Indonesia stands at a crossroads. The nation has set bold targets to grow to be a worldwide chief in carbon seize and storage (CCS), providing a pathway for high-emission industries in Japan, South Korea, and Singapore to offset their air pollution. In line with ERIA report, with an estimated 69 gigatonnes (Gt) of CO2 storage capability, Indonesia has the potential to cement itself as Southeast Asia’s first carbon storage hub.
But, whereas positioning itself as a inexperienced funding chief, Indonesia dangers changing into a protected haven for carbon-intensive industries. With one of many weakest carbon taxes globally-just USne$2 per ton-set to be applied after years of delay, multinational producers fleeing Trump’s renewed commerce warfare may relocate to Indonesia not for its sustainability credentials, however for its lax environmental insurance policies.
This contradiction raises a important query: Can Indonesia really grow to be a world-class CCS hub whereas concurrently offering an escape hatch for polluting industries?
Including to this dilemma, Indonesia is not only a key participant within the carbon storage debate—it is usually one of many world’s largest carbon emitters. Ranked fourth globally in carbon emissions, the nation emits roughly 674 million tons of CO₂ yearly. A lot of this comes from coal-fired energy vegetation, deforestation, and industrial air pollution, putting Indonesia among the many largest contributors to world local weather change.
Which means that Indonesia is just not solely serving to retailer emissions from different international locations however actively including to the world’s carbon burden. With out stronger home local weather insurance policies, its position as a carbon emitter could overshadow its ambitions to grow to be a carbon storage chief.
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If Indonesia retains its carbon tax at US$2 per tonne whereas retreating from the Paris Settlement, it’s sending a transparent message to high-emission industries: “Come right here, and air pollution comes low-cost.”
On February 1, 2025, US President Donald Trump reignited a commerce warfare, imposing 25 per cent tariffs on imports from Canada and Mexico and 10 per cent tariffs on Chinese language items. After negotiations, the US agreed to pause the tariffs on Canada and Mexico for 30 days. The financial implications are clear however the place will these displaced industries go?
Throughout Trump’s first commerce warfare (2018–2019), multinational firms quietly shifted manufacturing from China to Southeast Asia, significantly to Vietnam and Indonesia, to make the most of decrease prices and looser rules. Now, with a second commerce warfare underway, Indonesia is as soon as once more positioned as a pretty vacation spot for producers trying to bypass tariffs and environmental restrictions. As an alternative of investing in decarbonisation, firms could merely relocate their emissions to Indonesia-undermining world local weather efforts.
At first look, this would possibly seem to be an financial win: extra factories, jobs, and international funding. However the long-term penalties may very well be extreme. With out stronger carbon rules, Indonesia dangers changing into the world’s main enabler of carbon leakage – the place emissions aren’t decreased, simply outsourced to nations with weaker insurance policies.
Trump’s commerce warfare isn’t the one environmental risk. For the second time in his presidency, Trump has withdrawn the USA from the Paris Settlement, claiming that it unfairly restricts American industries. The results of this resolution are rippling far past the US Indonesia, which has relied closely on worldwide local weather finance, now faces an unsure future for its inexperienced transition.
The federal government had secured US$20 billion below the Simply Vitality Transition Partnership (JETP) and a US$500 million mortgage from the Asian Growth Financial institution (ADB) to shift away from fossil fuels. However now, with the US exiting the settlement, this uncertainty is fueling a controversial debate in Indonesia’s management: Ought to the nation comply with the US and withdraw from the Paris Settlement altogether?
If Indonesia retains its carbon tax at US$2 per tonne whereas retreating from the Paris Settlement, it’s sending a transparent message to high-emission industries: “Come right here, and air pollution comes low-cost.” That sign is not going to go unnoticed. Heavy industries resembling metal, cement, and fossil fuel-dependent manufacturing may relocate to Indonesia, benefiting from weak rules whereas different nations tighten their emissions insurance policies. This could erode Indonesia’s credibility on the worldwide stage.
In the meantime, because the US escalates a commerce warfare, different areas are taking the alternative strategy. The European Union’s Carbon Border Adjustment Mechanism (CBAM) will impose tariffs on carbon-intensive imports from international locations that lack sturdy emissions rules. If Indonesia turns into a carbon haven, it dangers going through increased commerce limitations, significantly on key exports like palm oil, metal, and textiles. As an alternative of benefiting from Trump’s commerce warfare, Indonesia may discover itself locked out of climate-conscious markets.
On the similar time, Indonesia is aggressively advertising and marketing itself as a Carbon Seize and Storage (CSS) chief, with main tasks within the Sunda-Asri Basin and Ubadari Subject already in improvement. CCS has been framed as a cornerstone of Indonesia’s local weather technique.
However right here’s the issue: Nations investing in CCS don’t simply want space for storing, they want coverage stability. Japan, South Korea, and Singapore is not going to retailer CO2 in a rustic that concurrently welcomes carbon-intensive industries. Worldwide traders and governments will hesitate to commit long-term CCS storage agreements in a rustic that undercuts world local weather efforts by changing into a haven for emissions-heavy firms.
Competitor nations like Malaysia are already securing CCS partnerships with Japan and integrating CCS into broader local weather insurance policies. If Indonesia fails to align its emissions insurance policies with its CCS ambitions, it dangers dropping CCS investments to regional rivals.
Indonesia doesn’t have to decide on between financial development and local weather duty, nevertheless it should cease sending blended indicators.
If Indonesia is to stability its financial ambitions with its local weather duties, it should take decisive motion quite than wavering on its commitments. As an alternative of contemplating an exit from the Paris Settlement, Indonesia ought to seize the chance to place itself as a regional chief in local weather diplomacy. If the world expects Indonesia to speed up its shift away from fossil fuels, it should additionally present the monetary means to take action.
On the similar time, Indonesia’s carbon tax should be strengthened. A mere US$2 per tonne levy is inadequate—one of many lowest on the planet and nowhere close to sufficient to affect enterprise selections. As an alternative of permitting polluting industries to make the most of this weak coverage, Indonesia ought to comply with Singapore’s mannequin, steadily growing the tax to a minimum of US$10–US$20 per tonne by 2030.
Moreover, Indonesia’s carbon tax should lengthen past coal-fired energy vegetation. Focusing solely on the power sector is a short-sighted strategy. Excessive-emission industries resembling manufacturing, transportation, and deforestation-heavy sectors should even be taxed, or companies will merely shift their emissions to areas the place rules stay weak. With no complete framework, Indonesia will proceed to be a most well-liked vacation spot for carbon-intensive industries in search of regulatory loopholes.
Equally essential, CCS funding should be tied to stricter emissions rules. Indonesia can’t market itself as a chief in carbon storage whereas concurrently providing a haven for industries that refuse to chop emissions. If Indonesia really desires to draw worldwide CCS funding, it should make sure that polluters working inside its borders are held accountable, stopping the nation from changing into a world carbon dumping floor.
Trump’s commerce warfare and local weather rollback usually are not nearly tariffs and coverage shifts-they are a check of Indonesia’s local weather management. Indonesia has a possibility to place itself as a inexperienced funding hub, a CCS chief, and a key participant in world decarbonization. Nonetheless, it can’t achieve this whereas making itself enticing to carbon-intensive industries.
The time for half-measures is over. Will Indonesia embrace its position as a local weather chief, or will it grow to be the world’s subsequent carbon dumping floor? The alternatives made at the moment will outline Indonesia’s financial and environmental future for many years to return.
Rizka Nugrahaeni is a graduate pupil pursuing a Grasp of Public Coverage at The College of Chicago, specialising in Vitality and Atmosphere Coverage. She can also be a tax analyst on the Directorate Basic of Taxes, Indonesia Ministry of Finance.
