or price) risks, the focus of this paper is the environmental risks of energy utilization. Climate change and air pollution are externalities resulted from energy utilization. These externalities will reduce the welfare of the society, including those who do not receive any benefits from the energy products. The paper explores not only the risks related to climate change and air pollution, but the risks related to the policies to mitigate and to adapt the environmental problems as well, both at national and international levels. As the problems not only cause risks but also opportunities, the last part of the paper identifies business opportunities related to air pollution and climate change.