Path dependence and energy transition policy : the case of Domestic Market Obligation (DMO) for coal in Indonesia

Abstract

This study examines the persistence of Indonesia’s coal Domestic Market Obligation (DMO) policy through the lens of path dependence theory, arguing that it has become a structural barrier to the country’s energy transition. Originally introduced in 2009 to stabilize domestic coal supply and electricity prices, the DMO policy has evolved into a deeply entrenched institutional arrangement that systematically reinforces coal dependence. Applying James Mahoney’s (2000) typology of path dependence—utilitarian, functional, power-based, and legitimation mechanisms—this study traces the historical trajectory of the DMO across three phases (2009–2015, 2015–2020, 2020–2025). It reveals how short-term policy efficiency, system compatibility, elite interests, and popular narratives have coalesced to maintain the DMO, despite Indonesia’s international climate commitments and the rising urgency of decarbonization. Through qualitative content analysis of regulatory texts, institutional reports, and public narratives, the study demonstrates how the DMO distorts market signals and crowds out investment in renewable energy. It legitimizes fossil fuel dominance under the guise of national energy sovereignty. The findings underscore that overcoming the DMO's path-dependent effects requires not only technical policy reform but also a comprehensive restructuring of Indonesia’s energy governance, including redistributive power shifts, reformed fiscal incentives, and narrative reframing. The study concludes by proposing alternative policy pathways to dismantle the DMO regime and support a just and sustainable energy transition aligned with Indonesia’s net-zero emission targets.