GE Report English 8 Oct Lowres

A GREEN ECONOMY
FOR A NET-ZERO FUTURE:

How Indonesia can build back better
after COVID-19 with the Low Carbon
Development Initiative (LCDI)
Ministr y of National Development Planning/Bappenas. 2021

A GREEN ECONOMY
About this report

Despite the central positioning
of green growth in Indonesia’s
national development plan
for 2020–2024, low-carbon
development in Indonesia has
taken a backseat following
economic and social challenges
resulting from the COVID-19
pandemic.
In response, the Low Carbon

has led the production of a
report aimed at informing the
advancement of a low-carbon,
green recovery and green
economic transformation in the
wake of the COVID-19 pandemic, in
line with the global climate targets
and in pursuit of a more robust,
resilient, inclusive and sustainable
recovery.
LCDI is a national priority program

of the Government of Indonesia as
outlined in the National Medium
Term Development Program
(RPJMN) 2020–2024.
Photo by Anna Jimenez Calaf via Unsplash

Foreword
Indonesia has a strong vision to become the world’s fifth-largest economy by 2045,
indicated by the rapid decline in poverty rates and steady economic growth. This
vision has been reinforced by the commitment to achieve Sustainable Development
Goals that promote a balance of economic, social, and environmental aspects. The
Government understands that achieving a long-term sustainable future will require a
transition from a “business as usual” development approach to a low-carbon path.
Therefore, low carbon development policies have been incorporated as one of the
national priority programs in the Indonesia National Medium-Term Development Plan
(RPJMN) for the period of 2020–2024, allowing Indonesia to perform article 3.4 of
the UNFCCC that emphasizes synergy between climate action and development
program.
However, the COVID-19 pandemic has created a multidimensional crisis and

fundamentally affected macroeconomic stability, resulting in Indonesia’s economic
contraction by 2.1% in 2020. A slowdown in economic activity disrupts our progress
in eradicating poverty. National poverty rate experienced the largest setback of 3.1
years, became equal to the poverty rate in 2017. This situation threatens Indonesia
development path set under Indonesia Vision 2045 including the target to escape
from the middle-income trap before 2045. On another note, climate change has also
triggered more frequent and severe climate-related disasters, creating huge losses,
both in terms of lives and finances. Only in 2020, around 99.5 percent of disaster events
are categorized as hydrometeorological disasters. These climate-related disasters are
predicted to be more intense in the future and will entail externalities that come at very
high economic and social cost to recover from if we do nothing.
Indonesia needs to recover immediately and build back better from the pandemic,
and bring the economic and development trajectory back to the right path. Hence,
Indonesia will require an economic transformation to boost economic growth, creating
better jobs, while at the same time maintaining our natural carrying capacity and
enhancing resilience for future shocks. The Ministry of National Development Planning
(BAPPENAS) has placed the Green Economy as one of the economic transformation
strategies.
With regard to this, the Ministry of National Development Planning in collaboration

with development partners, particularly the United Kingdom Foreign Commonwealth
and Development Office (UK-FCDO) has carried out various studies to advance green
economy transformation with low carbon development based on scientific analysis to
provide various policy scenarios to build back better from the pandemic, including to
achieve a more ambitious climate target: Net Zero Emissions.
This report presents scientific analysis of three scenarios in achieving net-zero

emissions for Indonesia and explores how Indonesia would embrace a green economy
and net-zero path. The report shows that committing to achieve net-zero emission
Jakarta, September 2021
by 2060 or earlier, would bring multiple benefits to Indonesia. Indeed, transforming
Indonesia to achieve net zero emission will require a common vision, major new
policies, shifts in existing investments priority and strong collaboration with multi
Suharso Monoarfa stakeholders. This report can serve as a reference for policymakers across the country
Minister of National Development as well as the international communities, and encourage policy formulation at all levels
Planning/Head of Bappenas to achieve a green economy that is robust, resilient, and sustainable in the future.
A Green Economy for a Net-Zero Future: How Indonesia can build back better after COVID-19 with the Low Carbon Development Initiative (LCDI) 1
Table of
Contents
Foreword 01
Acknowledgments 03
Executive Summary 04
1. A bold vision
for Indonesia’s
post-COVID future 11
1.1 The economic impacts of COVID-19 13
1.2 Indonesia’s COVID-19 response and the
RPJMN 15
4. How ambitious is it
to aim for net-zero
by mid-century? 55
1.3 Why Indonesia must build back better 4.1 Energy systems 56
20 4.1.1 Energy efficiency 58
1.4 Green stimulus measures and climate 4.1.2 Renewable energy 59
ambition around the world 22
4.2 Carbon pricing 62
4.3 Industrial processes and
2.
product use (IPPU) 65
Decarbonizing Indonesia: 4.4 Food loss and waste 68
Scenarios for achieving 4.5 Forest, peatland, and
net-zero emissions 25 mangrove restoration 70
2.1 The revised Reference Case and 4.6 Sustainable agriculture 72

the net-zero scenarios 27
5.
2.1.1 Reference Case: The costs of
inaction 27 Addressing key
2.1.2 The net-zero scenarios 29 challenges to
2.2 Net-zero targets in key sectors 31 achieving net-zero 74
2.2.1 The energy sector 33
5.1 An agenda for action:
2.2.2 Land use sectors 39 Building on the LCDI 76
2.2.3 Waste and industrial processes
and product use (IPPU) 44
2.3 The socio-economic benefits of
net-zero pathways 45
References 79
3. Investment needs,
fiscal impacts and
financing options 49
Technical Appendix 91
A1. Description of the main model
supporting LCDI 92
3.1 How much will it cost for Indonesia
to achieve net-zero? 50 A2. Summary of net-zero targets 94
3.2 Unlocking finance for key net-zero A3. Factors that improve socio-economic
investments 53 outcomes in net-zero scenarios 98
A4. COVID-19 modeling 101
A5. Unit costs of interventions 102
2 A Green Economy for a Net-Zero Future: How Indonesia can build back better after COVID-19 with the Low Carbon Development Initiative (LCDI)
Acknowledgments Special thanks and
appreciation to
This report has been produced through the strong commitment of Line Ministries
different stakeholders and a great collaboration among them. The Coordinating Ministry of Economic Affairs,
Ministry of National Development Planning/National Development Coordinating Ministry for Maritime Affairs
Planning Agency (Bappenas) extends its great appreciation of and and Investment, Ministry of Finance,
pays tribute to the hard work and contributions of all partners. Ministry of Energy and Mineral Resources,
Ministry of Environment and Forestry,
Person in Charge Ministry of Agriculture, Ministry of
Dr. (H.C.) Ir. H. Suharso Monoarfa Transportation, Ministry of Industry, Ministry
Minister of National Development Planning/Head of National Development
of Public Works and People’s Housing,
Planning Agency (Bappenas)
Ministry of Marine Affairs and Fisheries
LCDI Commissioners
LCDI Partners
H.E. Muhammad Jusuf Kalla, Dr. Muhammad Chatib Basri, Dr. Mari
New Climate Economy, World Resources
Pangestu, Dyah Roro Esti, Shinta Kamdani, Lord Nicholas Stern
Institute, NDC Partnership, World Bank,
Deutsche Gesellschaft für Internationale
LCDI Steering Committee
Zusammenarbeit (GIZ) GmbH, Agence
Dr. Ir. Arifin Rudiyanto
Française de Développement (AFD), United
Deputy Minister of Maritime and
Natural Resources, Bappenas
Nations Partnership for Action on Green
Philip Douglas Economy (UNPAGE), Asian Development
Development Director and Head of the UK Climate Change Unit, Indonesia Bank (ADB), Japan International
Foreign, Commonwealth and Development Office Cooperation Agency (JICA)
Dr. Nirarta Samadhi
Country Director, WRI Indonesia
Helen Mountford Special thanks and appreciation to the
Vice President, Climate and Economics WRI following individuals/organizations and
initiatives who provided expert feedback
Main Partner and guidance:
The Government of the United Kingdom through the UK Foreign, Megan Argyriou, Arun Arya, Pandora Batra,
Commonwealth and Development Office (UK-FCDO) Ed Davey, Nick Godfrey, Miria Pigato, Randy
Rakhmadi, Cecilia Tam, Retno Wihanesta
Supervisor
Dr. Ir. Medrilzam, MPE The Green Economy Caucus, House
Director of Environment, Bappenas of Representatives of the Republic of
Indonesia, Waste4Change, Tax Center –
Authors and Editors University of Indonesia, Climate Policy
Medrilzam, Leonardo Garrido, Suriany Ida, Irfan Darliazi Yananto, Egi Initiative (CPI), Indonesia Business Council
Suarga, Arief Wijaya, Marion Davis, Arya Harsono, Katie Connolly, for Sustainable Development (IBCSD),
Yelena Akopian Environmental Resources Management
(ERM), ClimateWorks Australia, PT Dharma
Modeling Team Ina Mandiri, Indonesia Renewable Energy
KnowlEdge SRL (Andrea Marcello Bassi, Georg Pallaske, Marco Society (METI), PT JJB Sustainergy
Guzzetti) Indonesia, Ricardo Energy & Environment,
PT Amythas, System Dynamics Center
Supporting Team – Bogor Agricultural University (IPB),
Anna Amalia, Anggi Putri, Ari Adipratomo, Dean Affandi, Pankaj International NGO Forum on Indonesian
Bhatia, Elizabeth Benyishay, Jessica Brand, Armyanda Tussadiah, Development (INFID), Prakarsa, Econusa
Yovita Dhevi, Madhavi Ganeshan, Kheysia A. Makhas, Joel Jaeger, Katy Foundation, Smeru Consulting, Institute for
Kelly, Nisha Krishnan, Cynthia Maharani, Tezza Napitupulu, Khairina Development of Economics and Finance
Putri, Sondang Tambunan, Oki Triono, Ryan Weber, Andie Wibianto (INDEF)
Executive Summary
Net-zero scenarios
for Indonesia
When Indonesia adopted its National Many countries have already adopted
Medium-Term Development Plan net-zero targets, even amid the COVID-19
(RPJMN) 2020–2024 in January 2020, it crisis, recognizing that ambitious climate
signaled a shift towards a new green, action can deliver better and stronger
low-carbon development path that would growth. As of September 2021, 52 parties
enable it to meet its goal of achieving representing 63 countries and 54.2% of
high-income status by 2045. This was an global greenhouse gas (GHG) emissions
important step, but just the start. has announced net-zero targets:
from the European Union, to Brazil, to
China, Japan and South Korea. Many
Since then, COVID-19 has caused
companies and financial institutions are
devastation around the world. In
adopting them as well. The World Bank,
Indonesia, there were nearly 4.2 million
the International Monetary Fund, the
confirmed cases as of 21 September
Organisation for Economic Co-operation
2021 and over 140,000 fatalities. The
and Development, the United Nations
economy has also suffered, with GDP
and others have also urged countries
shrinking by 2.1% in 2020 and poverty to prioritize green investments in their
and unemployment rates rising. Before COVID recovery, to “build back better.”
the latest spike in COVID cases, GDP
had been projected to grow by 4.3–4.8% Ambitious climate action is crucial to
in 2021, but that could change—and in Indonesia’s future. A recent analysis by
any case, globally, the socio-economic the insurer Swiss Re found that if the
effects of the pandemic are expected to world is 2.0–2.6°C warmer by mid-
last for years. century, as it may be even if current
pledges under the Paris Agreement
The government has made enormous are met, Indonesia’s GDP could shrink
investments to protect public health, by 16.7–30.2% due to climate change
strengthen the social safety net, and impacts.
stimulate the economy: about Rp.
976 trillion (US$68.5 billion) as of 17 As Indonesia takes on the G20
September 2021. Looking beyond the Presidency in 2022, a net-zero
commitment can demonstrate its strong
immediate crisis, this report, prepared
leadership on climate and inspire others
for the Low Carbon Development
to do the same, including through climate
Initiative (LCDI) as mandated by the
finance. The actions needed to achieve
Indonesia Vision 2045 report and
net-zero in Indonesia would also end
the Indonesia National Mid-Term
dependency on volatile fossil fuel markets
Development Plan (RPJMN) 2020–2024,
and protect natural capital, securing the
explores how embracing a path to net-
country’s place as a “carbon superpower.”
zero emissions by mid-century could
accelerate growth, boost employment, A 2019 Bappenas scenario analysis to
and make Indonesia’s economy inform the RPJMN 2020–2024 showed
more robust, resilient, inclusive and a low-carbon growth path could deliver
sustainable. A green recovery from GDP growth averaging 6% per year until
COVID-19 is a key first step. 2045, help accelerate poverty reduction
and boost jobs, with many other co-
benefits.
Recognizing that the policy context has changed significantly, especially due to COVID-19, this
report presents an updated analysis with four scenarios:
• A new Reference Case that reflects • Three scenarios for achieving net-zero GHG emissions in
the impacts of the COVID-19 Indonesia, by 2045, 2050 or 2060. They apply the same interventions,
pandemic as well as stimulus but on different timelines, with NZ2045 moving fastest. All would
interventions to date, but assumes that ensure that Indonesia meets or exceeds its unconditional pledge under
Indonesia advances no further policy the Paris Agreement of a 29% emission reduction by 2030, then ramp
efforts—beyond plans and projects up ambition across major emission sources. Per LCDI standards and
already in the pipeline—to green its principles, they are scientifically rigorous and ambitious, but recognize
infrastructure, protect natural capital, political, technical and institutional constraints and reflect, to the extent
or reduce GHG emissions. possible, ongoing discussions within key government agencies.
Expanding on the low-carbon measures Case: averaging 6.5% per year With additional strategies that
included in RPJMN 2020–2024, the net- for 2021–2050 in NZ2045, 6.4% in prioritize equity and inclusion, these
zero scenarios would fully replace fossil NZ2050, and 6.1% in NZ2060, then gains could be used to benefit poor
fuels with clean energy (renewables continuing beyond 2050 at a slower and disadvantaged populations and
and nuclear); sharply reduce the growth rate. By 2045, total GDP would help close gender gaps. There are
energy-intensity of the economy; phase be 25–34% greater in NZ2045 than in also broader societal benefits, such as
out fossil fuel subsidies by 2030 and the Reference Case. Per capita gross sharp reductions in air pollution that
put a price on carbon; electrify road national income (GNI), meanwhile, could save 40,000 lives in 2045 alone.
transport (with biofuels’ role gradually would reach US$14,495 by 2045 in
declining); protect and restore forests, NZ2045, US$14,485 in NZ2050 and Indonesia can start realizing those
peatlands and mangroves; adopt US$13,980 in NZ2060. This means that benefits right away by implementing
sustainable practices in agriculture, across net-zero scenarios, Indonesia some net-zero measures as part of its
forestry, fisheries and aquaculture; would achieve its goal of becoming COVID-19 recovery, with significant
improve waste management; and make a high-income country by 2045 (the stimulus effects and job creation. This
industry more efficient. current threshold is US$12,535). would also help reduce the risk of
stranded assets, as new coal power
Those measures would stabilize GHG Pursuing net-zero would also create plants may otherwise need to be
emissions at under 1.9 Gt CO2e in the large numbers of green jobs, starting retired prematurely, with financial
period 2021–2024, then start declining. in the first year, and thus could be repercussions. That said, not all
By 2030, GHG emissions would fall by an integral part of a strong recovery sectors, communities or individuals
30.9% in NZ2045, 29.7% in NZ2050 from the COVID-19 economic crisis. will gain equally; high-carbon sectors
and 29.1% in NZ2060 relative to the A bottom-up estimate based on the would be expected to decline,
Reference Case. Over the 2021–2060 NZ2050 scenario indicates that it shedding jobs. Economy-wide, those
period, 87–96 Gt CO2e of emissions would result in 1.8–2.2 million new losses will be more than offset by new
would be avoided. Two-thirds of those jobs in 2030 in renewable energy, opportunities in low-carbon sectors,
reductions would be in the energy electric vehicle technologies, energy but targeted policies and investments
sector, and 25% in agriculture, forestry efficiency, land use interventions and are crucial to support a just transition
and other land use (AFOLU). improved waste management. That and ensure that no one is left behind.
would be 1.0–1.3% of the projected
The net-zero scenarios would also labor force in 2030.
deliver sustained real GDP growth—
and at higher rates than the Reference
Figure ES1. The benefits of Indonesia's Net Zero growth path (compared with Reference Case)
Benefits of
the net-zero scenarios vs. the Reference Case
87–96 6.1–6.5% 25–34%

billion tonnes CO2e average annual GDP growth
over 2021–2050
higher
GHG emissions saved gross national income (GNI)
over 2021–2060 by 2045
1.8 million 40,000 Restore ecosystems

with services valued at
additional
green jobs
lives
saved in 2045 alone from
US$4.75
in 2030 in energy sector, EVs,
reduced air pollution trillion/year
by 2060
land restoration and waste
3.2 4.1 Boost

climate
million ha million ha resilience
of primary forest protected of forest coverage added
across the economy
by 2060 by 2060
Net-zero targets and
strategies in key sectors
Energy
The energy sector is central to are so energy-efficient, electrifying

achieving net-zero as Indonesia almost all the world’s road transport
develops and incomes rise, because by 2050 would only increase global
energy demand is rising quickly. electricity demand by a quarter.
Projections for the Reference Case President Widodo has already set a
show demand more than tripling, from goal of having 20% of the country’s
9.3 TJ in 2021 to 31.9 TJ in 2060. If all the auto production be EVs by 2025.
added demand were met with fossil
fuels, the impact on GHG emissions Electrifying road transport would
and air pollution would be devastating. address the single largest source
of fossil fuel demand today, freeing
The RPJMN 2020–2024 already Indonesia from oil imports without the
recognizes this challenge and aims need for more biofuels (which help
to reduce the energy intensity of reduce emissions, but also require
Indonesia’s economy (a proxy measure large amounts of land). Eliminating
for energy efficiency) by 2.5% per year fossil fuels from electricity production
and increase the share of renewable is the other major task. The State
energy in the primary energy mix to Electricity Company (PLN) already
23% by 2025. The net-zero scenarios has plans to stop adding coal power
ramp up ambition on both fronts, after 2023, increase the share of
aiming to reduce the energy intensity renewables to at least 48% of total
of GDP by 3.9–4.5% per year in generation capacity by 2030, and
2021–2030 and by an average of 6% reach carbon neutrality by 2060. In the
per year in 2031–2060, and to meet net-zero scenarios, the share of coal
the vast majority of energy needs with power—59% in 2019—would start to
renewables and other clean sources decline by the mid-2020s and drop to
(nuclear, hydrogen) by the net-zero 5% by 2035. The share of renewables
target year, and all by 2060. would rise to 60% by 2030 and 82% by
2053, with nuclear power, introduced
By 2060, the energy efficiency gains in 2030, supplying all the rest by 2060.
would enable Indonesia to use less
than 10% as much energy per unit To accelerate the energy transition,
of GDP as it did in 2021, enabling Indonesia is already phasing out fossil
the economy to grow robustly while fuel subsidies and piloting carbon
keeping energy demand roughly where markets. The net-zero scenarios would
it is today, or lower. Notably, a large completely end fossil fuel subsidies
share of those efficiency gains would by 2030 and phase in a carbon price,
come from large-scale electric vehicle starting low and then ramping up
(EV) adoption, to reach nearly 100% to US$60 (Rp. 873,000) per tonne
(with some hydrogen-fueled vehicles CO2 by 2040 in NZ2045 (US$50 in
as well) by the net-zero target year. A NZ2050 and US$40 in NZ2060), then
recent analysis found that because EVs remaining at that level.
Photo by Sandra Parra via Unsplash
Agriculture, forests and land use
Photo by Muhammadh Saamy via Unsplash
Natural resources are central to restoration would accelerate to 125,000

Indonesia’s wealth and prosperity, but ha per year in 2021–2024, then continue
land use sectors have also produced at 12,000 ha per year. Peatlands and
half to two-thirds of the country’s mangroves are crucial for both carbon
annual GHG emissions over the past storage and resilience, to stem land
20 years—with disasters such as the subsidence due to wetland drainage,
2015 peatland fires causing large reduce flood risks, and protect coastal
spikes in emissions and air pollution. areas from storm surges and erosion.
Recognizing the urgent need to protect After reaching their targets, restoration
key ecosystems, the RPJMN 2020–2024 efforts would scale down to maintain
set targets for reforestation, forest those levels and offset any further
protection, peatland and mangrove losses due to economic development.
restoration, and sustainable agriculture.
The net-zero scenarios also aim
The net-zero scenarios aim to end to expand sustainable agricultural
all conversion of primary forest to practices to 40% of cropland by 2050,
agricultural land by 2025 and scale up and to slow the rise in demand for
forest restoration to 250,000 hectares land for food production by boosting
(ha) per year by 2040, to reach 48.2 agricultural productivity and reducing
million ha of secondary forest in 2060. food loss and waste. The latter is
Peatland restoration would be scaled a serious and growing problem in
up to 90,000 ha per year in 2030, Indonesia, with daily losses equivalent
rising to 650,000 ha per year in 2038 to about 618–989 kcal per person,
in NZ2045 (or nearly 400,000 ha in enough to feed 29–47% of the entire
NZ2050 and NZ2060). Mangrove population.
Waste management and industry
Reducing food loss and waste would Lastly, the net-zero scenarios seek
also help reduce GHG emissions from to improve the efficiency of industrial
solid waste management. The RPJMN processes and product use (IPPU),
2020–2024 focused on ensuring proper with the goal of reducing the emissions
management of waste, and Vision intensity of IPPU by a third by the net-
2045 also prioritizes circular economy zero target year. Though the resulting
strategies, which a recent Bappenas emission reductions would amount to
report showed have many benefits. The only 2% of the cumulative abatement
net-zero scenarios aim to reduce waste achieved by the net-zero scenarios,
generation per capita by 70% from these efforts can help Indonesia
Photo by Science in HD via Unsplash
2020 levels by the respective net-zero enhance its manufacturing productivity

target year. On the same timeline, they and create new jobs.
aim to increase industrial wastewater
recycling, to reach 100%.
Addressing key challenges
to achieving net-zero
Committing to achieve net-zero Along with sector-specific measures,

by 2060 at the latest would bring recommendations emerging from this analysis include:
many benefits to Indonesia—the
• Commit to a vision of a • Immediately review priority projects
earlier the target date, the better.
decarbonized, climate-resilient, and other major expenditures
But it will not be easy. It will require
sustainable and inclusive included in COVID-19 recovery
major new policies, changes
Indonesia as the foundation for and in budget allocations linked
in investment priorities, and
“building back better” after the to medium- and long-term
strong collaboration across the
pandemic, with a net-zero target development strategies, and adjust
government and with international
consistent with the urgency of the as needed to ensure that they are
partners and the private sector.
climate crisis. aligned with Indonesia’s vision for
Line ministries with very different
net-zero.
perspectives will need to embrace • Prioritize dialogue across
a common vision and, in some government ministries, and • Seize the immediate opportunities
cases, make substantial changes across levels of government created by international “green
to programs and policies. (central, regional and local), to recovery” funds through the ADB,
ensure a common understanding the World Bank, and other bilateral
Powerful business interests facing of the net-zero vision and its or multilateral donors to finance
higher costs and/or reduced implications for public policy and projects to help jump-start key
demand for their products can be investments. aspects green and low-carbon
expected to push back. Citizens development.
may also resist policies that affect • Significantly advance the process
their livelihoods and increase costs of institutionalizing the LCDI, • Work with development partners
of living. Significant efforts will including empowering, resourcing to align international finance with
thus be needed to ensure a just and strengthening the capabilities Indonesia’s net-zero vision and
and equitable transition. of the LCDI Secretariat, as complement domestic public and
the agency that coordinates private finance for LCDI investment
The COVID-19 crisis has taken implementation of the low-carbon, needs.
a significant toll on Indonesia’s green development agenda at
• Assess technical capacity and
economy and on government both the national and subnational
resource gaps in key ministries and
resources. Unless a net-zero vision levels.
other national institutions engaged
is integrated into ongoing recovery
• Engage stakeholders—including in LCDI implementation, prioritize
efforts, Indonesia could lack the
domestic and international closing those gaps, and build
fiscal space for ambitious climate
businesses, finance sector leaders capacity for LCDI implementation
action—and new investments will
and civil society—from the outset at the subnational level as well,
be needed in any case. There are
in the process of translating the including provincial governments
real capacity gaps as well that will
net-zero vision into plans. and major cities.
need to be addressed to enable
Indonesia’s institutions to manage
the transition in their respective Indonesia has made great strides through the LCDI, and even amid the COVID-19
sectors. Additional expertise will crisis, it has continued to look for opportunities to raise its ambitions. Now is the time
be needed in different ministries, to set the country onto a better growth path, starting with a green recovery from the
along with reliable data to inform pandemic. By embracing a net-zero target, Indonesia can build a more competitive,
policy-making, technical capacity- sustainable and inclusive economy, secure its natural capital, and ensure a more
building, and enhanced resources. prosperous and resilient future for its people.
Investment needs and
finance options
Transforming Indonesia’s economy fossil fuel subsidies, and the carbon

to achieve net-zero will require shifts price, which would generate savings
in existing investments as well as and new revenue, respectively, rising
new financing. The costs of the LCDI to the equivalent of 2.2% of GDP in
pathways would start at around US$20 2030 (the peak year) before tapering
billion per year in 2021–2022 and off as fossil fuels are phased out of the
average US$150–200 billion per year in economy. Some of that revenue will be
2021–2030 (that is 3.4–4.5% of GDP for needed for social protection programs
the period). and other investments to ensure a
just transition, but the balance could
Those figures would represent a finance green infrastructure.
significant increase in low-carbon
investment, but only about 10% of total Indonesia’s successful efforts to
projected investment in Indonesia in restore and protect forests, peatlands
2021–2030. Moreover, especially in and mangroves, meanwhile, and
clean energy, which accounts for 57% the very ambitious commitments in
of costs in 2021–2030 and about 75% the net-zero scenarios, could attract
thereafter, those investments would significant finance from REDD+ and
replace large investments in fossil fuel from major bilateral and multilateral
technologies. Still, to ensure a smooth, donors focused on land use emissions.
but rapid transition, additional financing These projects could also be prime
support will be critical, especially in the candidates for carbon markets, and
first decade of implementation. so could sustainable agriculture
initiatives.
While today, most of those costs are
shouldered by the government—for All this would still leave large financing
instance, building power plants— gaps, for which other sources of
renewable energy and other green international finance may be needed.
technologies already attract substantial Targeted “green recovery” funds set
private investment worldwide. With up by the Asian Development Bank,
appropriate regulatory reforms, as the World Bank and others could help
well as de-risking measures such as jump-start key projects. As President
guarantees, joint operations and public- Widodo has stressed, developed
private partnerships, Indonesia could countries also urgently need to scale
unlock significant new private finance up climate finance, to meet their
flows, especially in the late 2020s and commitment to mobilize US$100 billion
early 2030s, when investment needs per year for developing countries.
peak. Indonesia will also have to work
closely with its development partners,
Two strategies in the net-zero scenarios including bilateral donors and
would directly contribute to domestic multilateral banks, to realign finance
sources of finance: the phase-out of flows to advance the net-zero agenda.
1.
A bold vision
for Indonesia’s
post-COVID future
Photo by Tom Fisk via Pexels
When President Joko Widodo signed Indonesia’s economy was also hit hard: and make Indonesia’s economy
Presidential Decree No. 18/2020 in in December 2019, Indonesia’s central more robust, resilient, inclusive and
January 2020, officially adopting the bank (BI) had projected upwards sustainable. A green recovery from
National Medium-Term Development of 5.5% GDP growth for 2020,7 but COVID-19 is a key first step.
Plan (RPJMN) 2020–2024, he made economic output actually shrank
history: for the first time ever, Indonesia by 2.1%.8 Before the latest spike in Section 1 begins by delving deeper into
embraced a vision for a low-carbon, COVID-19, a relatively good recovery the global and national impacts of the
green, climate-resilient pathway to was expected in 2021, with projected pandemic, including how Indonesia
prosperity.1 GDP growth of 4.5–4.8%, though the has responded and how COVID and
level of real GDP even in 2025 was stimulus measures could affect the
The five-year plan took Indonesia’s still expected to be 5% lower than had achievement of the goals of the RPJMN
ambitions to new heights, including 41 been projected before the pandemic.9 2020–2024 and their underlying
priority projects over the period, worth Unemployment rose from 4.94% in vision. Next it reviews how national
Rp. 7.4 quadrillion (US$540 billion or February 2020, to 7.07% in August leaders and experts around the world
10% of the country’s GDP during the 2020; by February 2021, it was still have proposed to “build back better”
period)2 to boost economic growth 6.26%.10 And the poverty rate, which through green recovery investments,
to 6% per year, build human capital, had dropped into the single digits only why embracing such a strategy makes
promote inclusion and sustainability, in 2018, and reached a historic low of sense for Indonesia, and what it might
and put the country on a path to 9.22% in September 2019, rose back to mean in practice.
achieving high-income status by 2045, 10.19% in September 2020.
the centennial of its independence—all Section 2 presents new economic
built on green development strategies.3 The choices that Indonesia makes modeling of the implications for
as it emerges from the COVID crisis Indonesia’s development goals—and
On 2 March 2020, Indonesia confirmed are profoundly consequential. This for specific sectors—of embracing a
its first two COVID-19 cases, in West report, prepared for the Low Carbon pathway to net-zero greenhouse gas
Java.4 Within 40 days, the virus had Development Initiative (LCDI) as (GHG) emissions by 2045, 2050 or
spread to all 34 provinces. Within mandated by the Indonesia Vision 2045 2060. The scenario analysis includes
six months, Indonesia had 111,450 report and Indonesia National Mid-Term emission trajectories, GDP growth
confirmed cases and 5,382 fatalities.5 Development Plan (RPJMN) 2020–2024, projections, key policies needed, and
As of 21 September 2021, the numbers explores how embracing a path to net- the broader economic, social and
had risen to nearly 4.2 million and over zero emissions by mid-century could environmental benefits of implementing
140,000, respectively.6 accelerate growth, boost employment, such policies.
1
Candra, 2020, “Presiden Teken Perpres Tentang RPJMN 2020–2024,” Republika.
2
This report presents information and modeling results in both Indonesian rupiah and U.S. dollars. In the modeling, a fixed exchange rate of Rp. 14,550 per US$1 is used,
and for simplicity, that same exchange rate is applied throughout the text, even though actual exchange rates have, of course, fluctuated.
3
Bappenas, 2019, “2020–2024 National Medium-Term Development Plan (Rencana Pembangunan Jangka Menengah Nasional 2020–2024).”
4
Gorbiano, 2020, “BREAKING: Jokowi Announces Indonesia’s First Two Confirmed COVID-19 Cases,” The Jakarta Post.
5
Aisyah et al., 2020, “A Spatial-Temporal Description of the SARS-CoV-2 Infections in Indonesia during the First Six Months of Outbreak,” PLOS ONE.
6
See Johns Hopkins University COVID-19 Dashboard: https://coronavirus.jhu.edu/map.html.
7
Bank Indonesia, 2020, “Laporan Perekonomian Indonesia Tahun 2019 (Indonesia Economic Report 2019).”
8
IMF, 2021, “World Economic Outlook: Managing Divergent Recoveries.”
9
The 4.5% projection, published in April, is from ADB, 2021, Asian Development Outlook 2021: Financing a Green and Inclusive Recovery. The 4.8% projection, published
in March, and the comparison to pre-pandemic estimates are from IMF, 2021, “Indonesia 2020 Article IV Consultation–Press Release, Staff Report, and Statement by the
Executive Director for Indonesia.”
10
Official unemployment ratios do not reflect the significant reduction in labor utilization as a result of the pandemic. Empirical work that supports LCDI indicates that
the average number of hours worked per employed person dropped by 21% in 2020 and by 19.3% in 2021.
Section 3 examines the cost of in key sectors, in line with net-zero concludes with a discussion of the
achieving net-zero, including pathways, focusing on carbon pricing, main challenges in adopting a net-zero
incremental investment needs, as energy systems, industrial processes pathway in Indonesia, particularly in the
well as their potential fiscal impacts and product use, food loss and waste, context of COVID-19, as well as policy
and potential sources of private and and forest, peatland and mangrove recommendations to address those
international finance. restoration. It draws on international challenges.
evidence, sectoral studies, and country-
Section 4 looks more closely at the specific analyses to gauge the feasibility
actions needed to reduce emissions of the policies proposed. Section 5
1.1 The economic impacts of COVID-19
The COVID-19 pandemic took an 229 million confirmed cases worldwide have already recovered from COVID-
immediate and dramatic toll on the as of 21 September 2021, and 4.7 related losses, the poor may need 10
global economy, shutting down entire million deaths.12 Health care systems years to get back to pre-pandemic
sectors, disrupting travel and trade, and in many countries were overwhelmed, conditions.15
forcing billions of people to stay home, forcing repeated economic shutdowns
often with no means of earning income and extended restrictions. In October Around the world, the International
while locked down, or even of securing 2020, amid widespread job losses and Labour Organization (ILO) estimates
enough food. deepening hunger in many countries, that 8.8% of working hours were lost
the World Bank projected that 88–115 in 2020, compared with fourth-quarter
By April 2020, the International million people could fall back into 2019 employment levels.16 This is
Monetary Fund (IMF) reported that the extreme poverty due to the pandemic equivalent to 255 million full-time jobs,
pandemic was “inflicting high and rising in 2020, and another 23–35 million in and about four times greater than
human costs worldwide,” and projected 2021, reversing many years of hard-won during the 2009 global financial crisis.
a sharp global economic contraction gains in poverty reduction.13 This translated into US$3.7 trillion in lost
in 2020—3%, much worse than during job income, or 4.4% of global 2019 GDP.
the 2008–2009 financial crisis.11 In an The World Bank also warned of rising Lower-skilled workers, women and
optimistic baseline scenario, assuming inequality, as those with the least younger people were disproportionately
COVID-19 would fade in the second resources, such as informal workers, affected by job losses.17
half of 2020 and policy support would migrant laborers, refugees, and poor
help normalize economic activity, the and marginalized communities were Successful pandemic abatement
IMF projected global economic growth disproportionately harmed.14 In January efforts in some countries, coupled with
of 5.8% in 2021. 2021, Oxfam warned that inequality extraordinary levels of policy support to
“risks being supercharged,” citing a aid vulnerable sectors and populations
Yet the pandemic persisted. Case survey of economists in 79 countries and stimulate growth, kept the global
counts continued to soar, exceeding and noting that while the wealthiest economic contraction in 2020 to 3.3%,
12
See Johns Hopkins University COVID-19 Dashboard: https://coronavirus.jhu.edu/map.html.
13
World Bank, 2020, Poverty and Shared Prosperity 2020: Reversals of Fortune.
14
World Bank, 2020, Poverty and Shared Prosperity 2020: Reversals of Fortune.
15
Berkhout et al., 2021, “The Inequality Virus: Bringing Together a World Torn Apart by Coronavirus through a Fair, Just and Sustainable Economy.”
16
ILO, 2021, “ILO Monitor: COVID-19 and the World of Work. Seventh Edition – Updated Estimates and Analysis.”
17
Photo by ILO/F. Latief via Flickr
though with large differences among Major investments in social
Photo by Viki Mohamad via Unsplash

countries.18 Among the ASEAN-5, safety-net programs, health care,
for instance, Vietnam did best, with and economic stimulus have
2.9% growth, and Indonesia ranked helped mitigate the pandemic’s
second with its 2.1% contraction, while socio-economic impact. Still,
Malaysia, Thailand, and the Philippines unemployment and poverty rates
saw their GDP shrink by 5.6%, 6.1%, and remain elevated and are likely to
9.5%, respectively. Projections for 2021 rise with this latest spike in the
and even 2022 are deeply uncertain, pandemic. This calls into question
hinging to a great extent on the success whether Indonesia can still achieve
of COVID-19 vaccination efforts. the RPJMN’s goal of bringing the
poverty count down to 18.34–19.75
Indonesia is still grappling with the million, or 6–7% of the population,
pandemic, with daily case counts by 2024. GDP, which plunged to
dropping sharply over time, but then 5.32% below 2019 levels in the
rising again starting in June 2021 to second quarter of 2020, had been
reach “worst-case scenario” levels rebounding, and was just 0.74%
by 15 July, when nearly 57,000 cases below 2020 levels in the first
were recorded.19 The government has quarter of 2021.21 But the setback
ambitious goals for mass vaccination, was enough for Indonesia to be
Photo by ILO/F. Latief via Flickr
and as of 21 September, 125.8 million reclassified by the World Bank as a

vaccine doses had been administered, lower-middle-income country.22
immunizing about 23.2% of the
population.20
18
The “worst-case scenario” assessment was given by Coordinating Minister for Maritime Affairs and Investment Luhut Pandjaitan. See Suroyo and
19
Widianto, 2021, “Grappling with ‘Worst-Case Scenario’, Indonesia Faces More COVID-19 Pain,” Reuters. Daily case counts have declined since then,
but they were still well above 40,000 as of 27 July 2021. See Reuters’ Indonesia COVID-19 data dashboard:
https://graphics.reuters.com/world-coronavirus-tracker-and-maps/countries-and-territories/indonesia/.
20
See Johns Hopkins University COVID-19 Dashboard: https://coronavirus.jhu.edu/map.html and Reuters’ Indonesia COVID-19 data dashboard:
https://graphics.reuters.com/world-coronavirus-tracker-and-maps/countries-and-territories/indonesia/.
21
BPS, 2021, “Berita Resmi Statistik– 5 Mei 2021 (Official Statistics News– 5 May 2021).”
22
Hamadeh, van Rompaey, and Metreau, 2021, “New World Bank Country Classifications by Income Level: 2021–2022,” World Bank Data Blog.
1.2 Indonesia’s COVID-19 response
and the RPJMN
Even before COVID-19 became These are massive investments, and

widespread across the country, to the extent that they directly helped
Indonesia’s economy began to falter keep Indonesians healthy, safe, and fed,
from ripple effects of the global their value is indisputable. However,
pandemic. With global trade severely Energy Policy Tracker estimates
disrupted, and international travel that since the start of the pandemic,
halted, business and tax revenue began US$6.54 billion in support for fossil fuel
to drop rapidly. Oil and gas companies energy had been approved, compared
were particularly hard-hit, their tax with US$240 million for clean energy.27
contributions down 29% in the first This could undermine Indonesia’s vision
quarter of 2020, while payments from for a low-carbon, resilient future and the
non-oil and gas firms dropped by 3%.23 goals of the RPJMN.
On 31 March 2020, President Widodo Vivid Economics’ Greenness of

signed the Government Regulation in Stimulus Index, which rates the stimulus
Lieu of Law (Perpu) on State Financial packages of the G20 economies
Policy and Financial System Stability, plus the Nordic countries, Colombia,
authorizing three years of increased Switzerland, Spain, Singapore, and
deficit spending, starting with Rp. the Philippines, ranks Indonesia near
405.1 trillion (US$2.8 billion, or 0.3% the bottom of the pack, noting that it
of GDP in 2021) for health care, social is “pushing environmentally damaging
protection, tax breaks, business outcomes, by supporting high-carbon
loans, and a new National Economic industry and energy, and unsustainable
Recovery Program (PEN).24 Days later, agriculture that destroys biodiverse
the government raised US$4.3 billion habitats.”28
(0.4% of GDP) in the first of several
“‘pandemic bonds” to finance COVID The Vivid analysis notes that
response.25 while Indonesia is making green
investments—such as subsidies for
By the year’s end, Indonesia had spent rooftop solar and measures to boost
Rp. 579.8 trillion (US$39.8 billion, or renewable energy production—
3.7% of GDP) in stimulus and another they are eclipsed by high-carbon
Rp. 744 trillion (US$52.3 billion, 4.6% of investments, such as support for
GDP) was budgeted for 2021, of which “polluting, state-owned enterprises
53% had been spent by 17 September.26 in the energy, industry and transport
23
Suroyo and Diela, 2020, “UPDATE 1-Indonesia to Expand Tax Breaks to More Sectors to Prevent ‘Bankruptcies,’” Reuters.
24
Cabinet Secretariat, 2020, “Press Statement of President of the Republic of Indonesia on Government Regulation in Lieu of Law (Perppu) on State Finance Policy and
Financial System Stability”; 2020, “Gov’t Issues Fiscal Policy Regulation Amidst COVID-19 Outbreak”; 2020, “President Jokowi Signs Perppu on State Finance Policy,
Financial System Stability to Combat COVID-19.”
25
Murdoch, 2020, “Indonesia Raises $4.3 Bln in First ‘Pandemic Bond,’” Reuters.
Yustina, 2021, “Reviving Investment to Accelerate Economic Recovery,” The Jakarta Post; CNN Indonesia, 2021. “Dana PEN Baru Terserap 53 Persen per 17 September
26
2021.” CNN Indonesia.

27
See https://www.energypolicytracker.org/country/indonesia (updated 11 August 2021).
Vivid Economics, 2021, “Greenness of Stimulus Index: An Assessment of COVID-19 Stimulus by G20 Countries and Other Major Economies in Relation to Climate
28
Action and Biodiversity Goals (February 2021 Release).”
sectors.” Furthermore, Vivid notes, ability to meet its Nationally Determined
energy subsidies will lower the cost of Contribution (NDC) under the Paris
electricity (84% of which came from Agreement.30 They also worried that
fossil fuels as of 2019)29 and the price weakening regulations would hamper
of industrial gas. the existing progress in environmental
protection and restoration efforts, which
The Vivid analysis also highlights pose significant risks to their portfolios
the Omnibus Bill on Job Creation, and the economic and social health of
approved by Parliament in the country. Several other institutions
October 2020, which amends within Indonesia and globally, including
dozens of existing laws, including Moody’s Investors Service and the IMF,
recentralizing land use and business have expressed similar views.31 This
permitting, relaxing requirements means that the Omnibus Bill’s approach
on environmental assessments, and to attracting capital could potentially
reducing protections for workers. It discourage some investors instead.
was framed as an effort to promote
investment in Indonesia by making it
easier to do business, but Vivid notes A key question for Indonesia now
that critics have warned of “potentially is, does the current set of stimulus
far-reaching negative consequences investments and policies align with the
for nature and climate alike.” RPJMN 2020–2024, and with the long-
Photo by Nanang Sujana/CIFOR via Flickr

term vision for a low-carbon, resilient,
A group of major investors has raised and inclusive Indonesia that underpins
the same concern, warning that the the five-year plan?
new law could hinder Indonesia’s
In laying out its development agenda, the RPJMN 2020–2024 highlighted

the urgency of action through examples of where Indonesia is headed:
Forest cover Water scarcity on the islands The ideal habitat

is projected to of Java, Bali, and Nusa Tenggara area for endangered
decrease is set to increase, with the share species in Sumatra,
of the country facing a water Java, Kalimantan, and
from crisis expected to grow Sulawesi is set to shrink
50% from from

of Indonesia’s land
(93.4 million ha) 6.0%
in 2000
80.3%
in 2000
in 2017
Photo by Ryan Woo/CIFOR via Flickr
to only to to
45% 9.6% 49.7%

of Indonesia’s land in 2045 in 2045
(84.7 million ha)
Water quality is also expected
in 2045 to decline significantly
29
See International Energy Agency data: https://www.iea.org/countries/indonesia.
30
Green Century, 2020, “Open Letter on the Omnibus Bill on Job Creation.”
31
Jong, 2020, “Indonesia’s Omnibus Law a ‘Major Problem’ for Environmental Protection,” Mongabay.
Photo by Moses Ceaser/CIFOR via Flickr
The restoration of forests, peatlands, pollution;33 coastal peatland subsidence energy generation as solutions.35 Yet,
and mangroves—all major carbon is also causing an estimated 5 cm despite investments in renewables, the
sinks and providers of a wealth of of subsidence per year nationwide, stimulus package promotes greater
ecosystem services—is Indonesia’s exacerbating what are already major fossil fuel use.
greatest opportunity to use its status as flood risks.34 Making it easier to convert
a “carbon superpower” to advance its land in order to attract investors could It is also crucial to consider how the
development goals. Healthy forests are thus cost Indonesia far more than any 89 priority infrastructure projects
also key to supporting rural livelihoods, near-term economic stimulus it yields. announced in June 2020, valued at an
ensuring food security, providing estimated Rp. 1.422 quadrillion (US$98.14
clean water and hydroelectric power Indonesia has also recognized the perils billion), fit with Indonesia’s long-term
generation, and preventing disasters. of fossil fuel dependency—both from vision. President Widodo has described
This is why the government has set out a climate perspective, and because them as building “civilization”:36 major
to stop forest loss and created what fossil fuel markets are so volatile, as the railway projects, roads, bridges, dams,
is now the Peatland and Mangrove world was reminded amid the COVID irrigation systems, projects, water and
Restoration Agency.32 crisis. This is why President Widodo, energy supply infrastructure, seaports
addressing the National Development and airports, industrial zones, and
The stakes are very high for Indonesia’s Planning Conference (Musrenbangnas) more.37 Much of this work could be
ability to meet its Paris commitments: in April 2020, said the country “must transformational, but without due care,
The 2015 peatland fires alone, for devise strategies to reduce dependence much of it could also drive up fossil fuel
example, emitted an estimated 1.75 on fossil energy,” pointing to bioenergy, use, accelerate land conversion, and
Gt CO2e and sharply increased air battery technologies and renewable deepen socio-economic inequalities.
32
Jong, 2021, “Indonesia Renews Peat Restoration Bid to Include Mangroves, but Hurdles Abound,” Mongabay.
33
See Global Fire Emissions Database: http://www.globalfiredata.org/updates.html#2015 indonesia. It is important to note that there is “substantial uncertainty” about
this estimate, but it is provided as an indication of the severity of the fires.
34
Bappenas, 2019, “Low Carbon Development: A Paradigm Shift Towards a Green Economy in Indonesia.”
35
Cabinet Secretariat, 2020, “Musrenbangnas Must Be Adaptive to Current Situation, President Jokowi Says.”
36
Cabinet Secretariat, 2021, “President Jokowi: Infrastructure Development to Build Civilization, Increase Competitiveness.”
37
Mufti, 2020, “Indonesia to Develop 89 New ‘Strategic’ Projects in 2020–2024,” The Jakarta Post.
Box 1.
The RPJMN 2020–2024: First steps towards transforming Indonesia
The RPJMN 2020–2024, the last Targets for 2024 Due to the COVID-19 pandemic,
phase of the National Long-Term for these priorities are: the national priority targets
Development Plan (RPJPN), 2005– for 2024 under the RPJMN have
2024, aims to achieve prosperous, Increasing the Environmental
been updated in the Bappenas
fair, and sustainable development Quality Index (IKLH) score
from 66.56 in 2019 to at least 75
Government Workplan for 2021
by 2024. It prioritizes accelerating
out of 100, which requires that
(Perpres No. 86, 2020):
the development of human capital,
improving infrastructure and the Water Quality Index (IKA)
The target score for the
connectivity, simplifying regulations increases from 47.0 in 2019 to
Environmental Quality Index
and bureaucracy, and promoting 55.50; the Seawater Quality
has now been reduced from 75
economic transformation. It also Index (IKAL) reaches 60.50; the
to 69.74.
includes GHG emission reduction Air Quality Index improves from
as a key macro-economic indicator 86.8 to 84.5; and the Land Cover
Quality and Peat Ecosystem Reductions for disaster-related
alongside GDP growth, poverty
Index (IKL) rises from 60.6 to GDP loss targets have dropped
reduction and employment.
65.5.39 from 1.25% of GDP to 1.15%.
Recent projections estimate
To close the infrastructure gap, the plan
losses of 0.1% of GDP by 2024
calls for US$450 billion in infrastructure Improving disaster and climate
due to increased seismic
investments. Forty-one Major Projects resilience, so that GDP loss as
activity in 2020, in addition to
are outlined with clear targets and a result of disaster and climate
the impact of the pandemic.42
implementing agencies, which impacts decreases by 1.25% of
involve ministries, institutions, local GDP compared to 2018 losses.
The GHG emission reduction
governments, state-owned enterprises,
target has dropped to 26.35%
and community and business entities. Pursuing low-carbon
under BAU by 2024. However,
development, so that GHG
a more ambitious emission
Though the RPJMN 2020–2024 is the emissions are reduced across
intensity reduction target has
first five-year plan to incorporate the various sectors from 22.6% under
been set, at 29.91% below BAU
vision of the Low Carbon Development business as usual (BAU)40 in 2019
by 2024.
Initiative (LCDI), it does not yet seek to 27.3% under BAU, consistent
to fundamentally change Indonesia’s with Indonesia’s unconditional
trajectory but starts by accelerating NDC emission reduction target.41
progress towards key goals.38 To this The GHG emissions intensity of
end, it outlines a detailed agenda the economy would be reduced
on improving environmental quality, from 22.8% under BAU in 2019 to
boosting resilience to disasters and 24% under BAU.
climate change, and promoting low-
carbon development.
38
ADB, 2020, Indonesia: Country Partnership Strategy (2020–2024).
39
All environmental quality index scales were developed by the Government of Indonesia, with values ranging from 0 to 100 (100 being the best), except the air quality
index, developed by the EU, in which 100 represents the worst quality and 0 the best. See https://www.menlhk.go.id/site/post/124.
40
Baseline is derived from the Plan for Greenhouse Gas Emissions Reductions (RAN-RAD GRK 2010–2014). Bappenas, 2012, “Laporan Satu Tahun Pelaksanaan RAN-
GRK RAD-GRK.Pdf.” Emissions reductions had exceeded annual targets in 2019.
41
Republic of Indonesia, 2016, “First Nationally Determined Contribution.”
42
Astutik, 2021, “Jangan Remehkan! Luhut: PDB Tergerus 0,10% Akibat Bencana,” CNBC Indonesia.
Photo by Dominik Vanyi via Unsplash
Photo by Arya Manggala via Flickr
1.3 Why Indonesia must build back better
Indonesia has experienced many 2021, a report by the insurer Swiss Re the global average, 4.0% by mid-
disasters over the decades, so showed that if countries meet their century, but at 2.0–2.6°C, the losses
Indonesians understand a core current NDC commitments under the would rise to 16.7–30.2%, and at 3.2°C,
principle of disaster recovery very Paris Agreement, the world could still they would reach 39.5%.45
well: build back better. If a typhoon be 2.0–2.6°C warmer by mid-century,
has wiped out a village, an earthquake relative to pre-industrial levels.43 The The combination of potential GDP
crumbled a bridge, or flash floods resulting climate change impacts would impact, risks from slow-onset climate
ruined vital infrastructure, it is not reduce global GDP by 11–14%. change impacts and extreme events,
good enough to rebuild them as they and adaptive capacity resulted in
were—they have already proven to be Even if the Paris targets are met, Indonesia being ranked the most
inadequate. They must be replaced with climate impacts from past emissions vulnerable among 48 countries
something more resilient. would still reduce global GDP by about analyzed (Malaysia, the Philippines,
4% relative to a world with no further India, and Thailand rounded out the top
The COVID-19 crisis has shown how climate change, the report notes. If, on five). The report noted:
fragile countries’ economies and social the other hand, climate action stalls—a “Indonesia is exposed to the full gamut
structures are, and how quickly many real risk as many countries alter their of physical risks emanating from
years of development progress can be plans due to COVID—global warming climate change effects, including sea
unraveled. Recognizing that climate could reach 3.2°C, and the resulting level rise. Both dry and wet weather
change poses equally serious or impacts would shrink global GDP by extremes could impact agriculture
worse threats, many political leaders, 18%.44 yields, and heat stress may weigh on
economists, scientists and advocates labour productivity. More extreme
have called for pandemic recovery Whichever path the world takes, weather conditions will also take their
policies to also build back better, both members of the Association of toll on the tourism sector. The level
to mitigate climate risks, and to ensure Southeast Asian Nations (ASEAN) have of adaptive capacity is among the
that societies are more resilient to the most at stake, the analysis found, lowest of the sample countries, adding
whatever shocks come their way. with potential GDP losses of 37.4% to Indonesia’s vulnerability to climate
with 3.2°C of warming. In Indonesia, if change.”46
Warnings of the threats posed by warming is kept well below 2°C, GDP
climate change keep mounting. In April losses are projected to be on par with
43
Swiss Re Institute, 2021, “The Economics of Climate Change: No Action Is Not an Option.”
44
45
46
Swiss Re Institute, 2021, “The Economics of Climate Change: No Action Is Not an Option.” p. 19.
ASEAN countries increasingly US$1 million spent on renewable energy seven priority areas for green recovery
recognize the urgency of climate creates an average of 7.5 full-time jobs, investments with strong job creation
action, and the ASEAN Comprehensive and in energy efficiency, 7.7, while the potential—double to nearly 10 times
Recovery Framework for COVID-19 same investment in fossil fuels would as much as equivalent fossil fuel or
identifies “advancing towards a more produce only 2.7 jobs. Likewise, the “gray infrastructure” investments—as
sustainable and more resilient future” ADB noted, investing in nature-based well as long-term economic benefits:
as its key goal, noting that a return to solutions can provide a “job-intense green construction and retrofits, clean
business as usual may no longer be economic and resilient recovery” and mobility, renewable energy, active
an option.47 The framework thus calls also help advance the Sustainable transport, nature-based solutions,
for “achieving sustainability in ASEAN Development Goals (SDGs). circular-economy approaches to waste,
in all dimensions” Specific measures and research and development for
include facilitating the energy transition; An analysis by the International clean technology.55
investing in sustainable transportation; Finance Corporation found that in 21
building “smart green cities”; promoting emerging markets, including Indonesia, Targeted international funding is
sustainable and responsible investment a green recovery has the potential to available to support a green recovery.
in food, agriculture and forestry; and generate US$10.2 trillion in investment In March 2021, the ADB announced
strengthening disaster risk reduction opportunities and 213 million jobs— that US$300 million had been allocated
and management, among others.48 and also reduce emissions by 4 billion from the Green Climate Fund for
tonnes of carbon dioxide equivalent the ASEAN Catalytic Green Finance
Yet climate resilience is only one of (Gt CO2e) by 2030.51 A global survey of Facility Green Recovery Program.56
multiple benefits of a green recovery. experts, including senior officials from It aims to catalyze financing from
In a brief urging Southeast Asian finance ministries and central banks development partners and private
nations to adopt green stimulus found that green projects are widely sources for more than US$4 billion
policies, the Asian Development Bank perceived to be capable of creating worth of green infrastructure projects,
(ADB) also noted the strong links more jobs,52 delivering higher short- with priority given to projects in
between the environment and public term returns, and increasing long-term Indonesia, Cambodia, Lao PDR and the
health, the need to boost the region’s cost savings more than traditional Philippines. There are other funding
competitiveness in a global market fiscal stimulus.53 Economic analyses sources as well, such as the Climate
that increasingly demands green have reinforced that message for the Support Facility launched by the
practices and products, and the much- United States, the United Kingdom, World Bank in December 2020, with
greater job creation potential of green the European Union, Japan and other US$52 million provided by Germany,
investments.49 countries.54 the UK, and Austria.57 This is a prime
opportunity.
The ADB brief cited a peer-reviewed Within cities in particular, the Coalition
global analysis50 showing that every for Urban Transitions has identified
47
ASEAN, 2020, “ASEAN Comprehensive Recovery Framework.”
48
ASEAN, 2020, “ASEAN Comprehensive Recovery Framework Implementation Plan.”
49
Lim, Ng, and Zara, 2021, “Implementing a Green Recovery in Southeast Asia.”
Garrett-Peltier, 2017, “Green versus Brown: Comparing the Employment Impacts of Energy Efficiency, Renewable Energy, and Fossil Fuels Using an Input-Output
50
Model,” Economic Modelling.

51
IFC, 2021, “Ctrl-Alt-Delete: A Green Reboot for Emerging Markets.”
52
Hepburn et al., 2020, “Will COVID-19 Fiscal Recovery Packages Accelerate or Retard Progress on Climate Change?,” Oxford Review of Economic Policy.
53
Pollitt, 2020, “Assessment of Green Recovery Plans after COVID-19.”
54
See, e.g., Gunn-Wright et al., 2020, “A Green Recovery: The Case for Climate-Forward Stimulus Policies in America’s COVID-19 Recession Response”; Pollitt, 2020,
“Assessment of Green Recovery Plans after COVID-19”; CISL, 2020, “Maximising the Benefits: Economic, Employment and Emissions Impacts of a Green Recovery Plan
in Europe.”
55
Gulati et al., 2020, “The Economic Case for Greening the Global Recovery through Cities: 7 Priorities for National Governments.”
ADB, 2021, “$300 Million from Green Climate Fund to Support ADB’s First Green Recovery Program in Southeast Asia,” Asian Development Bank – News Releases,
56
300.
57
World Bank, 2020, “The Climate Support Facility.”
1.4 Green stimulus measures and climate ambition
around the world
Many countries have already prematurely stranded. The Glasgow in 2020, they collectively announced
adopted net-zero targets, recognizing Financial Alliance for Net-Zero brings US$17 trillion in new spending to
that ambitious climate action can together over 160 firms, together address the crisis—US$14.6 trillion
deliver better and stronger growth. responsible for assets in excess of excluding European Commission funds
As of September 2021, 52 parties $70 trillion, from the leading net-zero not yet allocated to a Member State.
representing 63 countries and initiatives across the financial system Of the latter, US$11.1 trillion went to
54.2% of global GHG emissions had to accelerate the transition to net-zero immediate rescue efforts, and US$1.9
communicated net-zero targets, either emissions by 2050 at the latest, with trillion to long-term recovery (the rest
through laws or public policies, or in many more rapidly joining.60 was deemed “unclear”).
political pledges: from the European
Union, to Brazil, to Japan, South Korea However, governments’ investments Of the recovery investments, only
and China.58 in COVID response and recovery US$341 billion, or 18%, went to green
are not yet putting us on the path to projects, with South Korea, Spain, the
Many companies, financial institutions achieve these ambitious new targets. UK, and Germany leading the way.
and organizations have adopted COVID-related spending around the As a share of total COVID spending,
net-zero targets as well—most world has been very mixed, and in green stimulus was only 2.5%.62 The
prominently, through the United most countries, it supports the fossil report found that Indonesia (and
Nations-led Race to Zero, a global fuel-powered economy of the past fellow ASEAN members Singapore
campaign to rally leadership and more than a green recovery. A World and Vietnam) had spent less than
support from businesses, governments Resources Institute analysis found that 0.1% of GDP on recovery investments.
and investors.59 The campaign has of the stimulus measures announced As countries contain the pandemic
grown to include more than 3,000 by 66 economies in 2020, only 27% and are able to shift their focus to
businesses, 173 of the world’s top explicitly incorporated physical climate rebuilding their economies, however,
investors, more than 622 higher risk or resilience, and another 14% spending patterns may shift. There is
education institutions, and hundreds included emissions reductions.61 Only already some evidence of increased
of local, regional and national China, France, the UK and the EU green investments in more recent
governments. featured both adaptation and mitigation stimulus and recovery packages.63
elements in their stimulus packages.
The finance sector in particular is In thinking about Indonesia’s recovery,
rapidly shifting away from high-carbon Similarly, a UN and Oxford University it may be helpful to consider how other
infrastructure, as investors increasingly study of the world’s top 50 economies, countries are trying to “build back
see the risks of these assets being published in March 2021, found that better.” Box 2 provides some examples.
See Climate Watch’s Net-Zero Tracker: https://www.climatewatchdata.org/net-zero-tracker and the Energy & Climate Intelligence Unit’s “Net Zero Emissions Race”
58
website: https://eciu.net/netzerotracker.
59
See the Race to Zero website: https://unfccc.int/climate-action/race-to-zero-campaign (accessed 23 July 2021).
60
See https://unfccc.int/news/new-financial-alliance-for-net-zero-emissions-launches.
61
Krishnan and Brandon, forthcoming, “Are COVID-19 Stimulus Packages Building Climate Resilience? An Analysis of 66 Countries.”
62
O’Callaghan and Murdock, 2021, “Are We Building Back Better? Evidence from 2020 and Pathways for Inclusive Green Recovery Spending.”
63
OECD, 2021, “The OECD Green Recovery Database: Examining the Environmental Implications of COVID-19 Recovery Policies.”
Box 2.
Green recovery efforts around the world
As governments have looked beyond 659,000 jobs through investments in for 14 industries, including plans to
COVID-19 crisis response to recovery, a green transition for infrastructure, bolster renewables and hydrogen and
some have seized the opportunity to low-carbon and decentralized energy a call for auto industries to eliminate
jump-start ambitious green and low- supply, and green industries. It aims fossil-fueled vehicles by the mid-
carbon investments. Here are some to grow solar and wind capacity 2030s.70
examples: from 12.7 GW in 2019 to 42.7 GW by
2025;66 invest in smart grids;67 rebuild China has made massive investments
The European Union, which unveiled or refurbish public rental housing and in COVID-19 recovery, with about
its European Green Deal,64 a plan to schools to be energy-efficient and RMB 4.9 trillion in fiscal measures
reach carbon neutrality by 2050, just eco-friendly; build 25 smart green (about US$756 billion, or 4.7% of
before the pandemic, has specified that cities and city forests; add 1.13 million GDP), announced as of June 3, 2021,
30% of both its €750 billion recovery electric vehicles (EVs) and 200,000 fuel of which an estimated RMB 4.2 trillion
package, Next Generation EU, and the cell cars, with supporting infrastructure was implemented in 2020.71 Among
EU’s €1.074 trillion 2021–2027 budget, and to transform the economy for the highlights are about $14.2 billion
must advance climate objectives.65 the post-COVID-19 era. President for surface transportation, including
This includes investments in green Moon called the Green New Deal a national railway projects, and water
technologies, restoring natural capital preemptive response to “a desperate conservancy; about US$1.6 billion
and building resilience, as well as reality” and noted that the COVID crisis to extend a subsidy for EVs by two
support for a just transition for fossil had “reaffirmed the urgency” of climate years, about US$1.4 billion to expand
fuel-dependent regions. All loans and action.68 the country’s EV charging network
grants to Member States will also by 50%.72 The Chinese government
include “do no harm” environmental Japan, which for years had lagged also raised its wind and solar energy
safeguards. behind on climate action, pledged targets for 2020 to 240 GW each,
in late 2020 to achieve net-zero by from 210 and 110 GW, respectively,
In July 2020, South Korea President 2050 and launched a 2 trillion yen and ended 2020 with 136 GW of new
Moon Jae-in unveiled a plan for a KRW (about US$19 billion) fund to promote renewable capacity.73 In addition, a
160 trillion (US$133 billion) “K-New ecological businesses and innovation new RMB 88.5 billion (US$12 billion)
Deal” with two main pillars: the Digital to achieve its goal of zero net carbon Green Development Fund will
New Deal and Green New Deal. The emissions by 2050.69 In December 2020, invest in environmental protection,
Green New Deal, for which Korea has Japan followed up with a Green Growth pollution control, green space, energy
committed KRW 73.4 trillion (US$60.9 Strategy that aims to generate US$2 conservation, and more.74
billion) by 2025, is expected to create trillion in new investment, with targets
64
See https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal en.
65
Council of the European Union, 2020, “EU Budget 2021–2027 and Recovery Plan.”
66
J.-H. Lee and Woo, 2020, “Green New Deal Policy of South Korea: Policy Innovation for a Sustainability Transition,” Sustainability.
67
H. Lee, 2020, “Green New Deal to Reduce Economic Dependence on Carbon,” Republic of Korea – Cheong Wa Dae (blog).
68
Moon, 2020, “Keynote Address by President Moon Jae-in at Presentation of Korean New Deal Initiative,” Republic of Korea – Speeches and Remarks.
69
Yamaguchi, 2020, “Japan PM Pledges $19B to Promote Ecological Businesses,” Associated Press.
70
Yamaguchi, 2020, “Japan Adopts Green Growth Plan to Go Carbon Free by 2050,” Associated Press.
71
See the IMF “Policy Responses to COVID-19” tracker: https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19.
72
See OECD Green Recovery Database: https://www.oecd.org/coronavirus/en/themes/green-recovery#Green-recovery-database.
73
IRENA, 2021, “World Adds Record New Renewable Energy Capacity in 2020,” International Renewable Energy Agency Newsroom.
74
OECD, 2021, “The OECD Green Recovery Database: Examining the Environmental Implications of COVID-19 Recovery Policies.”
New Zealand’s COVID response As Indonesia looks to a post-
package includes a wide range of COVID future, it has a clear
measures combining socio-economic choice: It can continue business as
goals with environmental benefits: usual or even roll back progress,
from efforts to prevent food waste, as many countries have, or it
to building drought resilience among can seize this unprecedented
rural and fishing communities, to opportunity to use the COVID
support for energy retrofits for low- recovery to catalyze transformative
income households, to biodiversity and change. With Indonesia taking
conservation projects, to improving the on the G20 Presidency in 2022,
health of waterways. A 3 billion NZD a net-zero commitment can also
(about US$2.15 billion) Infrastructure demonstrate strong leadership
Investment Fund includes support on climate and inspire others to
for hydrogen vehicles and fueling raise ambition, including through
stations; 75 projects to make land more climate finance.
resilient to soil erosion, flooding, and
other extreme weather events; 76 public This is more than an environmental
transport; and walking and cycling policy choice—the actions needed
infrastructure.77 to achieve net-zero in Indonesia
would also end dependency on
Chile has boosted public investments volatile fossil fuel markets and
by US$4.5 billion, to a total of US$34 protect natural capital, securing
billion for 2020–2022.78 The government the country’s place as a “carbon
also committed itself to having 30% superpower.” Most important, as
of funded projects contribute to outlined in the next section, this
accelerating Chile’s climate transition,79 is a chance to put Indonesia on a
in line with its NDC. Sustainability- path to robust, sustainable growth,
focused projects include water built on the technologies and
management (including flood control green practices that will dominate
and drought resilience), green urban the economy of the future.
mobility, reforestation and wildfire
management, urban greening, resilient
public infrastructure, and sustainable
local development.
Woods, 2021, “Government Supports More Low Emission

75
Vehicle Options,” New Zealand Government – Press Releases.

76
Peters and Jones, 2020, “Climate Resilience Packages for
Regions,” New Zealand Government – Press Releases.
Twyford and Genter, 2020, “Auckland Transport Infrastructure
77
Revealed,” New Zealand Government – Press Releases.

78
See https://www.gob.cl/chileserecupera/.
79
See https://www.gob.cl/chileserecupera/sustentabilidad/.
2.
Decarbonizing
Indonesia:
Scenarios for
achieving net-zero
emissions
Photo by Joel Vodell via Unsplash
In 2019, the LCDI completed a scenario to meet the pact’s long-term goal of Third, the green and low-carbon
analysis to inform the RPJMN 2020– net-zero emissions by mid-century, and measures included in the RPJMN
2024.80 It showed that low-carbon adopting their own net-zero targets. 2020–2024, which matched the LCDI
development could deliver GDP growth “Moderate Scenario,” were designed
averaging 6% per year until 2045, help In July 2021, Indonesia submitted to meet Indonesia’s unconditional
accelerate poverty reduction, boost an updated NDC and a Long-Term NDC pledge, a 29% reduction in
job creation, and unlock many other Strategy (LTS) that maintain existing GHG emissions by 2030 relative to
economic, social and environmental targets to 2030, but increase ambition the baseline level,83 but not to keep
benefits. This section provides an post-2030 and in adaptation.81 The escalating ambition. As a result, GHG
update to the empirical work that country aims to reduce emissions emissions would continue to rise,
supports LCDI, reflecting significant to 540 million tonnes CO2e by 2050, from 1.8 Gt CO2e in 2030, to nearly 3.5
changes in the policy context since the continuing to decline to reach net-zero Gt CO2e by 2050. The updated NDC
RPJMN was approved. by 2060 or sooner. The targets reflect indicates a number of approaches
a number of decarbonization efforts that can help strengthen ambition
First of all, the COVID-19 pandemic already being advanced by various towards the higher end of the range
has delivered a major economic shock agencies. instead, as will be needed to achieve
that, as noted earlier, will result in net-zero emissions by 2060 or sooner.
lower-than-expected rates of economic At a virtual summit hosted by U.S.
growth relative to pre-pandemic President Biden in April 2021, President An assessment of the viability and
estimates. Total estimated GHG Widodo welcomed the new targets by impacts of higher ambition, including
emissions are expected to decrease many and reaffirmed Indonesia’s own post-2030, is thus needed. It is
accordingly, even if LCDI policies commitment to climate action, but important to identify ways to ramp
are not implemented. As a result, it noted that developing countries need up the ambition of existing measures
becomes important to generate a new credible commitments and real support as well as new interventions that
Reference Case against which LCDI from developed countries to fully realize could further reduce emissions, boost
policies can be assessed. their own climate ambitions.82 Though job creation, advance Indonesia’s
no formal pledges have been made, medium- and long-term development
Second, net-zero is becoming an as reflected in the new NDC and LTS, goals, and build resilience to climate
important topic in public policy several institutions, including Bappenas, change and other shocks.
discussions—globally, but also are already advancing efforts to identify
increasingly within Indonesia. potential net-zero pathways that are
More than five years into the Paris consistent with national development
Agreement, policy-makers, business goals. This report is part of those
leaders and advocates around the efforts.
world are thinking more about how
80
81
Republic of Indonesia, 2021, “Updated Nationally Determined Contribution”; 2021, “Indonesia Long-Term Strategy for Low Carbon and Climate Resilience 2050
(Indonesia LTS-LCCR 2050).”
82
Cabinet Secretariat, 2021, “President Jokowi Addresses Three Issues on Climate Change.”
83
2.1 The revised Reference Case and the net-zero scenarios
This section presents an updated to become a high-income country. modeling, calibrated using Indonesia-
Reference Case and three new The year 2050, meanwhile, is the most specific data, to project infection and
scenarios examining the implications widely used in national, institutional mortality rates, including the impact
of adopting more ambitious measures and corporate targets being set around of vaccinations. They also factor in
than those in the RPJMN 2020–2024 the world (see Box 1). The year 2060 the use of public resources to expand
to enable Indonesia to achieve net- is the late end of what is considered health care and social safety nets and
zero GHG emissions by 2045, 2050 or “mid-century” and has been discussed provide economic relief; the ongoing
2060.84 as a possible target in ongoing policy economic effects of the pandemic and
dialogues within Indonesia. related disruptions; and investments in
The target year 2045 is modeled medium- and long-term recovery, as
because it is the centennial of Recognizing the large and continuing well as supporting policies.85
Indonesia’s independence—and the impacts of COVID-19, all the scenarios
year by which the country has set out modeled incorporate epidemiological
2.1.1 Reference Case: The costs of inaction
The Reference Case is a scenario in We avoid the term “business as usual” “business as usual” will increasingly
which Indonesia advances no further because in reality, climate change and become infeasible.
policy efforts—beyond plans and the degradation and depletion of natural
projects already in the pipeline—to capital associated with the current The modeling reflects the economic
green its infrastructure, protect natural economic model are likely to disrupt impact of the depletion and
capital, or reduce GHG emissions by economic activities and impose large degradation of natural capital as a
improving energy efficiency, shifting new costs over the next few decades. reduction in carrying capacity—that
to clean energy sources, embracing A prime example is the severe land is, the availability of environmental
sustainable transport solutions, or subsidence in Jakarta, referred to as the goods and services to support
reducing waste. It does, however, reflect “fastest-sinking city in the world”—a economic activity.87 The LCDI scenarios
the impact of COVID-19 responses in problem caused, to a great extent, by include several variables representing
Indonesia to date, including additional wetland drainage and groundwater over- the quantity and quality of those
social protection, support to businesses, abstraction.86 Without a green recovery environmental goods and services.
and the relaxation of environmental from the pandemic and a substantive They are connected to functional forms
regulations, including through the low-carbon policy agenda that includes for output generation (GDP) via total
Omnibus Law (see Section 1.2). system-changing green interventions, factor productivity (TFP).88
84
The RPJMN 2020–2024 scenarios ran through 2050, but their presentation focused on results for 2020–2024 and for 2030, with some mentions of results in 2045 (the
centennial of Indonesia’s independence) or 2050. The new scenarios presented in this report extend to 2070, with results presented mainly for 2021–2060.
85
For a more detailed discussion of how COVID-19 was incorporated in the model, see Appendix A4.
Erkens et al., 2015, “Sinking Coastal Cities,” Proceedings of the International Association of Hydrological Sciences; Lin and Hidayat, 2018, “Jakarta, the Fastest-Sinking
86
City in the World,” BBC News.

87
In life sciences, the common definition of carrying capacity refers to the number of living organisms that can be sustained by resources available in a given system. In
the context of LCDI, the concept is applied to economic activity in line with the insights of Limits to Growth, the groundbreaking 1972 analysis. See Meadows, Randers,
and Meadows, 2004, The Limits to Growth: The 30-Year Update.
88
Total factor productivity (TFP), also known as multi-factor productivity, is a measure of the output of an economy (or industry) relative to the inputs that went into it
(such as capital and labor). If outputs are growing faster than inputs, TFP is improving; the opposite means it is declining. For a succinct explanation, see the glossary of
the Asian Productivity Organization: https://www.apo-tokyo.org/resources/p glossary/total-factor-productivity-2/.
In particular, the variables included Figure 1. GDP growth and GHG emissions in the Reference Case
are the social cost of carbon,89 the and its counterfactual, 2020–2060
effects of air pollution, habitat quality,
residential and industrial waste, and GDP growth
changes in energy prices that partly GDP growth
reflect availability of energy resources.
8.0
Incorporating these factors makes Average GDP growth rate
it possible to analyze the extent to 6.0 5.3% 2021–2050 and
3.6% 2050–2060
which failing to act on climate and 4.0
the environment imposes a burden % per year
2.0
on Indonesian society. The result is a Average GDP growth
rate 5.0% 2021–2050 and
more accurate baseline against which 0.0 2.4% 2050–2060
to evaluate the net-zero scenarios, -2.0
which also incorporate measures of
-4.0
carrying capacity.90 Appendices A1 and
A3 provide a more detailed technical -6.0
2020 2025 2030 2035 2040 2045 2050 2055 2060
discussion on the modeling.
Counterfactual Reference Case
For transparency, a second version
*The result is based on July 2021 simulation and will be updated following the recent circumstances.
of the Reference Case was also
developed that does not take into GHG emissions
account potential changes in carrying
capacity. Though implausible, that GHG emissions
counterfactual scenario shows how 7.00
conventional macroeconomic models, 6.00 5.82
including those long used in Indonesia,
can skew economic projections, 5.00
overestimating the benefits of high- 4.00 4.64

Gt CO2e
carbon growth. The two graphics

3.00
presented in Figure 1 compare
GDP growth and GHG emission 2.00
projections in the Reference Case
1.00
and its counterfactual. When carrying
capacity is taken into account, it is 0.00
2020 2025 2030 2035 2040 2045 2050 2055 2060
clear that if Indonesia does not shift
to a low-carbon, green development
Counterfactual Reference Case
pathway, it may not be able to
achieve even 5% annual GDP growth. *The result is based on July 2021 simulation and will be updated following the recent circumstances.
Notably, the slower GDP growth in the
Note: The Reference Case, which serves as the baseline scenario in the analysis in this report,
Reference Case also results in lower incorporates variables to reflect changes in carrying capacity; the counterfactual does not.
GHG emission projections. Projections are from the model results.
The social cost of carbon is the net present value of climate change damages caused by every additional tonne of CO2e emitted, including non-market impacts on the
89
environment and human health that may not be captured by other measurements.
90
Several measures included in the net-zero scenarios would repair the harm done to Indonesia’s ecosystems, and thus significantly improve their carrying capacity.
Some would also increase resilience to key climate change risks; for example, by restoring mangroves, Indonesia would help protect its coastal areas from storm surges
and from erosion linked to sea-level rise.
2.1.2 The net-zero scenarios
As noted, Indonesia has yet to commit conducted by the Ministry of

to a net-zero pathway, but discussions Energy, the Ministry of Environment
of potential pathways for different and Forestry and other agencies
sectors are already under way. The to identify the best ways to
Ministry of Environment and Forestry decarbonize their respective sectors.
(KLHK) initially outlined in early 2021 The net-zero LCDI scenarios should
a scenario for net-zero around 2070,91 thus be regarded as an inclusive
and has since been considering exercise designed to facilitate
more ambitious scenarios, including consensus on targets and avenues
reaching net-zero by 2060 or sooner. for attaining Indonesia’s climate and
Similarly, the Ministry of Energy and the development goals.
Photo by Yulia Agnis via Unsplash

State Electricity Company (PLN) are
• In accordance with LCDI standards
advancing plans to decarbonize power
and principles, the scenarios were
systems by 2060, aiming to meet all
generated through a scientifically
electricity demand with renewables or
rigorous process, aiming to
nuclear power.92
achieve a high but realistic level of
ambition, recognizing biophysical
The three net-zero LCDI scenarios
limits to GHG mitigation as well as
examined here, NZ2045, NZ2050 political, technical and institutional
and NZ2060, share several core constraints.
features:
• All net-zero scenarios include the
• They maintain a level of GHG same set of low-carbon measures
emission reduction through 2030 (described below) and differ only
that is at least as ambitious, in both in the speed at which they move
absolute and relative terms, as the towards their targets. For instance,
unconditional pledge in Indonesia’s all the scenarios envision fully
first NDC (a 29% emission reduction decarbonizing the energy supply by
by 2030 relative to a baseline 2060, but while NZ2045 achieves
scenario, with total GHG emissions 95% clean energy (renewables and
being no higher than 2.034 Gt nuclear) by 2045, NZ2050 does so in
CO2e).93 Also, across the three 2048, and NZ2060 in 2054.
scenarios, the cumulative GHG
• All net-zero scenarios envision some
emission reductions between 2021
GHG emissions even beyond the
and 2030 are at least as large as
target year, from the waste sector,
those implied in the current NDC.
but they would be offset or more
• They significantly scale up ambition than offset by negative emissions
post-2030 across all major GHG from agriculture, forestry and other
emission sources, in line, to the land use (AFOLU), starting in the
extent possible, with exercises net-zero target year.
Ph
ESDM, 2021, “Perubahan Iklim: NDC Indonesia, Ambisi dan Membumi,” Kementerian Lingkungan Hidup dan
91 oto
cou
tes
Kehutanan – Berita. y of
LC
D IS
PLN, 2021, “PLN Siapkan Transisi Menuju Energi Bersih Demi Generasi Mendatang,” Perusahaan Listrik
92
ecr
eta
Negara (State Electricity Company) – Press Releases. ria
t
93
Figure 2 shows the path for GHG total Notably, due to COVID-19 and other Over the 2021–2060 period, the net-
emissions for the historical period 2000– factors, emission projections for the zero scenarios would avoid 87–96
2020 and compares projected 2021– Reference Case itself are 23.7% lower Gt CO2e of emissions. To put this in
2060 emissions in the Reference Case than the baseline used in the NDC (2.19 perspective, the Intergovernmental
and the three net-zero scenarios. By Gt CO2e vs. 2.87 Gt CO2e), so even Panel on Climate Change (IPCC) has
2030, GHG emissions would be 30.9%, though the net-zero scenarios only estimated that for a two-thirds chance
29.7% and 29.1% lower, respectively, reduce emissions by about as much as of keeping the global temperature
than in the Reference Case, totaling the NDC pledged, absolute emissions increase within 1.5°C of pre-industrial
1.51, 1.54 and 1.55 Gt CO2e, respectively. in all three net-zero scenarios are well levels, the total carbon budget available
With the implementation of the policies below the 2.03 Gt CO2e projected in the to the world from 2018 until reaching
included in the net-zero scenarios, GHG NDC’s unconditional pledge. net-zero emissions is 420 Gt CO2e.94
emissions would peak at about 1.8 Gt
CO2e around 2024, then start declining.
Figure 2. Annual greenhouse gas emissions in the Reference Case and net-zero scenarios
5.00
4.64
4.00
3.76
3.00 3.39
Gt CO2e
2.00
1.00
0.00
-1.00
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Reference Case NZ2045 NZ2050 NZ2060
Source: Historical data for emissions, based on National Greenhouse Gas Inventory, up to 2020; modeling results for 2021 and beyond.
94
Rogelj et al., 2018, “Mitigation Pathways Compatible with 1.5°C in the Context of Sustainable Development,” in Global Warming of 1.5°C. An IPCC Special Report on the
Impacts of Global Warming of 1.5°C above Pre-Industrial Levels and Related Global Greenhouse Gas Emission Pathways, in the Context of Strengthening the Global
Response to the Threat of Climate Change, Sustainable Development, and Efforts to Eradicate Poverty.
2.2 Net-zero targets in key sectors
The net-zero scenarios expand on the package of low-carbon measures included in RPJMN 2020–2024, which were designed to
ensure that Indonesia could meet its GHG emission reduction targets for 2020–2030. To achieve net-zero, they fully replace fossil
fuels with clean energy (renewables as well as nuclear); sharply reduce the energy-intensity of the economy; fully phase out fossil
fuel subsidies by 2030; electrify road transport (with the role of biofuels gradually declining); protect and restore forests, peatlands
and mangroves; adopt sustainable practices in agriculture, forestry, fisheries and aquaculture; improve waste management; and
make industry more efficient.
The net-zero scenarios raise the ambition of the measures that are already included in the RPJMN 2020–2024,
through 2030 and beyond, and incorporate several new interventions—with the most rapid implementation in
NZ2045 and the most gradual in NZ2060:
• Decarbonizing the electricity sector, raising the share of • End all conversion of primary forest to agricultural
renewables in power generation capacity (about 18% as land by 2025 and scale up forest restoration to
of 2020, mainly hydropower, geothermal and biomass) 250,000 hectares (ha) per year by 2040, to increase
to 82% by 2053 (across scenarios) and adding nuclear secondary forest coverage (that is, regrown forest
capacity, starting in 2030 and ramping up until in 2060 areas) from the current 45.7 million ha to 48.2
and beyond, all electricity comes from clean sources; million in 2060;
• Raising ambition on energy efficiency to reduce the • Scale up peatland restoration to 90,000 ha per year
energy intensity of the economy (measured in terajoules by 2032, significantly ramping up thereafter to peak
of energy demand per Rp. 1 billion, at constant 2000 at 650,000 in 2038 in NZ2045 and nearly 400,000
prices) by 4.1–4.7% per year in 2021–2030 (high end of ha in NZ2050 and NZ2060; across scenarios,
the range is NZ2045, low end is NZ2060) and about 6% after peaking, peatland restoration efforts would
per year from then until 2060; scale down to maintain those levels and offset any
further losses due to economic development;
• Introducing a carbon price, applicable to fossil fuels and
electricity, starting in 2022 and ramping up linearly to • Expand mangrove restoration efforts to 125,000 ha
US$60 (Rp. 873,000) per tonne CO2 by 2040 in NZ2045, per year in 2021–2024, then restore 12,000 ha per
to US$50 in NZ2050, and to US$40 in NZ2060, then year through 2060;
remaining at the respective levels;
• Expand sustainable agricultural practices to 40% of
• Electrifying road transportation—both to phase out cropland by 2050;
petroleum products, and as a key strategy to increase
• Green urban landscapes to triple the carbon
energy efficiency—with targets of 100% of the transport
sequestration potential of urban land by 2050;
fleet by 2040 in the NZ2045 scenario, by 2045 in
NZ2050, and by 2060 in NZ2060; • Progressively reduce wastewater generation in the
industrial sector, to reach 100% water recycling
• Introducing locally produced hydrogen fuel to close
by the respective target year of each net-zero
the gap in transport fuel demand on the path to full
scenario.
electrification and support the phase-out of biofuels;
Figure 3. How different sectors contribute to emission reductions in NZ2050
5.0
4.5
4.0
3.5
3.0
Gt CO2e
2.5
2.0
1.5
1.0
0.5
0.0
2020 2025 2030 2035 2040 2045 2050 2055 2060
NZ2050 Energy Land use (AFOLU) Waste Industry (IPPU)
Source: LCDI modeling results.
Figure 3 shows how different sectors to climate change and environmental and waste policies contribute a small
contribute to the emission reductions degradation can cause sharp increases fraction of the emission reductions,
achieved over time in the NZ2050 in emissions.96 Figure 3 shows the they are fundamental for value addition
scenario.95 Two-thirds of the mitigation GHG reductions achieved through the and employment generation in a green
effort (50.2% for the period 2021–2030) protection and restoration of key carbon economy (see Section 4.3).
corresponds to the energy sector, while sinks (forests, peatlands, mangroves); it
the AFOLU sector contributes 24.9% is only thanks to that improved carbon The sections that follow delve deeper
(41% for 2021–2030). The waste sector storage that net-zero can be achieved into the policy interventions envisioned
and industrial processes and product even before energy systems are 100% in each sector to achieve net-zero, as
use (IPPU) contribute 8% and 2%, decarbonized. well as the projected GHG emission
respectively. reductions from those measures.
What is not captured in the figure, Section 2.3 then discusses the
As crucial a role as energy sector however, is the broader benefits of broader socio-economic benefits, and
measures play in achieving net-zero, maintaining natural capital, as the Section 3 examines the associated
it is important to recognize the critical goods and services provided by investment needs as well as financing
role of land use sectors as well. They healthier ecosystems contribute options. Section 4 provides a broader
produce more than half of Indonesia’s to economic growth and increase discussion of the policy context as well
current GHG emissions, and though resilience. That fuller perspective on the as examples of how other countries
much more difficult to predict than green economy is central to the LCDI have pursued similarly ambitious goals.
energy GHGs, extreme events linked approach. Similarly, although IPPU
95
Since all the net-zero scenarios share the same policies and ultimate targets, and only differ in the speed with which the targets are reached, the paths for policy
proxies (e.g. share of renewables in energy demand), intermediate targets (e.g. energy intensity) and final targets (e.g. GHG emissions, employment, GDP) are similar.
For simplicity in the presentation of results, where the three scenarios cannot be easily combined in a single figure, only results for NZ2050 are presented.
96
A prime example is the 2015 peatland fires in Indonesia, which, as noted earlier, emitted an estimated 1.75 Gt CO2e and sharply increased air pollution (see Global
Fire Emissions Database: http://www.globalfiredata.org/updates.html#2015 indonesia). Similarly catastrophic events are already occurring more frequently around the
world.
2.2.1 The energy sector
The energy sector is central to achieving The RPJMN 2020–2024 already up ambition on both fronts—and
net-zero because, as Indonesia recognizes this challenge and aims put a price on carbon, starting in
develops and incomes rise, energy to reduce the energy intensity 2022, to accelerate the transition.
demand is rising quickly. Projections for of Indonesia’s economy (a proxy Table 1 provides a summary
the Reference Case show demand more measure for energy efficiency) by of energy sector interventions
than tripling, from 9.3 terajoules (TJ) in 2.5% per year and increase the share and how they compare with the
2021 to 31.9 TJ in 2060. If all the added of renewable energy in the primary RPJMN 2020–2024 and the High
demand were met with fossil fuels, energy mix to 23% by 2025. As noted scenario in the 2019 LCDI analysis.
the impact on GHG emissions and air above, the net-zero scenarios ramp
pollution would be devastating.
Table 1. Key energy sector interventions and targets in the net-zero scenarios
Intervention RPJMN 2020–2024 Targets LCDI 2019 High scenario Net-zero scenarios
Reduce primary energy

Energy efficiency gains intensity by 1% per year, to Reduce energy intensity by an average of
(measured as reduced 133.8 BOE per Rp. 1 billion by 3.5% per year during 2019– 4.5% per year in 2021–2030 in NZ2045, 4.1%
energy intensity of 2024, and reduce final energy 2030, 4.5% per year post 2030 in NZ2050 and 3.9% in NZ2060, and by about
GDP) intensity reduction by 0.8 BOE 6% per year in 2030–2060 across scenarios
per Rp. 1 billion
Starting from 16.4% in 2022, scale up

Increase installed renewable Increase installed renewable renewables to reach 60% of total power
Clean electricity energy capacity from 10.2 GW capacity to 23% of total generation capacity by 2030 and 82% by
generation (15% of total ) in 2019 to 19.2 capacity by 2025 and to 30% 2053; introduce nuclear power, starting in
GW (20%) by 2024 by 2040 2030, to supply the remaining 18% of power
by 2060
65% by 2030 (remaining share

19.5% of primary energy mix Across scenarios, 65% by 2030 (remaining
Renewables in primary from coal and natural gas);
by 2024, 23% by 2025, 31% by share from coal and natural gas); 85% by
energy mix 85% by 2060 (remaining share
2050 2060 (remaining share from nuclear)
from nuclear)
No dedicated efforts to increase biofuels;

Substitute oil demand with instead, as electrification increases and
Biofuels as substitutes Domestic biofuel use increase
29.78 million kL of biofuels alternatives to fossil fuels are in place (liquid
for petroleum fuels in from 6.9 million kiloliters (kL) in
by 2025 or 30% share of hydrogen), biofuel use drops until it fully
transport 2019 to 17.4 million kL in 2024
petroleum demand in transport disappears with 100% electrification of road
transport
Electrification of
road transport sector Starting in 2025, rapidly scale up electrification
(includes cars, No targets to achieve 100% EVs by each scenario’s net-
motorcycles, trucks and zero target year
public transport)
Intervention RPJMN 2020–2024 Targets LCDI 2019 High scenario Net-zero scenarios
Starting in 2030, ramp up to assist in phase-

out of biofuels and to meet 100% of remaining
Hydrogen fuel for
No targets fuel demand until electrification is fully
transport
achieved in each scenario’s net-zero target
year
Improve the efficiency and

Start phasing out fossil fuel After RPJMN 2020–2024 ends, start phasing
Fossil fuel subsidies targeting of fossil fuel subsidies,
subsidies in 2024, reaching fossil fuel subsidies, to reach 100% removal
removal incorporating them with social
100% removal by 2030 by 2030
assistance
Introduce carbon price in 2022 and scale up

linearly to US$60 per tonne CO2 in 2040 and
Carbon price N/A N/A
thereafter in NZ2045, US$50 in NZ2050 and
US$40 in NZ2060.
Sources: Bappenas, 2019; 2030 and 2050 targets from ESDM, 2014.97
As outlined above, the energy strategy that underpins

the net-zero scenarios has three key elements:
improving energy efficiency; decarbonizing the energy
supply, through renewable energy combined with
electrification and clean alternatives to fill gaps; and
realigning incentives by ending fossil fuel subsidies
and phasing in a carbon price.
Improved energy efficiency, which the International

Energy Agency calls the “first fuel” for its crucial role in
meeting countries’ energy needs,98 can be achieved in
three main ways:
• By making individual technologies more efficient

(e.g. better air conditioners, more fuel-efficient cars);
• By replacing less-efficient technologies with more

efficient ones (e.g. LED lighting, electric vehicles);
and
• By delivering the same service in a more efficient

manner (e.g. using insulation and energy-efficient
design measures to reduce a building’s cooling
needs, or shifting transportation demand from
individual cars to public transit, walking and biking).
Photo by Mike via Pexels
Bappenas, 2019, “2020–2024 National Medium-Term Development Plan (Rencana Pembangunan Jangka Menengah Nasional 2020–2024)”; 2019, “Low Carbon
97
Development: A Paradigm Shift Towards a Green Economy in Indonesia”; ESDM, 2014, “Rencana Umum Energi Nasional (National Energy General Plan).”
98
Motherway, 2019, “Energy Efficiency Is the First Fuel, and Demand for It Needs to Grow—Analysis,” International Energy Agency blog.
The net-zero scenarios use a Decarbonizing the energy sector is NZ2045 and most gradually in NZ2060).
combination of such interventions, equally crucial to achieving net-zero— Nuclear power would be introduced
discussed in more detail in Section and to enabling continued robust GDP starting in 2030, to provide the
4.2. The resulting gains are modeled growth without adding new emissions. remaining 18% by 2060. The inclusion
through a proxy measure, the energy There is growing consensus worldwide of nuclear power is in line with business
intensity of Indonesia’s economy (that that electrification is key, as the supply plans by Ministry of Energy and Mineral
is, the ratio of energy demand to GDP). of clean electricity can be scaled up Resources (ESDM), which contemplate
In the net-zero scenarios, energy far more easily than zero-carbon fuels the introduction of the nuclear starting
intensity is reduced by an average of or feedstocks.99 In the transport sector, in the 2030s, with the goal of having
4.5% per year in 2021–2030 in NZ2045, switching to EVs not only removes the a clean source of baseload power to
4.1% in NZ2050, and 3.9% in NZ2060, need for petroleum products, but also complement renewable sources.
then by an average of about 6% per significantly increases energy efficiency
year in 2031–2060. (see Section 4.1). To fully realize the Figure 4 shows how the electricity
climate benefits of electrification, mix would change over time in
These efficiency gains would enable however, it is crucial to quickly NZ2050. Figure 5 shows the impact
Indonesia to keep growing its economy decarbonize the electricity supply as of electrification on total final energy
and meet the needs of an expanding well.100 consumption, with the share of demand
population without significantly growing met by electricity growing significantly
the energy supply. In 2060, total energy The net-zero scenarios thus accelerate over time. It is the combination of
demand would be roughly the same the deployment of renewable energy, electrification and a decarbonized
as in 2019–2020, around 9 exajoules replacing fossil fuels, to reach 82% of power supply that enables Indonesia to
(EJ), or about 215 million tonnes of oil total power generation capacity by 2053 eliminate fossil fuels—and, with them,
equivalent (Mtoe) per year. (across scenarios, but moving fastest in its greatest source of GHG emissions.
Figure 4. Share of technologies in power generation capacity in the net-zero scenarios
100% 0.5 2.4

7.5 9.3
90% 10.6 18.9
9.4 24.5
30.7 34.3
9.3 35.1 35.1 35.3 35.9
80% 9.7 23.5
7.5
70%
33.3
60% 25.3 20.0 17.9 32.5
32.1
50% 32.6 32.8 32.7 32.7 32.5
14.0
40%
21.5
17.1
30% 10.3 12.5 7.6 6.4 6.6 6.3 5.6
47.6 50.2
20% 11.2 10.4 10.5 10.5 10.4 10.0
17.3 14.1
25.1
10% 15.2 15.1 15.3 15.9
4.0 8.9 12.3 15.0
5.0 2.9 1.2
0% 0.0 0.0
2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070
Steam coal (PLTU) Natural gas (PLTGU) Nuclear Other renewables (EBT LAIN)
Hydropower (PLTA) Geothermal (PLTP) Solar + wind (PLTS + PLTB)

Note: Shares of technologies in electricity generation are modeled based on a net-zero scenario for 2060 by the Ministry of Energy and Mineral Resources (ESDM).
See, for example, Rogelj et al., 2018, “Mitigation Pathways Compatible with 1.5°C in the Context of Sustainable Development,” in Global Warming of 1.5°C. An IPCC Special Report on the Impacts of
99
Global Warming of 1.5°C above Pre-Industrial Levels and Related Global Greenhouse Gas Emission Pathways, in the Context of Strengthening the Global Response to the Threat of Climate Change,
Sustainable Development, and Efforts to Eradicate Poverty.
100
See, e.g., Vandycke, 2020, “Can Electricity Decarbonize the Energy Sector?” World Economic Forum blog.
Figure 5. Share of technologies in final energy consumption, NZ2050
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2020 2025 2030 2035 2040 2045 2050 2055 2060
Electricity Coal Natural gas Petroleum Bioenergy and waste
Source: LCDI modeling results. Note: Coal and natural gas shares in later years reflect some continued use, mainly by households, for heating, not in electricity production.
Notably, even in the net-zero scenarios, net-zero by 2060. As laid out in the conventional optimization methods
the share of coal in the power supply 2019 Indonesia Energy Outlook and used to determine the lowest-cost mix
continues to rise until 2024–2025, discussed further in Section 4.1.2, among available power generation
before dropping rapidly, to less than Indonesia has very large renewable technologies. Those methods do not
5% by 2035, and moving towards energy potential—442 GW in 2018,102 take major externalities into account,
zero thereafter. PLN has announced of which only 2% had been utilized.103 including the social cost of carbon104
a moratorium on coal power plant More rapid and extensive deployment and the impact of air pollution. Figure 6
construction after 2023, but between of solar photovoltaics (PV), for instance, shows the costs of coal, natural gas and
now and then, it still plans to add might enable Indonesia to accelerate renewables. A key insight is that when
considerable new capacity.101 It is also the transformation of its energy sector. even some externalities are taken into
important to note that the electricity account, renewables are already cost-
mix modeled for this study, as shown Another issue to consider is that the mix competitive. Air pollution impacts alone
in Figure 4, is aligned with the mix of technologies modeled in this report make coal more expensive than solar.
used in ESDM’s scenario for achieving was developed by ESDM through
101
Husaini, 2021, “Demi zero emisi, PLN moratorium pembangunan pembangkit batubara,” Kontan.co.id; Jong, 2021, “Indonesia Says No New Coal Plants from 2023
(After the Next 100 or So),” Mongabay.
102
National Energy Council, 2019, “Indonesia Energy Outlook 2019.”
103
OECD, 2021, Clean Energy Finance and Investment Policy Review of Indonesia.
The social cost of carbon is the net present value of climate change damages caused by every additional tonne of CO2e emitted, including non-market impacts on
104
the environment and human health that may not be captured by other measurements.
Figure 6. Relative cost of coal, natural gas and renewables, including key externalities, 2019
0.14
0.12
PLN 2019 basic cost
of generation(BPP):
0.10
US$0.0786
US$ per kWh
0.08
0.06
0.04
0.02
0.00
Wind Wind (intl.) Solar Solar (intl.) Geothermal Hydropower Coal Gas
Cost to PLN Air pollution Social cost of carbon
Source: Update for this report by the International Institute for Sustainable Development of analysis in Bridle et al., 2019.105 Note: Unless specified otherwise ("intl."
label), all costs are for Indonesia. Wind, solar, geothermal and hydropower costs are from recent power purchase agreements (PPAs) in Indonesia. Coal and gas
costs are PLN costs. International wind and solar costs are international benchmarks.
It is important to note that conventional relative cost of coal. Indeed, that is to keep global GHG emissions below
least-cost analyses do not take major already a concern in Indonesia, and a 2°C, all existing plants would have to be
externalities into account, including reason cited for phasing coal out far retired at 35 years.107 If plants that are
the social cost of carbon106 and the more slowly. The Ministry of Finance under construction or at earlier stages
impact of air pollution. That is a key has estimated that an immediate of development go online, lifetime limits
insight from Figure 5. When even decommissioning of coal would result would drop by another 10 years.
some of those costs are taken into in tens of billions of dollars in stranded
account, renewables are already cost- assets, straining the financial sector. Another important factor is that
competitive—air pollution impacts The net-zero scenarios do not call for renewable energy costs have been
alone make coal more expensive than shutting down coal power immediately, falling rapidly, to the point that solar
solar. but the reality is that avoiding photovoltaics (PV) now offer “some of
catastrophic climate change will require the lowest-cost electricity in history,”
There is also a significant and growing closing coal power plants prematurely according to the International Energy
risk that coal power plants will need all around the world. While historically, Agency. The IEA projects that utility-
to be retired early, becoming stranded these plants have operated for about scale solar PV costs will drop by
assets and thus increasing the 50 years, a recent analysis found that another 36% worldwide by 2025.108
105
Bridle et al., 2019, “The Case for Renewable Energy in Indonesia: The Cost of Energy, Subsidies, Externalities and Non-Cost Factors.”
106
107
Cui et al., 2019, “Quantifying Operational Lifetimes for Coal Power Plants under the Paris Goals,” Nature Communications.
108
IEA, 2020, “Renewables 2020: Analysis and Forecast to 2025.”
The final key element of energy and market mechanisms, and—as Figure 7 shows the value of revenues
policies to achieve net-zero is a pair discussed further in Section 4.1—an from carbon pricing and savings from
of measures to realign economic emissions trading pilot program is fossil fuel subsidy removal, as a share
incentives: phasing out fossil fuel now under way, covering 80 coal-fired of GDP, in the three net-zero scenarios.
subsidies by 2030, and introducing power plants.109 Carbon pricing is widely That value peaks in 2031, at US$168–215
a carbon price. The latter would be recognized as a highly effective climate billion (2.64–3.55% of GDP), then drops
applied, upstream, to coal, petroleum policy tool, as it internalizes the social rapidly as the use of fossil fuels declines
products and natural gas. It would start cost of carbon and creates economic (the more ambitious the scenario,
at less than US$5 per tonne CO2, on incentives to reduce fossil fuel use while the sharper the drop). As discussed
average, in 2022–2023, and increase allowing businesses and households to further in Section 3.2, revenues peak
linearly to US$60 per tonne by 2040 find the most cost-effective solutions.110 when they are most needed, both to
in NZ2045 (Rp. 873,000), remaining It can also generate substantial build infrastructure for the new, green
at that level until the economy is fully amounts of revenue that can be put to economy, and to provide support to
decarbonized. a wide range of productive uses: from people whose livelihoods were tied to
supporting low-carbon technologies, to high-carbon sectors, helping to ensure
The Government of Indonesia is already providing targeted social assistance to a just transition.
considering a number of carbon pricing vulnerable populations.
Figure 7. Projected carbon price revenue and savings from fossil fuel subsidy reform
4.00
3.55
3.50
3.14 Peak revenue
(across scenarios)
3.00
2.64 in 2031
2.50
% of GDP
2.00
1.50
1.00
0.50
0.00
2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060
NZ2045 NZ2050 NZ2060
109
ESDM, 2021, “Uji Coba Perdagangan Karbon Diikuti 80 Pembangkit (Carbon Trading Trial Followed by 80 Generators),” Kementerian Energi Dan Sumber Daya
Mineral (Ministry of Energy and Mineral Resources).
110
See, e.g., Parry, 2019, “The Case for Carbon Taxation,” Finance & Development; IMF, 2019, “Fiscal Monitor: How to Mitigate Climate Change.”
2.2.2 Land use sectors
Natural resources are central to Indonesia’s wealth and prosperity, but land use sectors have also produced half to two-thirds of
the country’s annual GHG emissions over the past 20 years.111 Recognizing the urgent need to protect key ecosystems, the RPJMN
2020–2024 set targets for reforestation, forest protection, peatland and mangrove restoration, and sustainable agriculture. Table 2
shows how the net-zero scenarios build on those targets and add new interventions.
Table 2. Key land use sector interventions and targets in the net-zero scenarios
Intervention RPJMN 2020–2024 targets LCDI 2019 High scenario Net-zero scenarios
Avoiding and reversing land conversion
Scale up to 250,000 ha per year by 2030 in

Reforestation 420,000 ha by 2024 1,000,000 ha by 2024
NZ2045 and NZ2050 and by 2050 in NZ2060
Reduce forest loss by 50%

relative to baseline scenario Reduce forest loss by 50% by 2030, and end
Curbing deforestation No target
through 2024, and by 80% deforestation completely by 2025
thereafter
Across scenarios, rate of degradation reduced

Reducing forest from 139,000 ha per year in 2020 to 82,000
No targets
degradation in 2030, 44,000 in 2050, and around 1,000 by
2060
Across scenarios, restore 90,000 ha per year

in 2021–2030; then scale up to 650,000 ha
Peatland restoration
per year in 2038 in NZ2045, or 390,000 ha in
via re-wetting through
300,000 ha per year through NZ2050 and NZ2060; then scale down, across
canal blocking
2024 scenarios, to the levels necessary to offset any
measures, forest fire 330,000 ha per year by 2024
further losses due to economic development
prevention, and phasing
200,000 ha per year thereafter
out drainage-based
Cumulative restoration by 2050 is 5.6 million
agriculture
ha in NZ2045 and 5.2 million ha in NZ2050
and NZ2060
125,000 ha per year in 2021–2024, to increase

50,000 ha cumulatively over stocks by 15% above 2020 levels, then
Mangrove restoration No targets
2020–2024 continue to restore at rate of 12,000 ha per
year
Greening of urban Triple the carbon sequestration potential of

No targets
landscapes urban land by 2050
See ClimateWatch data for 1999–2018 (agriculture and land-use change and forestry combined):
111
https://www.climatewatchdata.org/ghg-emissions?breakBy=sector&end year=2018&regions=IDN&source=CAIT&start year=1999.
Sustainable agriculture and forest plantations
Increase RSPO and ISPO

certified oil palm plantation
40% of cropland (including oil palm
100% of land for paddy fields area from 14% in baseline to
Increasing sustainable production) is cultivated sustainably by 2050;
designated as sustainable by 50% by 2045; 11% increase in
agriculture the impact of certifications and sustainable
2024 ISPO Land Management Yield;
practices is reflected in this target
sustainable forest plantations
increase by 50% by 2025
From a forest clearing rate of 141,000 ha

Stop clearing forest for per year in 2020, or 0.15% of forest area, for
No target
cropland cropland, phase down to zero by net-zero
target year
From total of 41,000 ha in 2020, reduce by

Reduce land 2030 to 25,000 ha in NZ2045, 27,000 ha in
concessions for No targets NZ2050, and 29,000 ha in NZ2060, then phase
bioenergy crops out to zero by the respective net-zero target
year
Source: Bappenas, 2019.112

Note: Roundtable on Sustainable Palm Oil (RSPO) and Indonesia Sustainable Palm Oil (ISPO) certifications are issued to oil palm plantations that meet certain
sustainability, transparency, compliance, and financial viability criteria.
Land use sectors play an important 336 million, the model also includes measures, examined more closely in
role in Indonesia’s economy, with efforts to reduce food loss and waste. Section 4, are also crucial to building
agriculture alone accounting for an As discussed in Section 4.4, addressing resilience to climate change. That is
estimated 29% of employment as Indonesia’s high rates of food waste an urgent priority both nationwide and
of 2019113—and much more in some and loss can ensure ample food within these sectors, which will need to
provinces. The policies and incentives production for a growing population withstand rising temperatures, changes
to achieve net-zero targets are thus without requiring ever more land to be in precipitation, more extreme events,
designed to support more sustainable cleared. groundwater salinization, and other
economic development and livelihoods impacts.114 As noted earlier, restoring
in agriculture, forestry, fisheries and In all, implementing the net-zero peatlands and mangroves is a key part
aquaculture, while creating new jobs strategies for the land use sectors of the solution to major cities’ land
in forest, peatland and mangrove can enable Indonesia to strike a good subsidence problem; these wetlands
restoration activities. Recognizing that balance between continued value also provide much-needed protection
Indonesia’s population is set to grow addition from primary sectors and the from flood risks and coastal storms.115
by more than one-fifth by 2060, to over protection of natural capital. These
112
Development: A Paradigm Shift Towards a Green Economy in Indonesia.”
See World Development Indicators data for employment in agriculture (% of total employment), International Labour Organization estimates:
113
https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS?locations=ID.
114
Hijioka et al., 2014, “Asia,” in Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part B: Regional Aspects. Contribution of Working Group II to the Fifth
Assessment Report of the Intergovernmental Panel on Climate Change. For a look at how climate-smart strategies can boost agricultural productivity and resilience
while reducing GHG emissions, see the ASEAN Climate Resilience Network’s series of insight briefs on climate-smart land use:
https://asean-crn.org/climate-smart-land-use-practice-insight-brief-series/.
115
For an overview, see CUT, 2021, “Seizing Indonesia’s Urban Opportunity: Compact, Connected, Clean and Resilient Cities as Drivers of Sustainable Development.”
The targets laid out in Table 2 have several practical implications:
• Urban expansion needs to be significantly reduced, with most future development occurring within the
existing urban footprint or on fallow land. A recent analysis for the Coalition for Urban Transitions found that
between 2000 and 2014, Indonesian cities grew by 3.9% or 6,904 km2, more than the land area of Bali, and
nearly three-quarters of that expansion was onto cropland.116 That pattern cannot continue.
• Agricultural expansion needs to occur on what is now fallow land, to the extent possible, and no more
primary forest should be cleared for cropland (even for plantation forests) or for bioenergy feedstock
production. As discussed further below, the goal of ending all deforestation is ambitious, but it is crucial to
preserving Indonesia’s carbon sinks.
• Agricultural production is increased through sustainable intensification techniques, and further value is
added through agroforestry, which creates new revenue streams (e.g. from growing cocoa on oil palm
plantations,117 or harvesting non-timber forest products).
• The use of biofuels to replace petroleum products in road transport becomes a transitional solution on the
path to EVs, not the end-goal. The net-zero scenarios allow for less than 25,000 ha of land for bioenergy
crops—enough to meet the demand created by current policies, but not to support significant further growth.
• The area for plantation forests would be capped at 14.2 million ha, allowing modest continued growth (they
currently cover 11.2 million ha).
Land use strategies are crucial to importantly, excluding peatlands)— Figure 8 shows how Indonesia’s
achieving net-zero both because amounted to nearly 18.5 Gt of carbon carbon stock (excluding peatlands)
these sectors now produce a majority (C) in 2020.118 The carbon stock of has decreased over the past two
of Indonesia’s emissions, as noted Indonesia’s peatlands, meanwhile, is decades, reflecting land conversion,
earlier, and because Indonesia needs estimated at 13.6–40.5 Gt C, with a forest loss and land degradation—
to protect and restore its enormous best estimate of 28.1 Gt C.119 Combining and how it would continue to
carbon sinks. Estimates produced the model results with the peatland decline in the Reference Case, but
for this model analysis, drawing estimate yields a total stock of carbon start rebounding in the net-zero
on peer-reviewed literature and of about 46.6 Gt C as of 2020.120 scenarios. Figure 9 then provides
official land cover data, show that (Seagrass is also a carbon sink, but a closer look at how different types
Indonesia’s carbon stock—the amount it is excluded from the model due to of ecosystems would contribute to
of carbon stored in all types of forests, limitations in available evidence,121 as that recovery in NZ2050.
mangroves and other types of land (but well as its relatively small scale).
116
See Figure 1 in CUT, 2021, “Seizing Indonesia’s Urban Opportunity: Compact, Connected, Clean and Resilient Cities as Drivers of Sustainable Development.”
Khasanah et al., 2020, “Oil Palm Agroforestry Can Achieve Economic and Environmental Gains as Indicated by Multifunctional Land Equivalent Ratios,” Frontiers in
117
Sustainable Food Systems.

118
For perspective, Indonesia’s GHG emissions in 2018 (the data latest available) are estimated at 1.70 Gt CO2e (see ClimateWatch data:
https://www.climatewatchdata.org/countries/IDN). The conversion factor from C to CO2 is 3.76; that would mean the carbon stock, excluding peatlands, is equivalent to
almost 40 times that year’s emissions.
119
Warren et al., 2017, “An Appraisal of Indonesia’s Immense Peat Carbon Stock Using National Peatland Maps: Uncertainties and Potential Losses from Conversion,”
Carbon Balance and Management.
120
Note that this is only an approximation, as the peatland data are highly uncertain.
See, e.g., Alongi et al., 2016, “Indonesia’s Blue Carbon: A Globally Significant and Vulnerable Sink for Seagrass and Mangrove Carbon,” Wetlands Ecology and
121
Management.
Figure 8. Total carbon stocks in Indonesian ecosystems, Reference Case and NZ2050 (excluding peatlands)
21.0
20.5
billion tonnes of carbon (Gt C)
20.0
19.5
19.0
18.5
18.0
17.5
17.0
16.5
16.0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Reference Case NZ2050
Figure 9. Carbon stocks in NZ2050, by source, 2000–2060 (excluding peatlands)
25,000
20,000
million tonnes of carbon (Mt C)
15,000
10,000
5,000
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
primary forest secondary forest plantation forest mangroves
cropland fallow land settlements
Figure 10 shows how primary and Figure 10. Primary and secondary forest cover (excluding plantations),
secondary forest cover in particular Reference Case and NZ2050
would change across scenarios. The
net-zero scenarios include more
ambitious forest protection targets 110.0
than those in RPJMN 2020–2024,
but build on the same core 105.0
102.8
elements, as outlined in Table 2. By
99.1
2060, reforestation efforts would 100.0
milliion hectares
96.7
increase secondary forest cover
by 4.1 million ha (across net-zero 95.0
scenarios). Avoiding further clearing 94.4
of forests, meanwhile, would protect 90.0 91.0

3.2 million ha of primary forest and 88.5
11.3 million ha of secondary forest in 85.0
the net-zero scenarios that would be
lost in the Reference Case by 2060. 80.0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
In addition, by 2060, mangrove cover
would be nearly 1 million ha greater, Reference Case NZ2050
and peatland vegetation areas
would have increased by 1.5 million
ha (both across net-zero scenarios). Source: LCDI modeling results.
Altogether, forest, mangrove and
peatland cover would be about
105.5 million ha, comparable to Figure 11. Total land requirements for bioenergy crops across scenarios
2000 levels. Taking into account
these ecosystems’ respective
4.00
carbon storage capacities, these
actions would reduce Indonesia’s 3.50
GHG emissions by 48–55 Gt CO2e
between 2021 and 2060. 3.00
million hectares
2.50
Lastly, Figure 11 provides helpful
perspective on how ambitious 2.00
energy policies can have benefits
in other sectors as well. It shows 1.50
how land requirements for

1.00
bioenergy crop production would
sharply decrease with the rapid 0.50
electrification of road transport.
0.00
All those savings mean less forest 2020 2025 2030 2035 2040 2045 2050 2055 2060
clearing and less competition for
Reference Case NZ2045 NZ2050 NZ2060
existing fallow land.
2.2.3 Waste and industrial processes and product use (IPPU)
The waste and industrial sectors can boost job creation. There is growing sectors. With regard to waste, it
play relative small roles in emission evidence that investing in wastewater is important to remember that by
reduction efforts in the net-zero management, for instance, creates default, as a country’s population
scenarios (about 8% and 2%, jobs that pay better than other options and GDP grow, so will waste
respectively, of cumulative emission for people with similar skill levels.123 production—unless policies are put
reductions over the period 2021–2060, Moreover, like land use measures, into place and investments are made
with the important caveat that the waste sector interventions can have to reduce waste, including through
latter includes only GHGs from broad benefits, including better air behavioral change (see Section 4.4).
industrial processes and product use, and water quality thanks to reduced The policies included in the net-zero
or IPPU).122 Still, both these sectors pollution. scenarios target household waste
are critically important to the socio- generation, household and industrial
economic development of Indonesia, Table 3 outlines key interventions and wastewater, and solid waste
and measures to reduce emissions targets in the waste and industrial management (including recycling).
Table 3. Key waste and industrial sector interventions and targets in the net-zero scenarios
339.4 million tonnes of waste to be By 2045, reduce waste

Across scenarios, reduce waste
Improved solid waste properly managed over 2020–2024 generation by 30% and
generation per capita by 70% from 2020
management (from baseline of from 67.5 million emissions by 10% relative to
levels by net-zero target year
per year in 2019) baseline
Industrial wastewater 100% of industrial wastewater recycled by

No targets
recycling the net-zero target year
Increased capacity of B3 waste

process up to 26,880 tonnes
Improved industrial Reduce emissions by 50% No targets
per year by 2024 (cumulative
waste management relative to baseline by 2045 (due to limitations of available data)
539.8 million tonnes) and waste
management area of 20 ha by 2022
Reduce IPPU emissions by Across scenarios, reduce emission

Reduce IPPU emissions by 2.9% by
Reduce IPPU emissions 50% relative to baseline by intensity of IPPU to one-third of 2020 level
2024 from 2019 level
2045 by 2060
Source: Bappenas, 2019.124

Note: B3 waste is classified as hazardous and toxic waste under Law No.32/2009 on Environmental Protection and Management
(Undang-Undang Nomor 32 Tahun 2009 Tentang Perlindungan dan Pengelolaan Lingkungan Hidup) (Presidential Regulation No 79/2018).
This means two kinds of emissions: from industrial processes that chemically or physically transform materials, releasing GHGs, and from GHG use in products such
122
as refrigerators, foams or aerosols. IPPU emissions do not include industrial energy use or fugitive emissions. For a detailed explanation of the scope of IPPU emissions,
see this presentation: Shermanau, 2016, “Industrial Processes and Product Use (IPPU).”
123
WWAP, 2017, “Wastewater: The Untapped Resource – UN World Water Development Report 2017”; Renner, 2017, “Wastewater and Jobs: The Decent Work Approach
to Reducing Untreated Wastewater”; Smith, 2021, “Wastewater Has the Best Green Jobs Workers Don’t Know About,” Governing.
124
Development: A Paradigm Shift Towards a Green Economy in Indonesia.”
2.3 The socio-economic benefits of net-zero pathways
The vision of the Low-Carbon Figure 12. Real GDP growth rate, Reference case and net-zero scenarios, 2021–2060
Development Initiative is to build
a strong, sustainable and inclusive
8.0
economy for Indonesia, maintaining
robust growth and boosting 7.0
competitiveness while protecting the 6.0

country’s natural capital. This means
% annual growth 5.0
that in order to be viable, net-zero
scenarios need to do more than reduce 4.0
GHG emissions—they must also ensure 3.0

continued growth, shared prosperity, a
2.0
high quality of life for all Indonesians,
and healthy ecosystems, in the near 1.0
term and for decades to come.
0.0
2021 2024 2027 2030 2033 2036 2039 2042 2045
As Figure 12 shows, the net-zero Reference Case NZ2045 NZ2050 NZ2060

scenarios would deliver sustained real
GDP growth—and at higher rates than *The result is based on July 2021 simulation and will be updated following the recent circumstances.
the Reference Case: averaging 6.5% per

year for 2021–2050 in NZ2045; 6.4% in
NZ2050, and 6.1% in NZ2060, and then
continuing beyond 2050 at a slower
rate of growth. By 2050, those higher Figure 13. Per capita gross national income, Reference Case and net-zero scenarios
growth rates result in a total GDP that
is 56.1% greater in NZ2045 than in
16,000
the Reference Case, 52.5% greater in 14,975
World Bank high-income threshold 14,485
GNI per capita, US$, World Bank Atlas Method
NZ2050, and 43.1% greater in NZ2060. 14,000 in 2020 (US$12,535)

13,980
This reflects the benefits of restoring 12,000
and protecting natural capital, which
10,000 11,190
in turn increases carrying capacity
(see Section 2.1), and of investments in 8,000
labor-intensive and fast-growing green 6,000

economic sectors.
4,000
As shown in Figure 13, by 2045, per 2,000
capita gross national income (GNI) 0

would reach US$14,975 in NZ2045, 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045
US$14,485 in NZ2050 and US$13,980 Reference Case NZ2045 NZ2050 NZ2060

in NZ2060. This means that across
net-zero scenarios, Indonesia would *The result is based on July 2021 simulation and will be updated following the recent circumstances.
achieve its goal to become a high-

income country by 2045 (the current
threshold is US$12,535).125
125
Pursuing net-zero would also create intensive than their “gray” or “brown” is a conservative underestimate,
large numbers of green jobs, and thus alternatives.126 as it excludes construction jobs—
could be an integral part of a strong which other studies have found
recovery from the COVID-19 economic A bottom-up estimate based on the are created in large numbers
crisis. As outlined in Section 1.3, NZ2050 scenario indicates that it when measures are adopted to
multiple studies have shown that green would result in 1.8–2.2 million additional improve the energy efficiency of
investments produce at least twice jobs in 2030 in renewable energy, EV buildings. It also uses conservative
and up to 7–10 times as many jobs as technologies, energy efficiency, land estimates of the jobs associated
conventional investments, as renewable use interventions and improved waste with land-based interventions,
energy, energy efficiency, nature-based management (Figure 15). That would which are widely considered to be
solutions, recycling, wastewater reuse, be 1.0–1.3% of the projected labor force very labor-intensive.127
and other activities are more labor- in 2030. It is important to note that this
Figure 14. Direct green jobs created by net-zero measures in NZ2050
Green jobs as share of employment (line)

3.5 1.8%
1.6%
3.0
1.4%
million green jobs (bars)
2.5
1.2%
2.0 1.0%
1.5 0.8%
0.6%
1.0
0.4%
0.5
0.2%
0.0 0.0%
2020 2030 2050 2060
Waste sector interventions Land-based interventions Renewable energy
EVs + supporting infrastructure Energy efficiency measures Percent of employment
Source: LCDI modeling results. Note: Job creation estimates exclude construction jobs—which make up a large share of the jobs typically created
through energy efficiency programs (e.g. for building retrofits)—and use conservative estimates of the jobs associated with land-based interventions.
IEA, 2020, “Sustainable Recovery”; Gulati et al., 2020, “The Economic Case for Greening the Global Recovery through Cities: 7 Priorities for National Governments”;
126
Garrett-Peltier, 2017, “Green versus Brown: Comparing the Employment Impacts of Energy Efficiency, Renewable Energy, and Fossil Fuels Using an Input-Output
Model,” Economic Modelling.
127
For example, a recent study estimated that measures to reduce GHG emissions in Indonesia’s cities could add 2.3 million jobs in 2030, mostly in energy efficiency
(retrofits and new construction) and rooftop solar installation in the buildings sector. See CUT, 2021, “Seizing Indonesia’s Urban Opportunity: Compact, Connected,
Clean and Resilient Cities as Drivers of Sustainable Development.”
Another study found that measures to increase energy efficiency in existing and new buildings would create 8–21 jobs per US$1 million invested, while comparable
high-carbon investments would create only three jobs per US$1 million. The same study found that nature-based solutions, such as planting street trees, creating
green space and restoring landscapes in and around cities, could create 40 jobs per US$1 million, twice as many jobs as a similar investment in conventional water
infrastructure. See Gulati et al., 2020, “The Economic Case for Greening the Global Recovery through Cities: 7 Priorities for National Governments.”
In short, the analysis shows that the higher availability and better quality and indirectly affect well-being. The
net-zero scenarios would produce of environmental goods and services EPI combines three components: an
better socio-economic outcomes than that directly and indirectly contribute “ecosystem score” (from availability of
the Reference Case. There are also to output, income and employment forest land, habitat quality and the value
broader societal benefits, such as sharp generation; and avoided externalities. of ecosystem services); an “air quality
reductions in air pollution, which the score” (from emissions of particulate
model shows could save 40,000 lives in As noted in Section 2.1, conventional matter—PM2.5—and nitrous oxide);
2045 alone. With additional strategies macroeconomic models often and a “resources score” (from energy
that prioritize equity and inclusion, underestimate or ignore key benefits of intensity, as defined above, and amount
these gains could be used to benefit low-carbon and green policies, as they of waste generate). The index is set at
poor and disadvantaged populations fail to recognize core linkages between a value of 1 for year 2000 and changes
and help close gender gaps. the environment, the economy, and over time as a result of changes in
human well-being, or did not know how those components.
While the full benefits of green and to quantify them. Without this crucial
sustainable development are realized knowledge, decision-makers would Figure 15 shows trends for the EPI in
over time—especially in terms of a safer have a distorted picture of the socio- the Reference Case and across net-
climate, healthier ecosystems, and economic implications of different zero scenarios, as well as the historical
avoided losses of natural capital—they options, and thus underestimate trend, which shows a sustained
start right away. Indonesia can begin the benefits of decarbonization and deterioration in EPI through 2019, and
to reap the rewards immediately by protection of natural capital. a small improvement in 2020 due to
implementing net-zero measures as reduced economic activity during the
part of its COVID-19 recovery, with Aiming to fill that gap, as part of the COVID-19 pandemic. Post-2021, the
significant stimulus effects and job LCDI process, an Environmental EPI is projected to continue to decline
creation. This would also help reduce Performance Index (EPI) was created under the Reference Case, whereas it
the risk of stranded assets, by avoiding to provide a composite metric of improves in the net-zero scenarios.
the need for new construction of environmental elements that directly
coal power plants, for example, that
might otherwise need to be retired
Figure 15. Environmental Performance Index trends through 2060 across scenarios
prematurely.
That said, not all sectors, communities 2.50

or individuals will gain equally; high- 2.00
carbon sectors would be expected to
Index score (1 = 2000 value)
1.50
decline, shedding jobs. Economy-wide, 1.00
those losses will be more than offset 0.50
by new opportunities in low-carbon 0.00
sectors, but targeted policies and -0.50
investments are crucial to support a just -1.00
transition and ensure that no one is left -1.50
behind. -2.00
-2.50
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Delving deeper into the model results
shows the main sources of improved Reference Case NZ2045 NZ2050 NZ2060
socio-economic outcomes in the

net-zero scenarios include effects
on total factor productivity;128 the Source: LCDI modeling results.
128
(such as capital and labor). If outputs are growing faster than inputs, TFP is improving; the opposite means it is declining. For a succinct explanation, see the glossary
of the Asian Productivity Organization: https://www.apo-tokyo.org/resources/p glossary/total-factor-productivity-2/.
Another important benefit of net- Figure 16. Economic value of ecosystem services across scenarios
zero policies is improved ecosystem
services. Forest, mangrove and peatland 5.3
restoration efforts not only boost carbon 5.1
storage, but also increase the value of 4.9
the broader services provided by those
trillion US$
4.7
ecosystems. The model quantifies the 4.5
value of many, but by no means all, of 4.3
those services, including the benefits 4.1
of biodiversity; fire, flood and drought 3.9
prevention; provisioning (food, medicine, 3.7
materials and fuel); water supply and 3.5
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
other hydrological services; and, in the
Reference Case NZ2050
case of mangroves, coastal protection
from storm surges and flooding, healthier
fisheries in mangrove-connected areas, Source: LCDI modeling results, based on Bappenas spatial analyses.
and protection from saltwater intrusion.
infrastructure and savings (expressed natural resources, and towards the
The net-zero scenarios would allow the in government and external sector secondary and tertiary sectors. That is
recovery of ecosystem services with an deficits), prevents countries from rising the path taken by East Asian economies
aggregate value of nearly US$4.75 trillion to high-income status. Indonesia’s that have achieved high incomes, such
per year by 2060 in NZ2050, or 8.1% of recent reclassification as a lower- as Japan and South Korea. The net-zero
the country’s GDP that year. Figure 16 income country after a pandemic-related scenarios accelerate growth and create
shows that the value of those services contraction could deepen that concern.130 new economic opportunities in the
has been declining steadily, reflecting secondary and tertiary sectors.
the loss in carrying capacity discussed While the analytical framework that
in Section 2.1. The net-zero scenarios supports LCDI does not address all Such patterns of structural transformation
would allow the recovery of ecosystem supply and demand elements that are associated with faster increases in
services with an aggregate value of determine growth outcomes, the human capital (from development of
nearly US$4.75 trillion per year by 2060 empirical results indicate that pursuing education, skills and health outcomes)
in NZ2050, or 8.1% of the country’s GDP net-zero could help the country break and the closing of fiscal and external
that year. away from the middle-income trap by sector gaps. For example, reducing
reducing reliance on land-based sectors. dependency on energy imports and
A final, important consideration is how By proactively building low-carbon developing local manufacturing to
pursuing net-zero might accelerate industries, Indonesia can also boost its supply inputs to low-carbon businesses
Indonesia’s structural transformation on global competitiveness. This was also a could help reduce deficits in the current
the path to becoming a high-income key point made by the ADB in arguing account. In addition, as noted earlier,
country. Several studies have found that, for a green recovery across Southeast revenue from carbon pricing and
despite robust economic growth over the Asia.131 savings from the phase-out of fossil fuel
last decades, Indonesia appears to be subsidies can provide fiscal resources
stuck in a “middle-income trap.”129 This Structural transformation is crucial to for growth, while the country develops
is a phenomenon in which increased escaping the middle-income trap— higher fiscal buoyancy associated with a
economic inequality, combined with moving away from the primary sector, stronger industrial base and the increase
structural deficits in education and skills, which depends on and often erodes in average incomes.
129
See, e.g., Lumbangaol and Pasaribu, 2019, “Eksistensi dan Determinan Middle Income Trap di Indonesia [Existence and Determinants of Middle Income Trap in
Indonesia],” Jurnal Ekonomi & Kebijakan Publik; Setiawan, 2017, “Middle Income Trap and Infrastructure Issues In Indonesia: A Strategic Perspective,” International Journal
of Economics and Financial Issues; Basri and Putra, 2016, “Escaping the Middle Income Trap in Indonesia: An Analysis of Risks, Remedies and National Characteristics”;
World Bank, 2014, “Indonesia: Avoiding the Trap.”
130
131
Lim, Ng, and Zara, 2021, “Implementing a Green Recovery in Southeast Asia.”
3.
Investment needs,
fiscal impacts and
financing options
Photo by Sigit Deni Sasmito/CIFOR via Flickr
The discussion so far indicates that it In this section, we examine the costs a good fit with existing external funding
is clearly advantageous for Indonesia of specific interventions and of policy sources (e.g. green recovery funds),
to embrace a net-zero pathway, packages and the options for financing and what will require new international
especially as it becomes clear that them. First we review overall costs climate finance. The latter will be crucial
climate risks and the continued loss and the extent to which they would be information for Indonesia’s engagement
of natural capital make the “business additional to those in the Reference with bilateral development partners
as usual” pre-pandemic growth Case; then, in Section 3.2, we examine and multilateral development banks. As
path ever less feasible. The question what can be funded by the government President Widodo has noted, Indonesia
then is, how much would it cost to without jeopardizing fiscal stability, simply cannot reach net-zero without
pursue a net-zero pathway, and can what the market can do on its own with international support.132
Indonesia afford it? the right policies and incentives, what is
3.1 How much will it cost for Indonesia to achieve net-zero?
For this analysis, we considered It is clear that transforming Indonesia’s period 2021–2030 (that is 3.4–4.5%
both upfront investment needs economy to achieve net-zero will require of GDP for the period). In 2031–2040,
and recurring costs for operation both shifts in existing investments and investment needs would rise to US$700
and maintenance (O&M) for significant new financing. The costs billion–$1 trillion per year (7.1–9.8% of
different interventions. Appendix would start at around US$20 billion GDP); in 2041–2050, they would be
A5 summarizes per unit costs of per year in 2021–2022 (about Rp. 291 US$1.3–1.6 trillion per year (6.6–7.5% of
interventions. These include those trillion) and average US$150–200 billion GDP); and in 2051–2070, US$2.1–2.2
in energy efficiency, carbon capture (Rp. 2.2–2.9 quadrillion) per year for the trillion per year (3.4% of GDP).
and sequestration, low-carbon
energy technologies, land-based
interventions, waste management, Figure 17. Investment needs for net-zero scenarios, 2021–2060
and waste prevention. Unit costs of

low-carbon interventions are extracted 2,000
from the empirical literature, in many
1,800
cases from international sources.
1,600
1,400
Overall investment needs and
1,200
associated O&M costs vary over time
billion US$
because of changing levels and speed 1,000
of efforts across interventions. They 800
are, naturally, higher upfront for more 600

ambitious net-zero scenarios. Figure 400
17 shows the annual costs of the net- 200
zero scenarios over the period 2021–
0
2070, in absolute terms, and Figure 18 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060
shows them as a share of GDP. NZ2045 NZ2050 NZ2060
132
Cabinet Secretariat, 2021, “President Jokowi Addresses Three Issues on Climate Change.”
Figure 18. Investment needs for net-zero scenarios, 2021–2060, as share of GDP
12.00
10.00
% of annual GDP
8.00
6.00
4.00
2.00
0.00
2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060
NZ2045 NZ2050 NZ2060
For comparison, those figures would represent only about • Not all the LCDI effort corresponds to expenditures from
10% of the country's total investment needs over the the public sector—though, conservatively, the model
period 2021–2030, and 20% of total investments thereafter assumes that the public sector will undertake most, in
through 2060.133 Still, they would represent a major increase line with historical patterns. The public sector investments
in low-carbon investments, which averaged a fraction modeled cover waste management, land-based
of a percentage point of GDP in 2015–2020. To better interventions, the development of hydrogen technology
understand these figures, it is important to consider that: for liquid fuels, capital investments in public transportation
(buses, charging stations) and their O&M costs, and total
• Investments, especially in renewable energy, are
capital and O&M for power generation.
substitutes for other investments that otherwise would
be made in high-carbon sectors. To gauge the burden • In practice, while today, most of those costs are
on government finances, it is important to distinguish shouldered by the government—for instance, building
between the total cost and the incremental cost, power plants—renewable energy, which represents
compared with high-carbon energy. 57% of total investment needs in 2021–2030 and about
75% of the total thereafter, already attracts substantial
• In order to provide a fair appraisal of differential
private investment worldwide, as do other green
macroeconomic impacts of LCDI interventions that
technologies. As discussed further below, with appropriate
occur as a result of factors other than a larger aggregate
regulatory reforms, as well as de-risking measures
demand effort relative to the Reference Case, the
such as guarantees, joint operations and public-private
analyzed scenarios are built in such a way that any
partnerships, Indonesia could unlock significant new
dollar of additional LCDI investment gets subtracted
private finance flows, especially in the late 2020s and early
from other aggregate demand expenditures.
2030s, when investment needs peak.
• The costs of LCDI interventions need to be compared
• The Government of Indonesia may face budget constraints
with associated LCDI revenues and avoided costs,
that impede progress on LCDI investments that are
mainly from applying a carbon price and removing fossil
typically considered as public, along with their O&M
fuel subsidies. As indicated in Figure 7, those revenues
costs. Considerations about deficit and debt ceilings, on
peak in 2031 at an amount equivalent to 2.64–3.55% of
revenue recycling mechanisms, sources of international
GDP, depending on the scenario.
financing, and the financing of O&M need to be made.
133
Based on investment trends produced by the Bappenas Macroeconomic Directorate.
Of the financing needs identified Figure 19. Key sources of finance for net-zero measures, NZ2045, as share of GDP
above, across scenarios, an estimated
81% in 2021–2030, 90% in 2031–2050,
and nearly 98% in 2051–2070 10.00
correspond to investments (and
associated O&M costs) generally 8.00
advanced by the public sector. Figure
% of GDP
6.00
19 indicates how financing needs might
be allocated, including both known and
4.00
still-unidentified sources of funding.
A major potential source of what is 2.00
labeled “remaining financing,” as noted
earlier, is the reallocation of resources 0.00
2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060
from high-carbon investments to green
investments. Given the escalating Additional finance required Private-sector investments
Carbon price revenue & fossil fuel subsidy savings Increased public investment
stranded-asset risks faced by fossil
fuel-dependent sectors, and the global *The result is based on July 2021 simulation and will be updated following the recent circumstances.
financial sector’s ongoing shift towards
low-carbon pathways, a significant Source: LCDI modeling results.
Note: The level of increased public investments is capped to ensure the current accounts deficit never exceeds
reallocation of resources would be 4.5% of GDP. The additional finance required could come from multiple sources, including the reallocation of
wise—and indeed, it is likely to occur in resources by both the public and private sectors from high-carbon to green investments. International finance
is also expected to play a crucial role.
the coming years.
Lastly, it is important to recognize and

Figure 20. Projected national government deficit as share of GDP, across scenarios
address concerns that the investments
needed to achieve net-zero would
increase government deficits, which
0.00
have already grown due to the cost
-0.50
of pandemic response. Figure 20
-1.00
shows the historical trend as well as
-1.50
deficit as % of GDP
projections across scenarios. Though

-2.00
the deficit would initially grow in
-2.50
the net-zero scenarios, more robust
-3.00
economic growth would help reduce
-3.50
the deficit over time. As economists
-4.00
around the world have recognized
-4.50
amid the COVID-19 crisis, deficit
-5.00
spending is particularly appropriate 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
and even advisable as a mechanism
NZ2045 NZ2050 NZ2060
to recover from a sharp economic
downturn and to support investments *The result is based on July 2021 simulation and will be updated following the recent circumstances.
in long-term growth and broader
socio-economic development.134 Source: LDCI modeling results, including historical data.
134
It has also been a successful strategy for Southeast Asian countries. See, e.g., Pham, 2018, “Impacts of Public Debt on Economic Growth in Six ASEAN Countries,”
Ritsumeikan Annual Review of International Studies.
3.2 Unlocking finance for key net-zero investments
Two strategies in the net-zero scenarios Forest, peatland and mangrove forests, peatlands and mangroves in the
would directly contribute to domestic restoration has proven particularly context of a net-zero target could also
sources of finance: the phase-out of challenging to finance in recent years. help Indonesia overcome challenges
fossil fuel subsidies and phasing in of With an average annual budget of Rp. in attracting significant finance from
a carbon price. They would generate 15 billion (US$1.1 million) between 2015 REDD+ and from major bilateral
savings and new revenue, respectively, and 2017, Indonesia only achieved and multilateral donors focused on
rising to the equivalent of 2.2% of GDP 55% and 13% of its annual restoration land use emissions.140 These projects
in 2030 (the peak year) before tapering targets in 2015 and 2016, respectively.137 could also be prime candidates for
off as fossil fuels are phased out of the Peatland restoration alone is estimated international carbon markets, and so
economy. Some of that revenue will be to cost more than US$4.6 billion— could sustainable agriculture initiatives.
needed for social protection programs substantially more than the funds In this context, however, it is important
and other investments to ensure a just currently allocated to the challenge to remember that to avoid double-
transition, but the balance could finance across Indonesian and international counting of emission reductions, any
green infrastructure. donor budgets.138 carbon credits sold would need to be
offset on Indonesia’s own emissions
Green finance is another important Some private investment has mobilized inventory. Still, given the large benefits
revenue source. Indonesia has already financing for restoration, including associated with these efforts, it is a key
tested the waters with green finance, blended finance instruments under the option to explore.
through two issuances of Green Sukuk Tropical Landscape Financing Facility
(Islamic bonds) worth US$2 billion in and provisions in the Green Sukuk Agricultural subsidies, which amount
2018 that were both oversubscribed, and in Natural Capital Bonds. These to over 164 times the REDD+ finance
showing an appetite among investors efforts could be greatly enhanced with the country received between 2006
for such opportunities.135 Significantly a robust market in forestry carbon and 2014,141 also need to be reviewed
more progress is now needed to credits (discussed further in Section to ensure that they do not hinder the
expand green finance in Indonesia, at 4.2) to direct private sector funds into scaling up of finance for restoration.142
a pace commensurate with investment forestry-related emissions reductions.139 Removal of any harmful subsidies
needs. The Indonesia Climate Change Progress on carbon pricing regulations would discourage practices that
Trust Fund (ICCTF) could be one would provide guidance on using exacerbate deforestation and land
avenue for developing creative green carbon credits to raise finances for degradation. It would also show
finance options.136 It is also crucial to restoration, especially if an offsetting investors that Indonesia is committed
ensure that revenues raised by green mechanism is in place as well. to protecting its natural capital, which
bonds are used exclusively for low- could provide a comparative advantage
carbon and green projects. Ambitious and high-profile in future global supply chains. Public
commitments to restore and protect endorsement of more sustainable
135
Gorbiano, 2019, “Indonesia Issues US$ 2b Global Green, Regular Sukuk,” The Jakarta Post.
136
See https://www.icctf.or.id/.
137
KLHK, 2015, “Rencana Strategis 2015–2019.”
138
Hansson and Dargusch, 2018, “An Estimate of the Financial Cost of Peatland Restoration in Indonesia,” Case Studies in the Environment.
139
Tacconi and Muttaqin, 2019, “Reducing Emissions from Land Use Change in Indonesia: An Overview,” Forest Policy and Economics.
140
Ambition has paid off before. For instance, in August 2020, the Green Climate Fund approved a US$103.8 million proposal from Indonesia for results-based payments
under REDD+. See Cabinet Secretariat, 2020, “Green Climate Fund Approves Indonesia’s REDD+ RBP Proposal of USD103.8 Million,”
141
McFarland, Whitley, and Kissinger, 2015, “Subsidies to Key Commodities Driving Forest Loss.”
142
Ding et al., 2017, “Roots of Prosperity: The Economics and Finance of Restoring Land.”
practices as part of a green recovery efficient technologies in their homes,
would signal the reliable long-term and firms in commercial buildings.
productivity and output gains that This may come in the form of tax
investors look for.143 breaks for the purchase of efficient
appliances, such as the 50% tax
In the energy sector, meanwhile, a deduction that Italy has provided, or
recent review by the Organisation subsidies, such as the ones Mexico
for Economic Co-operation and funded to cover the costs of new,
Development (OECD) identified several energy-efficient refrigerators and air
near- and longer-term actions needed conditioners. Mobilizing financing for
to facilitate and encourage private energy efficiency requires significant
investment in renewable energy,144 government support and flexibility for
from updated regulations to facilitate private sector involvement. Several
renewable energy projects, to a detailed of these barriers could be addressed
market assessment of financing needs through long-term concessional
and challenges, de-risking approaches finance or risk-sharing facilities
(such as guarantees, blended finance supported by a dedicated energy
and joint operations), and a shift to efficiency fund through, for example,
public, competitive tenders to procure PT SMI’s SDG Indonesia One Blended
renewables. Significant capacity- Finance Platform.146
building is also needed to enable the
design and development of a pipeline Scaling up international finance
of bankable projects. Development will also be crucial. Targeted “green
partners, including multilateral banks, recovery” funds set up by the ADB,
can provide expert support, drawing the World Bank and others could help
on successful models across Asia and jump-start key projects (see Section
beyond. 1.3). But as President Widodo has said,
developed countries urgently need to
Energy efficiency measures and scale up climate finance for developing
projects, meanwhile, have been economies, to meet their commitment
impeded both by a lack of finance to mobilize US$100 billion per year
and by misaligned incentives—such for developing countries. Indonesia
as high import tariffs and taxes—that will also need to work closely with
discourage the use and adoption its development partners, including
of more efficient technologies.145 bilateral donors and multilateral banks,
Realigning those incentives can to realign finance flows to advance the
encourage consumers to adopt energy- net-zero agenda.
143
See, e.g., Green Century, 2020, “Open Letter on the Omnibus Bill on Job Creation.”
144
145
PT SMI is a Special Mission Vehicle under the Ministry of Finance that is engaged in financing
146
and preparing infrastructure projects. To learn more about the Indonesia One platform,
see https://ptsmi.co.id/sdg-indonesia-one/.
4.
How ambitious is it
to aim for net-zero
by mid-century?
Photo by Ngrh Mei via Pexels
The analysis in Section
2 lays out an ambitious
agenda for achieving
net-zero in Indonesia by
2045, 2050 or 2060 and
shows why immediate
action would be more
beneficial than slower,
more gradual pathways.
Still, aiming for net-zero
as soon as 2045 would put
Indonesia on the vanguard
of the sustainability
transformation, and it
would require bold actions
that fully align with the
vision of the LCDI, but are
not yet part of Indonesia's
near-term plans.
This section examines

just how ambitious the
measures described
in Section 2 would be,
measured against both
Indonesia's current
trajectory, and what other
nations have undertaken.
By looking more closely
at the progress on energy
systems; carbon pricing;
industrial processes and
product use (IPPU); food
loss and waste; forest,
mangrove and peatland
restoration; and sustainable
agriculture, we show that
achieving net-zero, while
challenging, is well within
4.1 Energy systems
Indonesia's reach—and
worth the effort.
In line with the increasing global demand for clean energy, Indonesia has kick-
started several promising initiatives on clean energy, including ambitious national
action plans. Table 4 compares the net-zero scenarios with existing and announced
energy-related targets in Indonesia.
Table 4. Renewable energy targets in existing policies and in net-zero scenarios
Policy/Scenario Renewable energy targets
National General Plan for Energy (RUEN)/

23% of primary energy supply by 2025
National Energy Policy (KEN)
National General Plan for Electricity (RUKN) 28% of electricity generation by 2025
Electricity Power Supply Business Plan

40.9 GW capacity developed over 2021–2030, 49% of which is renewable
(RUPTL) 2021–2030 (draft)
2019 Indonesia Energy Outlook Sustainable

23% of primary energy mix by 2025, 32% by 2050
Development scenario
2019 Energy Outlook Low Carbon scenario 36% of primary energy mix by 2025, 58% by 2050
80% of primary energy mix by 2040, reaching 100% by 2050

IESR Best Policy Scenario (BPS)
50% of electricity generation by 2030, reaching 100% by 2045
65% of primary energy mix by 2030 (rest from coal and natural gas); 85% by 2060
Net-zero scenarios (rest from nuclear); starting from 16.4% in 2022, renewable share of power generation
to reach 60% by 2030 and 82% by 2053 (remaining 18% from nuclear by 2060)
Sources: Government of Indonesia,147 ESDM,148 Reuters,149 National Energy Council,150 IESR.151
Building on the Ministry of Energy and non-renewable energy, carbon trading construction after 2023.154 After that,
Mineral Resources (ESDM) Renewable funds, Renewable Energy Certificate all new electricity generation capacity
Energy regulations,152 the government (REC) funds, and other legal sources. would come from renewables, as part
is finalizing draft regulations to The fund will support renewable of its plan to reach carbon neutrality
encourage investment in renewables infrastructure development as well as by 2060.155 PLN aims to increase
and provide guidelines and policy incentives, such as compensation for the share of renewable power in
space for clean energy adoption.153 businesses that increase renewable the 2021–2030 National Electricity
Among the planned measures is a new generation capacity. Plan (RUPTL) to at least 48%, from
Renewable Energy Fund, sourced from 30% in the 2019–2028 plan.156 This is
the State Budget (APBN), Regional As noted earlier, PLN has announced certainly a step forward, considering
Budget (APBD), export levies on a moratorium on coal power plant coal-fired electricity generation was
147
Government of Indonesia, 2014, “Government Regulation No. 79/2014 on National Energy Policy.”
148
ESDM, 2019, “Rencana Umum Ketenagalistrikan Nasional (RUKN) 2019–2038 (National Electricity Plan).”
149
Reuters, 2021, “Renewables to Make up at Least 48% of Indonesia’s 2021–2030 Electricity Plan.”
150
151
IESR, 2021, “Indonesia Energy Transition Outlook 2021.”
ESDM, 2020, “Perubahan Kedua Atas Peraturan Menteri Energi Dan Sumber Daya Mineral Nomor 50 Tahun 2017 Tentang Pemanfaatan Sumber Energi Terbarukan
152
Untuk Penyediaan Tenaga Listrik (Second Amendment to Regulation No. 50 of 2017 on the Utilisation of Renewable Energy Resources for Electricity).”
153
Reuters, 2020, “Indonesian Govt Finalises New Rules for Renewable Electricity.”
154
Husaini, 2021, “Demi zero emisi, PLN moratorium pembangunan pembangkit batubara,” Kontan.co.id.
155
PLN, 2021, “PLN Siapkan Transisi Menuju Energi Bersih Demi Generasi Mendatang,” Perusahaan Listrik Negara (State Electricity Company) – Press Releases.
156
Reuters, 2021, “Renewables to Make up at Least 48% of Indonesia’s 2021–2030 Electricity Plan.”
to contribute 48% of the total additional to keep the demand-supply gap from Essential Services Reform (IESR) laid
capacity target in the 2019 RUPTL. growing; subsidies on electricity bills; out an even more ambitious scenario
At the Indonesia Energy Efficiency and allowances for credit restructuring than those modeled in this report, in
and Conservation Conference and for energy companies to maintain their which Indonesia achieves net-zero
Exhibition in June 2021, EDSM Minister financial health. A more stable economy by 2050 with electricity powered
Arifin Tasrif called for reducing energy with provisions for renewable energy 100% by renewable energy—without
intensity by 1% per year and energy and energy efficiency development nuclear support.159 That scenario also
consumption by 17% by 2025.157 could deliver crucial advances in clean envisions 90% of vehicles being EVs
energy for Indonesia. by 2050, with biofuels covering for
Only 0.9% of Indonesia’s COVID-19 the subsectors that are more difficult
stimulus allocations to date have As renewable energy and efficiency to electrify. Though the approach
been identified as supporting the measures become more viable envisioned by IESR is slightly different,
energy transition, including subsidies and cost-effective, these targets the key takeaway, as in this report, is
for biodiesel and renewable energy for integrating clean sources are that a clean energy future for Indonesia
development for PLN.158 Energy-related becoming more and more feasible. is very much achievable.
stimulus measures also include efforts A recent analysis by the Institute for
4.1.1 Energy efficiency
Across the three net-zero scenarios, collective target of a 20% reduction gains from EVs, the implied annual
Indonesia needs to reduce the energy from 2005 levels by 2020 three years change in energy intensity in Indonesia
intensity of its economy by 3.9–4.5% early, reaching 21.6% by 2017. The for 2021–2030 in the net-zero scenarios
per year until 2030, then accelerate latest ASEAN Energy Outlook shows would be about 2.4%. Energy-
progress, to about 6% per year until ambitious policies could achieve a saving technologies have improved
2060. The targets for 2021–2030, 32.5% reduction by 2025, and almost significantly in recent years and are
though ambitious, are commensurate 50% by 2040.161 expected to continue to advance.162
with gains made by several countries
in recent years, such as Malta (4.9% It is also important to stress that a large EVs are so much more energy-efficient
average annual improvement in share of the projected efficiency gains than internal combustion engines163 that
energy efficiency in 2005–2017), in the net-zero scenarios comes from BloombergNEF recently estimated that
Ireland (4.5%), Romania (4.4%) and large-scale EV adoption, to achieve a electrifying almost all road transport
Slovakia (4.1%).160 ASEAN Member 100% electrified fleet by the net-zero by 2050, including trucks, would only
States, meanwhile, surpassed their target year. Excluding the efficiency increase global electricity demand
157
Liputan6.com, 2021, “Menteri ESDM Buka Gelaran IEECCE 2021, Event Virtual Dukung Transisi Energi Bersih.,” Liputan6.
Of the US$0.34 billion (Rp. 5 trillion) state capital injection (PMN) to PLN (Perpres no. 37/2020), US$0.07 billion (Rp. 1 trillion) will be allocated to developing 99 MW of
158
renewable energy capacity, with a total investment of US$0.21 billion (Rp. 3.5 trillion). PLN will also use US$0.013 billion (Rp. 200 billion) from the PMN to develop village
electricity distribution in Kalimantan (total investment of US$0.08 billion, or Rp. 1.1 trillion). State subsidies (APBN) have allocated US$0.19 billion (Rp. 2.78 trillion) for B30
biodiesel. See Wijaya et al., 2021, “Leveraging Fiscal Stimulus to Improve Energy Transition: Case of South Korea and Indonesia.”
159
Tampubolon et al., 2021, “Deep Decarbonization of Indonesia’s Energy System: A Pathway to Zero Emissions by 2050.”
160
EEA, 2021, “Energy Intensity in Europe,” European Energy Agency – Indicator Assessment.
161
ACE, 2020, “The 6th ASEAN Energy Outlook (AEO6).”
By disrupting how people live, work and travel, the pandemic has slowed some efficiency advances while accelerating others (e.g. in home appliances). The IEA’s
162
most recent assessment highlights the importance of policy and COVID recovery investment choices to regain momentum. IEA, 2020, “Energy Efficiency 2020.”
163
Lovell, 2020, “EVs: Are They Really More Efficient?” Australian Energy Council.
Photo by Asian Development Bank via Flickr
by about 25%.164 The energy efficiency gains
are particularly great when using power from
renewable sources. In August 2019, President
Widodo signed a decree with the aim to start
building EVs in Indonesia by 2022 and have 20%
of the country’s auto production be EVs by 2025.165
Indonesia exported US$4.52 billion worth of cars
in 2019.166
Transforming the transport sector is crucial

for improving energy efficiency in Indonesia.
Already in 2015–2019, it was found to be the
largest contributing sector to energy savings.167
A study by the Coalition for Urban Transitions
found that about a quarter of Indonesia’s urban
GHG abatement potential was in transport and
highlighted the benefits of investing in compact
Photo by Asian Development Bank via Flickr

urbanization (which reduces travel demand),
public transit and EVs, all of which would yield
large returns.168
Improving energy efficiency in industry is also

crucial, as industry today is highly energy-
intensive, accounting for almost half of Indonesia’s
energy consumption.169 Energy efficiency in
commercial and residential buildings will also be
increasingly important to offset the impacts of
rising incomes (and lifestyle shifts) and a warming
climate. Only about 10% of Indonesian homes
now have air conditioners, for instance, but the
number of residential AC units is expected to rise
from 12 million in 2020, to 129 million by 2040.170
164
BloombergNEF, 2021, “EVO Report 2021.”
165
Reuters, 2019, “Indonesia President Signs New EV Decree to Bolster Industry.”
See Observatory of Economic Complexity data for Indonesia:
166
https://app-bee.oec.world/en/profile/country/idn.
Wijaya et al., 2021, “Leveraging Fiscal Stimulus to Improve Energy Transition: Case of
167
South Korea and Indonesia.”

CUT, 2021, “Seizing Indonesia’s Urban Opportunity: Compact, Connected, Clean and
168
Resilient Cities as Drivers of Sustainable Development.”

169
Tharakan, 2015, “Summary of Indonesia’s Energy Sector Assessment.”
170
IEA, 2019, “The Future of Cooling in Southeast Asia.”
4.1.2 Renewable energy
Although Indonesia’s current renewable energy capacity is has been most heavily utilized: at 7.5% of total potential as of
relatively small, its potential is significant. Total utility-scale 2019, compared with 6.3% for hydropower and 0.07% for solar.
renewable energy potential was estimated at 442 GW in Indonesia has some of the largest geothermal potential in
2018,171 of which only 2% had been utilized.172 As shown in the world, estimated at 40% of global reserves.173 The market
Figure 25, almost half this capacity is solar, and over a fifth potential for dispatchable renewable technology is estimated
is hydropower. As a share of potential, however, geothermal at US$21 billion over 2020–2025.174
Figure 25. Indonesia’s renewable energy technical potential
Hydropower
94.3 GW
6.34% utilized
Solar
207.8 GW
0.07% utilized
Geothermal Ocean
28.5 GW 19.7 GW
7.48% utilized 0% utilized
Wind
60.6 GW
0.25% utilized
Biofuels Bioenergy
200,000 BPD 32.6 GW
5.54% utilized
Source: LCDI analysis, based on National Energy Council, 2019, and ESDM, 2020.175
An energy sector review in Indonesia found that the levelized cost of energy (LCOE) of renewables can be reduced to be competitive
with fossil generators, and the government could lower it more through land grants and collaboration with PLN.176 The procurement
of two 25 MW solar power plants in Bali and the successful financing of a 90 MW floating solar plant in Danau Singkarak and a 60
MW plant in Saguling are just a few of several examples of the successful installation of renewable energy in Indonesia.
171
National Energy Council, 2019, “Indonesia Energy Outlook 2019”; ESDM, 2020, “Handbook of Energy & Economic Statistics of Indonesia.”.
172
173
Suharmanto, Fitria, and Ghaliyah, 2015, “Indonesian Geothermal Energy Potential as Source of Alternative Energy Power Plant,” KnE Energy.
174
UK Foreign & Commonwealth Office, 2018, “Indonesia Renewable Energy Business Opportunities.”
175
176
METI, 2021, “Energy Sector Review.”
As noted earlier, globally, the costs of capacity.180 PLN, Sumitomo Corporation 2026, which it estimates will require
large-scale solar PV have declined so and Sinar Mas Group are at most risk an investment of US$12 billion.185 As
rapidly that they are already on par with due to increasing unviability of coal, with the costs of renewable energy
or cheaper than coal power plants in with stranding asset values of US$15 technologies, blue and green hydrogen
many places.177 This is why the net-zero billion, US$3 billion and US$2.1 billion, prices are currently high, but are
scenarios envision rapid deployment: respectively. expected to decrease rapidly over time.
building new solar PVs is expected to
be cheaper even than running existing Another reason to accelerate the Though our model only accounts for
coal plants by the end of the decade. switch to clean energy is that the air the use of hydrogen in transportation,
Similar trends are likely to be seen pollution associated with coal power it is also widely used in chemical
with other, more novel renewable has costly health impacts.181 In addition, industrial processes, which are
technologies, such as battery storage, renewables can increase resilience to discussed in Section 4.3. Over 95% of
which would enable them to scale up extreme weather events, as renewable hydrogen is currently produced by fossil
rapidly as well. As discussed below, technologies are often more distributed fuels by steam reforming of natural gas,
a robust carbon market in Indonesia and less prone to large-scale failure.182 partial oxidation of methane, and coal
can help clean energy compete with For example, after Hurricane Sandy in gasification.186 New technologies offer
established technologies. 2012, solar and wind power resources clean alternatives, through the reuse
sustained relatively little damage and of fossil fuels from carbon capture
Globally, as renewables scale up, stayed operational despite widespread utilization and storage (CCUS) (blue
fossil fuel assets are increasingly at power outages in New York and New hydrogen) or through water electrolysis
risk of becoming stranded. From 2025 Jersey.183 (green hydrogen) that is carbon-neutral
to 2050, for instance, almost US$700 if powered by renewable sources.
billion in coal assets is projected to be In the transport sector, meanwhile,
stranded.178 PLN’s plan to stop building the net-zero scenarios would use As noted in Section 3.2, advancing
coal power plants after 2023 is a first hydrogen-based fuels to replace the energy transition in Indonesia still
step in addressing this issue, but the petroleum products during the requires regulatory reforms to facilitate
large number of new plants still in the transition to EVs, avoiding the need to the development and scaling up of
pipeline before then poses significant scale up biofuels. Several developed renewable energy projects.187 Investors
stranded-asset risks.179 In a coal phase- countries have included hydrogen also face challenges in financing clean
out scenario, the Carbon Tracker fuels in their decarbonization plans.184 energy projects in the country due to
Initiative indicates that Indonesian Pertamina is already looking at high interest rates, limited long-term
coal power owners risk losing US$34.7 hydrogen as a renewable source to debt financing, and inefficient policy
billion of operating capacity stemming achieve their target of 10 GW of clean frameworks.188
from the premature retirement of coal energy power generation capacity by
IEA, 2020, “Renewables 2020: Analysis and Forecast to 2025”; IESR, 2019, “Levelized Cost of Electricity in Indonesia – Understanding The Levelized Cost of Electricity
177
Generation.”
178
IRENA, 2017, “Stranded Assets and Renewables: How the Energy Transition Affects the Value of Energy Reserves, Buildings and Capital Stock.”
Husaini, 2021, “Demi zero emisi, PLN moratorium pembangunan pembangkit batubara,” Kontan.co.id; Jong, 2021, “Indonesia Says No New Coal Plants from 2023
179
(After the Next 100 or So),” Mongabay.

180
Gray et al., 2018, “Economic and Financial Risks of Coal Power in Indonesia.”
181
Braithwaite and Gerasimchuk, 2019, “Beyond Fossil Fuels: Indonesia’s Fiscal Transition.”
182
Davis and Clemmer, 2014, “Power Failure: How Climate Change Puts Our Electricity at Risk—and What We Can Do.”
183
Unger, 2012, “Are Renewables Stormproof? Hurricane Sandy Tests Solar, Wind,” The Christian Science Monitor.
184
IRENA, 2019, “Hydrogen: A Renewable Energy Perspective.”
185
Nathan, 2021, “Indonesia’s Pertamina Eyes Hydrogen to Meet 2026 Goal,” Argus Media.
186
IRENA, 2019, “Hydrogen: A Renewable Energy Perspective.”
187
188
Sitorus et al., 2018, “Energizing Renewables in Indonesia: Optimizing Public Finance Levers to Drive Private Investment.”
4.2 Carbon pricing
As discussed in Section 2.2.1, changing of global GHG emissions.189 This

economic incentives is crucial to a includes many G20 members, such
successful energy transition, which is as Argentina, Canada, China, the
why the net-zero scenarios include both EU, Mexico, South Africa and the
a phase-out of fossil fuel subsidies by UK. In 2020 alone, these initiatives
2030, and the introduction of a carbon generated US$53 billion in revenue.
price in 2022, which would scale up
linearly to US$60 per tonne CO2e by Though no formal carbon market
2040 under NZ2045, US$50 by 2040 is yet operational in Indonesia,
in NZ2050, and US$40 by 2040 in several promising initiatives are
NZ2060. under development, most notably a
Presidential Regulation on Carbon
As of July 2021, 64 carbon pricing Pricing Framework now being
initiatives were in operation in finalized that would lay the foundation
45 national jurisdictions and 35 for carbon pricing mechanisms to
subnational jurisdictions around the curb emissions as well as boost
world, covering more than a fifth development of renewable energy.
189
World Bank, 2021, “State and Trends of Carbon Pricing 2021.”
In addition, in March 2021, the Ministry pricing,194 but it could also bring Indonesian consumers have come to
of Energy and Mineral Resources unexpected benefits. Fuel price rely on subsidies to keep energy prices
launched an emissions trading pilot increases give firms an incentive low, but GSI research has shown that
program for 80 coal-fired power plants, to switch to more efficient capital more than 90% of subsidies go to the
including 59 PLN-owned plants.190 The equipment, often involving wealthiest 50% of households.198 While
trial, which will run through August electrification—though the effects will the proposed carbon price would raise
2021, covers more than 75% of CO2 vary across firm types and levels of electricity rates and fuel prices, this
emissions from the power sector. It energy dependence. Overall, a World can be coupled with subsidies or other
aims to familiarize stakeholders with the Bank study found that a 10% increase policies that better target low-income
development of a national emissions in fossil fuel prices from 1990 to 2015 households such as revenue recycling
trading system (ETS), including its increased productivity by 1.4% across through tax cuts or investment in social
compliance procedures and potential Indonesian manufacturing plants.195 programs that benefit the poor. For
offsetting mechanisms, based on example, in Canada’s British Columbia,
guidelines under the Government A 2019 Global Subsidies Initiative the provincial government returns a
Regulation on Environmental Economic (GSI) analysis found that Indonesia portion of the carbon tax revenue to
Instruments (GR 46/2017). The pilot had some of the world’s lowest households, adjusted for family size
is likely to continue until the full energy prices, thanks in part to and income to help offset any financial
implementation of a national ETS, with long-standing subsidies.196 The burden created by the tax. Similarly, in
annual reviews and trading periods.191 shortcomings of previous reforms Argentina, revenues from the carbon
highlight the need for a total phase- tax are used to fund housing, transport
Meanwhile, as part of a major tax out of those subsidies, as envisioned and social security programs.199
overhaul, the Ministry of Finance is in the net-zero scenarios. For
proposing a carbon tax on fossil fuel instance, the GSI analysis found The carbon price in the net-zero
emissions generated from economic that underpricing of Premium fuel scenarios, which starts at less than
activities, factories and motor alone between 2014 and 2019 had US$5 per tonne in 2022 and rises to
vehicles.192 The ministry is considering a cost Pertamina about Rp. 54.5 trillion US$40–60 by 2040, is well within the
carbon tax range of US$5–10 per tonne (about US$3.7 billion), as price range suggested by the High-Level
CO2e and included an initial minimum adjustments on subsidized fuels Commission on Carbon Prices, which
rate of US$5.15–5.25 per tonne CO2e were too infrequent and insufficient was US$30–60 by 2025 and US$30–
in a draft bill in May 2021.193 Revenues to keep up with global prices. Price 100 by 2030.200 It is also comparable to
will be regulated by the ministry caps on fuel can significantly reduce or lower than prices being applied in
in coordination with other relevant economic uncertainty around energy other countries—and significantly lower
ministries and agencies. price fluctuations, but they can also than some. Canada, for example, set
lock out renewable energy prospects a minimum price for carbon in 2018 of
There is a risk of pushback from the due to artificially low fossil fuel CA$10 per tonne CO2e, to rise annually
sectors most affected by carbon prices.197 to CA$50 (about US$39) in 2022201 and
190
ESDM, 2021, “Uji Coba Perdagangan Karbon Diikuti 80 Pembangkit (Carbon Trading Trial Followed by 80 Generators),” Kementerian Energi dan Sumber Daya Mineral
191
ICAP, 2021, “Indonesia.”
192
Reyes, 2021, “Indonesia Pushes Ahead with Carbon Tax Scheme,” Argus Media; Reuters, 2021, “Indonesia Considering Carbon Tax under Major Tax Overhaul –
Document.”
Media reports put it at US$5.25 (see Reyes, 2021, above); Parliament Commission XI cited a Rp. 75/kg CO2e, which would be US$5.15 per tonne at the Rp. 14,550 per
193
US$1 exchange rate used throughout this report. See Komisi XI, 2021, “Kategorisasi Pajak Karbon Dalam RUU KUP Perlu Tinjauan Kembali.”
194
Ministry of Finance, 2021, “Analysis of Tax Policy and Carbon Levies in Indonesia’s Taxation System.”
195
Pigato, 2019, “Fiscal Policies for Development and Climate Action.”
196
Laan and McCulloch, 2019, “Energy Transition in Support of the Low-Carbon Development Initiative in Indonesia: Transport Sector.”
197
Bridle, Suharsono, and Mostafa, 2019, “Indonesia’s Coal Price Cap: A Barrier to Renewable Energy Deployment.”
198
Laan et al., 2011, “A Citizen’s Guide to Energy Subsidies in Indonesia.”
199
World Bank, 2021, “Argentina Carbon Tax,” Carbon Pricing Dashboard.
200
High-Level Commission on Carbon Prices, 2017, “Report of the High-Level Commission on Carbon Prices.”
201
Ricardo Energy & Environment, 2021, “International Experience of Carbon Tax Mechanisms.”
then CA$170 by 2030.202 The revenues a low tax rate can raise revenue to
generated from the tax are returned offset the costs of the energy transition,
to the jurisdictions where they are ultimately the rate needs to be higher if
collected, to support social programs, it is to change consumption patterns. alongside a carbon tax, as was done in
hospitals, schools, Indigenous Colombia. In fact, a similar approach
communities, and more. In South Africa, In its 2021 report on the State and was discussed in 2019, with hopes
the government implemented a carbon Trends of Carbon Pricing, the World that it could generate up to US$100
tax in 2019 starting at a rate of ZAR120 Bank states that carbon prices should billion per year.207 The current status of
(US$8.34) per tonne CO2e, which is fall in the range of US$40–80 per this initiative could not be ascertained
increasing at a rate of 2% per year plus tonne CO2e to keep global warming for this publication, but in any case,
inflation until 2022 and will be adjusted below 2oC.204 High prices not only it indicates Indonesia’s willingness to
annually to match inflation thereafter. better reflect the true costs of carbon adopt a market for carbon offsets.
pollution to society, but can also drive
Ideally, the gradual introduction of a the decoupling of economic growth Establishing a price on carbon has
carbon price through initially lower from carbon emissions, as was the the potential to create many benefits
rates could ease the transition towards case in Sweden.205 The government beyond GHG emission reductions in
a carbon market system, as has been of Sweden introduced a carbon tax of Indonesia. A recent OECD analysis
implemented in Canada and elsewhere. US$26 per tonne CO2e in 1990 when of 15 emerging and developing
In Colombia, the carbon tax was economic growth was relatively weak. economies found that the countries
introduced in 2017 at a low rate (about Despite having the highest carbon tax could generate an average revenue
US$5 per tonne CO2e), and it did not in the world—both in 1990 and now of about 1% of GDP with a carbon
significantly slow the consumption of at a rate of US$126 per tonne CO2e— rate of about US$35 per tonne CO2e,
fossil fuels, at least initially. Instead, the Sweden has seen stable and consistent thereby increasing tax revenues by an
tax incentivized mitigation activities economic growth since implementing average of 5%.208 The modeling results
outside the energy sector, through the tax, even as industrial emissions fell presented in Section 2 project that
a carbon offsetting mechanism rapidly through the early 2000s. carbon pricing and fossil fuel subsidy
designed to feed into reforestation removal combined generate substantial
and conservation efforts.203 Colombia’s To increase the use of carbon markets revenue for Indonesia, peaking at
carbon price will continue to increase internationally, these policies can be US$168–215 billion (2.64–3.55% of
by 1% per year (plus inflation) until it coupled with other instruments, such as GDP) in 2031. These funds can be
reaches a final rate of US$10 per tonne carbon trading. These additions can be used in myriad ways-revenue recycling
CO2e. Though the tax has spurred lucrative: the recently launched carbon through tax breaks to consumers
greater action in the voluntary carbon offset trading market in Singapore is and the private sector to reduce
offsetting market, it is clear that the already attracting large technology financial burden, funding for critical
price signal it sent was too weak, firms, for instance.206 For Indonesia, an government programs, and investment
at least at first, to reduce fossil fuel effective approach could be to employ in renewables or energy efficiency
demand. This means that while even carbon credits for forest conservation measures, to name a few.
202
Environment and Climate Change Canada, 2020, “A Health Environment and a Health Economy.”
203
204
World Bank, 2021, “State and Trends of Carbon Pricing 2021.”
205
206
Mookerjee, 2021, “Big Tech Drawn to New Singapore Carbon Offset Trading Market,” Bloomberg.
207
Reuters, 2019, “Indonesia Drafting Regulations for the Sale of Carbon Credits.”
Teusch and Theodoropoulos, 2021, “Why Should Developing Countries Implement Carbon Pricing When Even Advanced Economies Fall Woefully Short?”
208
OECD Development Matters (blog).
4.3 Industrial processes and product use
(IPPU)
Indonesia’s NDC includes an unconditional pledge to reduce IPPU emissions by

0.10% below baseline levels by 2030 (increased to 0.11% in the conditional pledge).209
Under the Mitigation Action Implementation Roadmap, achieving these goals
assumes the following mitigation activities take place:
• The cement industry reduces the clinker-to-cement ratio (blended cement) from
80% in 2010 to 75% in 2030.
• The petrochemical industry enhances efficiency by feedstock utilization and CO2

recovery, particularly in ammonia production.
• The steel industry implements CO2 recovery measures, improving smelter

processing and scrap utilization.
• Aluminum smelter Clean Development Mechanism (CDM) activities maintain

remaining perfluorinated chemicals (PFCs) claims.
209
In the unconditional pledge, these industry-specific efforts that can material production.216 Table 5 outlines
activities would be met solely through further reduce energy use, such as mitigation approaches and the types
technological improvements. The recovering excess heat from cement of emissions they address that have
conditional pledge envisions secondary production.213 been considered for these industries in
mitigation activities, such as using Indonesia.
selective catalysts for the destruction Other countries are addressing these
of nitrous oxide (N2O) emissions in issues in their industrial policies It is important for the policies aiming
the nitric acid industry, using scrap as well. For example, as part of its to achieve net-zero to consider the
for raw materials for the steel industry, Perform, Achieve, Trade (PAT) Scheme, variances in the mitigation potential of
and using potential PFC emission India’s Ministry of Power identified these activities. Simply setting a target,
reductions through CDM project promising energy-saving opportunities such as the 75% clinker-to-cement
activities in the aluminum industry. in the iron and steel industry, including ratio by 2030 in Indonesia’s NDC,217
the adoption of multi-slit coke oven without attaching carefully designed
Though IPPU emissions reductions gas burners to improve oven ignition policies can negate the overall
would contribute marginally to the efficiency, regenerative burners for abatement potential. For instance,
overall net-zero effort (see Section reheating furnaces, gas recovery importing clinker to achieve this goal,
2.2), they would support a global effort systems, and waste heat recovery as noted in Table 5, would reduce the
to tackle industrial emissions that is strategies.214 The 67 enterprises in this emissions profile of the IPPU sector in
estimated to have the potential to avoid sector managed to reduce emissions Indonesia, but it could result in carbon
4.2–6.6 Gt CO2e by 2030.210 They would by about 6 million tonnes (Mt) of CO2, leakage, since emissions would still be
also contribute to improving energy saving an equivalent of 2.1 Mtoe by generated in the exporting country, not
efficiency and help Indonesia build a 2015. Similarly, in the Netherlands, to mention emissions from transport.
green economy with a more sustainable water used to generate steam for Making the effort to reduce and
industrial sector. processing heat was redirected into manage the CO2 intensity of clinker
cooling towers for a chemical plant, production with alternative chemistries
More broadly, industrial interventions cutting energy costs by 95%.215 is the more effective low-carbon
aim to reduce emissions and hazardous approach to lowering the clinker-to-
pollutants by improving resource and A Bappenas sectoral analysis has cement ratio. Increasing the efficiency
energy efficiency, replacing harmful identified the cement and food of materials use is also crucial, as it
inputs when possible, and limiting and beverage subsectors—which would reduce the total amount of
waste production.211 In 2018, 47% of contribute 52.42% and 0.1% of production needed.
Indonesia’s industrial emissions were industrial emissions, respectively—as
energy-related, 27% were attributed having significant abatement potential Adjusting the types of materials
to waste generation, and only 26% in Indonesia. Other studies have used in industrial processes can also
stemmed directly from material noted mitigation in steel production, reduce emissions. Recycling steel
processing.212 This means a large which accounts for 9.17% of total scrap, for example, is significantly less
share of the abatement in industry will industrial emissions and 18.2% of energy- and emissions-intensive than
be achieved through energy sector GDP and is considered the most ore-based steel production, because
interventions, but there are some energy- and emissions-intensive it eliminates the need for the coal-
210
Blok et al., 2020, “Assessment of Sectoral Greenhouse Gas Emission Reduction Potentials for 2030,” Energies.
211
Bappenas, 2021, “Industry Study.”
212
KLHK, 2020, “Statistik KLHK 2019.”
213
Lu, 2015, “Capturing the Invisible Resource. Analysis of Waste Heat Potential in Chinese Industry and Policy Options for Waste Heat to Power Generation.”
214
IEA, 2020, “Iron and Steel Technology Roadmap.”
215
World Water, 2013, “Fresh Thinking to Improve Business and Sustainability.”
Dewi et al., 2019, “AIM/End-Use Model for Selecting of Low-Carbon Technology in Indonesia’s Iron and Steel Industry,” IOP Conference Series: Earth and
216
Environmental Science.
217
Table 5. Potential activities to reduce emissions in industry
Subsectors IPPU Waste Energy
Reduce clinker-to-cement ratio (blended cement) by a)

developing new chemistries (e.g. alternatives to limestone, Increase energy efficiency
Cement industry the raw material for clinkers) or improving existing blends, or (e.g. waste heat recovery)
Compact and
b) importing clinker for domestic cement production
sustainable Energy conservation from
CCUS to captures process emissions from heating limestone packaging/ increased efficiency in
product material use
Food and Increase efficiency of N2O product use as a propellant in Wastewater Increase share of
beverage industry aerosol products (e.g. pressure-packed whipped cream) management renewable sources (e.g.
Solid waste green hydrogen)
Reusing scrap metal (as opposed to iron ore), eliminating management Co-firing of waste as an
Steel industry need for the coal-dependent processes (coking, sintering and alternative energy source
blast furnace) to produce pig iron
Sources: Bappenas, 2021; Dewi et al., 2019.218
dependent processes (coking, sintering Reducing industrial emissions will opportunities are in improved waste
and blast furnace) to produce pig require new investments in efficient, management, and particularly
iron.219 Sometimes these approaches low-carbon technologies and wastewater treatment and reuse, an
are not adopted mainly due to resource processes, as well as better industrial understaffed field around the world.222
limitations, especially in developing waste management and research In the United States, actions to achieve
and emerging economies. In India, and development for alternative near-zero industrial emissions by 2050
for example, steel scrap makes up chemistries. Energy intensity trends have been projected to boost GDP
20–25% of imports.220 India’s 2019 in Indonesia have been found to by 3.3% and create 5 million jobs.223
National Resource Efficiency Policy have a positive correlation with the These new forms of employment
aims to remedy this by investing in ratio of income from the industrial could also bring opportunities for
steel recycling schemes, such as a sector to gross regional domestic enhanced gender equity. For example,
“cash for clunkers” program that would product (GRDP), trade openness, a study found that women held
also take inefficient cars off the road. and foreign direct investment per more decision-making positions in
It would also impose an import duty capita, suggesting that energy water and sanitation industries in
on scrap imports to promote domestic intensity improvements are driven by the Philippines, and they made up
scrap collection, targeting a 90% steel increasing energy efficiency in the 60% of local water and sanitation
recycling rate and a total elimination of industrial sector.221 committees in Nicaragua.224 Capacity-
steel imports by 2030. Indonesia could building initiatives undertaken by
adopt similar policies as part of its Industrial emissions reduction can these improved waste management
efforts to achieve net-zero. also create good jobs. The largest activities contributed to those benefits.
218
Bappenas, 2021, “Industry Study”; Dewi et al., 2019, “AIM/End-Use Model for Selecting of Low-Carbon Technology in Indonesia’s Iron and Steel Industry,” IOP
Conference Series: Earth and Environmental Science.
219
Dewi et al., 2019, “AIM/End-Use Model for Selecting of Low-Carbon Technology in Indonesia’s Iron and Steel Industry,” IOP Conference Series: Earth and
Environmental Science.
220
IEA, 2020, “Iron and Steel Technology Roadmap.”
221
Bappenas, 2021, “Industry Study.”
222
Renner, 2017, “Wastewater and Jobs: The Decent Work Approach to Reducing Untreated Wastewater.”
223
Rissman et al., 2020, “Technologies and Policies to Decarbonize Global Industry: Review and Assessment of Mitigation Drivers through 2070,” Applied Energy.
224
4.4 Food loss and waste
While policies to improve efficiency and reduce emissions in the energy and
industrial sectors are fundamental to Indonesia’s low-carbon development strategy,
significant emissions reductions can also be realized in other sectors that often
garner less attention.
Globally, food loss and waste accounts for 8–10% of all GHG emissions,225 and
according to the Ministry of Environment and Forestry, 44% of all waste generated
in Indonesia in 2018 came from food.226 Indonesians wasted 23–48 million tonnes of
food per year from 2000 to 2019, or about 115–184 kg per person.227 This generated
roughly 85 Mt CO2e of emissions per year, or about 7.3% of Indonesia’s annual GHG
emissions over the past 20 years. It also cost the economy an estimated Rp. 213–551
trillion per year (US$14.6–37.9 billion), or 4–5% of Indonesia’s GDP.
Mbow et al., 2019, “Food Security,” in Climate Change and Land: An IPCC Special Report on Climate Change, Desertification, Land Degradation, Sustainable Land
225
Management, Food Security, and Greenhouse Gas Fluxes in Terrestrial Ecosystems.

226
KLHK, 2018, “Waste Management in the Environment and Forestry Sector.”
227
Bappenas, 2021, “Food Loss and Waste in Indonesia: Supporting the Implementation of Circular Economy and Low Carbon Development.”
This level of food waste is particularly to 2.5% in 2045; reduce processing and such opportunities with key corporate
troubling because, despite significant packaging food loss from 1.2% to 0.8%; and government stakeholders. While
progress in reducing hunger and food reduce food waste from distribution reducing food loss and waste might
insecurity in Indonesia, 9% of the and markets from 5% to 3.8% in 2045; not have the same emissions reduction
population is still undernourished, and and reduce consumption food waste by potential as other sectors, it does
the growth of more than a quarter of 35% from 2022 to 2030.233 Compared offer multiple co-benefits, including
children is stunted.228 On the 2020 with a baseline scenario for 2020–2045, preventing economic loss, improving
Global Hunger Index, Indonesia ranked employing this strategy scenario could food security, and reducing malnutrition.
70th out of 107 countries analyzed,229 reduce total food loss and waste by It is therefore not only feasible, but a
putting it on the high end of “moderate” roughly 37% by 2030 and by 56% by political and economic win.
levels of hunger. Yet a recent Bappenas 2045.
report found that the average food
loss per day in Indonesia is equivalent Many policy options could help achieve
to about 618–989 kcal per person.230 those targets. Consumer education
Saving that food could feed 29–47% of is key: educating households about
the entire population. reducing food waste, interpreting food
expiration labels, and alternative protein
Food loss and waste occurs all across sources could be an effective tool for
the supply chain in Indonesia, but the catalyzing behavior change. It might
consumption stage makes up by far also be helpful to support small-scale,
the largest share (58%), so policies traditional food sellers, and to work with
to reduce consumption waste are a larger food retailers to steer them away
priority.231 Research has linked the from marketing strategies that may
problem to urbanization and related encourage excessive food purchases.234
changes in food retail—from traditional Adopting these types of changes
small-scale vendors and street markets, could lead to tipping points in the food
to modern supermarkets selling in system and create momentum for
larger quantities—as well as cultural achieving the broader transformation of
shifts and class dynamics.232 food and land use systems needed for a
sustainable future, as recently outlined
Even modest reductions in food loss by the Food and Land Use Coalition.235
and waste across the supply chain
could make a significant impact. There are also opportunities to create
Bappenas looked at a “strategy new business models that monetize
scenario” with several targets (all the savings from reducing food
relative to estimated 2022 levels): to waste. The P4G Indonesia National
reduce food loss from production from Platform is currently working with
4.37% to 3% in 2045; reduce post- the Indonesia Business Council for
harvest and storage food loss from 3% Sustainable Development to explore
228
WFP, 2021, “WFP Indonesia Country Brief – May 2021.”
229
von Grebmer et al., 2020, “2020 Global Hunger Index: One Decade to Zero Hunger: Linking Health and Sustainable Food Systems.”
230
231
Soma, 2020, “Space to Waste: The Influence of Income and Retail Choice on Household Food Consumption and Food Waste in Indonesia,” International Planning
232
Studies.
233
234
Soma, 2020, “Three Solutions for Indonesia to Reduce Food Waste,” The Conversation.
235
FOLU, 2021, “Accelerating the 10 Critical Transitions: Positive Tipping Points for Food and Land Use Systems Transformation.”
4.5 Forest, peatland, and mangrove
restoration
Indonesia’s natural capital is central to its economy, so protecting and restoring
forests, peatlands and mangroves has become a government priority. As of 2018,
Indonesia had an estimated 93.9 million ha of forest area, half its total territory,
including 46.1 million ha of primary forest.236 Indonesia has the world’s third-largest
tropical forest area,237 including 19% of the global total mangrove forest area and the
third-largest number of forest tree species,238 However, it has also recorded one of
the world’s fastest forest loss rates, especially of primary forest.239
Despite moratoria on primary forest and peatland conversions, deforestation has

persisted, though mainly in secondary forests.240 The rate of primary forest loss has
declined over the last four years,241 in part due to the moratoria as well as increased
government-supported fire prevention and monitoring. Increasing ambition to protect
secondary forests could avoid an additional 427 Mt of CO2 emissions by 2030.242
236
Ministry of Environment and Forestry, 2018, “The State of Indonesia’s Forests 2018.”
237
FAO and UNEP, 2020, The State of the World’s Forests 2020: Forests, biodiversity and people.
238
Beech et al., 2017, “GlobalTreeSearch: The First Complete Global Database of Tree Species and Country Distributions,” Journal of Sustainable Forestry. Another
estimate puts Indonesia’s share of the world’s mangroves at 23%; see Giri et al., 2011, “Status and Distribution of Mangrove Forests of the World Using Earth
Observation Satellite Data,” Global Ecology and Biogeography.
FAO and UNEP, 2020, The State of the World’s Forests 2020: Forests, biodiversity and people. See also Turubanova et al., 2018, “Ongoing Primary Forest Loss in Brazil,
239
Democratic Republic of the Congo, and Indonesia,” Environmental Research Letters.

240
Jong, 2019, “Indonesia Forest-Clearing Ban Is Made Permanent, but Labeled ‘Propaganda,’” Mongabay.
241
See the Global Forest Watch dashboard for Indonesia: https://www.globalforestwatch.org/dashboards/country/IDN/.
242
Intact forests are the most valuable particular development support needed effort to protect these ecosystems is
and rare forests on the globe. to ensure their preservation and the the Peatland and Mangrove Restoration
Preserving them is a climate and prosperity of their dependent human Agency, which was established in
biodiversity imperative. Indonesia has communities. 2016 with a focus on peatlands, and
four “Intact Forest provinces”: Aceh, expanded in 2020 to also protect
North Kalimantan, Papua and West Restoration and reforestation generate mangroves. It is charged with restoring
Papua.243 Intact forests are global significant socio-economic benefits. 1.2 million ha of degraded peatland and
powerhouses for carbon sequestration Globally, investing US$4–4.5 billion 600,000 ha of mangrove ecosystems
and storage, biodiversity, rain patterns annually in restoration is projected across 13 provinces through 2024.252
and water provision, and the survival to create up to 150,000 new jobs and
of indigenous cultures.244 Climate US$6–12 billion in economic benefits There may be opportunities to impose
policies need to restore and protect per year.247 In fact, reforestation is more stringent measures on peatland
fragmented and degraded forests as expected to play a significant role and forest conservation. Avoiding
well, but maintaining intact forests is in creating the 65 million pandemic any further conversions into oil
the most immediate and cost-effective recovery jobs promised by a global palm plantations generates longer-
way to retain the full spectrum of forest transition to low-carbon, resilient term benefits, as the naturally high
benefits, including the most resilient economies.248 However, these benefits sequestration capacity of peatlands is
form of carbon storage.245 are impeded by significant legislative stunted following conversion.253 The
challenges, including the rollback of net-zero scenarios also aim to end
Most of the communities living within environmental protections under the the conversion of primary forest to
intact forests experience severe poverty new Omnibus Law. cropland—which will require sustainably
and under-development.246 Papua and boosting productivity, as discussed in
West Papua, home to a large number of Protecting and restoring peatlands the next section, as well as reducing
forest dwellers, have the lowest scores and mangroves, meanwhile, is vital food waste and loss, as discussed in
on the Human Development Indicators for carbon storage, biodiversity and Section 4.4, to ensure that Indonesians’
in Indonesia. A new development other ecosystem services, and flood food needs are still met. Urban
pathway is essential—one that rewards prevention.249 Land subsidence, which expansion needs to be addressed as
the protection of natural capital, is associated with wetland drainage (as well, as cities are encroaching onto
such as intact forests, and provides well as groundwater over-abstraction), cropland, leading to even more land
sustainable economic opportunities is an urgent crisis: Jakarta is sinking by conversion and depriving cities of crucial
for communities. Current international almost 20 cm per year, and Semarang is protective ecosystems.254 More compact,
biodiversity and climate policy stances sinking by 7–11 cm per year.250 Wetland connected urban development and
do not adequately recognize either drainage for agriculture also continues nature-based solutions to build urban
the importance of intact forests or the to drive subsidence.251 Leading the resilience can help address these issues.
243
Potapov et al., 2017, “The Last Frontiers of Wilderness: Tracking Loss of Intact Forest Landscapes from 2000 to 2013,” Science Advances.
244
Watson et al., 2018, “The Exceptional Value of Intact Forest Ecosystems,” Nature Ecology & Evolution.
For example, intact forests are more fire-resistant than degraded forests. See Nikonovas et al., 2020, “Near-Complete Loss of Fire-Resistant Primary Tropical Forest
245
Cover in Sumatra and Kalimantan,” Communications Earth & Environment.

246
Bou Dib, Alamsyah, and Qaim, 2018, “Land-Use Change and Income Inequality in Rural Indonesia,” Forest Policy and Economics.
247
BenDor et al., 2015, “Estimating the Size and Impact of the Ecological Restoration Economy,” PLOS ONE.
248
Mollins, 2020, “Reforestation Could Play Role in Pandemic Recovery Jobs Creation, Says IMF’s Georgieva,” CIFOR Forests News.
Husnayaen et al., 2018, “Physical Assessment of Coastal Vulnerability under Enhanced Land Subsidence in Semarang, Indonesia, Using Multi-Sensor Satellite Data,”
249
Advances in Space Research.

250
Erkens et al., 2015, “Sinking Coastal Cities,” Proceedings of the International Association of Hydrological Sciences.
251
252
Jong, 2021, “Indonesia Renews Peat Restoration Bid to Include Mangroves, but Hurdles Abound,” Mongabay.
Warren et al., 2017, “Impacts of Land Use, Restoration, and Climate Change on Tropical Peat Carbon Stocks in the Twenty-First Century: Implications for Climate
253
Mitigation,” Mitigation and Adaptation Strategies for Global Change.

254
CUT, 2021, “Seizing Indonesia’s Urban Opportunity: Compact, Connected, Clean and Resilient Cities as Drivers of Sustainable Development.”
4.6 Sustainable agriculture
Agriculture contributed 12.7% of Indonesia’s GDP in 2019, making it

the third-largest sector, after manufacturing and trade.255 The share of
workers employed in agriculture has declined, from 43% in 2000 to 28.5%
in 2019, but it remains significant. Farmers earn considerably less than
other workers, which is driving many away from the sector. Measures to
make agriculture more sustainable thus need to provide good economic
opportunities for farmers and their communities.
Several government efforts have sought to improve the sustainability

of Indonesia’s agricultural sector. This is important not only for
environmental reasons, but also potentially for global competitiveness.
For example, many companies have pledged to use only palm oil
that is certified by the Roundtable on Sustainable Palm Oil (RSPO).256
Under RSPO and Indonesia Sustainable Palm Oil (ISPO) certifications,
255
BPS, 2021, “Indikator Pasar Tenaga Kerja Indonesia – Februari 2021 (Indonesian Labor Market Indicators – February 2021).”
256
Progress on this has been slower than expected a decade ago, but it still continues. See, e.g., Slavin, 2020, “Deadline 2020: Big Brands Double down on Efforts
to Source Deforestation-Free Palm Oil,” Reuters Events (blog).
only oil palm plantations that meet crops in Indonesia. One study found of the necessary irrigation systems.
certain sustainability, transparency, enhancing conditions could achieve In India, for example, wastewater
compliance and financial viability yields of 80% of the potential in irrigated was used to irrigate 1–1.5 million
criteria are allowed to plant within crops and 70% in rainfed crops, which ha of farmland, creating 130 million
designated forest areas.257 would enable Indonesia to boost its person-days of employment.265 Such
annual production of rice and maize by nutrient-rich wastewater, filled with
Another positive development has 31% and 67% respectively.262 Yet this algae and other microorganisms, may
been the creation of community-based requires substantial investments in labor also be used to feed fish in aquaculture
forestry programs to allow people and training, as well as more resources. farms.266
living in villages around forests to
sustainably harvest and manage non- The investment costs in adopting
timber forest products in protected innovative technologies and practices,
areas.258 However, a more recent however, are greatly offset by their
action aimed at supporting agriculture evidently high returns. Rice farmers in
could harm forests. In October 2020, Central Java, for example, increased their
the Ministry of Environment and revenue from US$105 to US$122 per
Forestry issued the Forest Areas for hectare per season after adopting an
Food Security Regulation, which average of two introduced technologies
allocated a large portion of protected and practices, including using high-
forests to be cleared for farmland.259 yielding rice varieties, alternate wetting
The regulation has been criticized and drying (AWD) techniques, and
for streamlining land conversion and use of mechanical transplanters and
exacerbating Indonesia’s already harvesters.263
rapid rates of deforestation and forest
degradation.260 It is important to Sustainable agriculture provides both
reconsider that measure. inputs and outputs that can feed
into several other sectors. Irrigation,
To reduce trade-offs between for example, could be a channel for
agriculture and forest protection, IPPU wastewater reuse, following
the net-zero scenarios prioritize improvements and advancements in
agricultural intensification to improve water treatment facilities. In fact, over
yields of rice, maize and oil palm. The 20 million hectares (or 7%) of land
gap between average and potential worldwide has been irrigated with
yields—what could be achieved wastewater.264 This bridge between
under favorable conditions without sectors can generate employment for
limitations from water, nutrients, pests wastewater management and treatment,
or diseases261—is significant for some including the building and maintenance
257
IndoFood Agri Resources LTD, 2013, “Sustainability Report.”
258
Leimona et al., 2015, “Indonesia’s ‘Green Agriculture’ Strategies and Policies: Closing the Gap between Aspirations and Application.”
259
KLHK, 2020, Penyediaan Kawasan Hutan Untuk Pembangunan Food Estate, KLHK.
260
Jong, 2020, “New Rule Puts Indonesia’s Protected Forests up for Grabs for Agribusiness,” Mongabay.
261
Lobell, Cassman, and Field, 2009, “Crop Yield Gaps: Their Importance, Magnitudes, and Causes,” Annual Review of Environment and Resources.
262
Agus et al., 2019, “Yield Gaps in Intensive Rice-Maize Cropping Sequences in the Humid Tropics of Indonesia,” Field Crops Research.
263
Connor et al., 2021, “Rice Farming in Central Java, Indonesia—Adoption of Sustainable Farming Practices, Impacts and Implications,” Agronomy.
264
Corcoran et al., 2010, Sick Water? The Central Role of Wastewater Management in Sustainable Development: A Rapid Response Assessment.
265
Kaur et al., 2012, “Safe Use of Wastewater in Agriculture: 3rd Regional Workshop for Anglophone Africa.”
266
5.
Addressing
key challenges to
achieving net-zero
Photo by Ave Calvar Martinez via Pexels
such as major roads, airports and Reference Case analysis in Section 2
industrial parks. However, the benefits shows, over time, those choices are
of those investments have come with actually riskier, as they “lock in” high-
high costs, such as accelerated loss carbon industries and technologies,
of forests, wetlands and biodiversity; slower GDP growth, rising GHG
land subsidence and flooding; severe emissions and pollution, and the
air pollution; and reduced resilience to degradation of Indonesia’s natural
Committing to achieve net-zero by disaster risks and other shocks. capital. As noted in Section 1.3, there is
2060 at the latest would bring many also significant evidence that investing
benefits to Indonesia—the earlier the The Low Carbon Development in renewables, public transport and
target date, the better. But it will not be Initiative laid out a more sustainable nature-based solutions can generate
easy. It will require major new policies, path to continued robust growth. more jobs—as much as double or
changes in investment priorities, The RPJMN 2020–2024 embraced more—than the same investments on
and strong collaboration across the that vision and took some steps to oil, gas and coal.267
government and with international achieve it. However, considerably
partners and the private sector. more work remains to be done, both The COVID-19 crisis has also taken a
Line ministries with very different to implement the LCDI vision, and to significant toll on Indonesia’s economy
perspectives will need to embrace a build a common understanding across and on government resources. The
common vision and, in some cases, all relevant institutions of the benefits country has already borrowed at
make substantial changes to programs of green development and the risks of unprecedented levels to help cover
and policies. continuing on a high-carbon pathway. the costs of pandemic response and
Indeed, as noted in Section 2, most economic stimulus. Unless a net-
Powerful business interests facing macroeconomic models still fail to zero vision is integrated into ongoing
higher costs and/or reduced demand reflect climate risks or even the costs recovery efforts, Indonesia could lack
for their products can be expected to of ecosystem degradation, so policy- the fiscal space to take ambitious
push back. If significant efforts are not makers lack crucial information as they climate action in the coming years.
taken to ensure a just and equitable assess their options. Additional investments will be needed
transition, citizens may also resist in any case. There are real capacity
policies that affect their livelihoods The COVID-19 pandemic has created gaps as well, and they will need to
and increase costs of living. Effective new challenges. Protecting public be addressed to enable Indonesia’s
policies can manage those risks, health, ensuring people’s well-being, institutions to steer their respective
however, to avoid regressive impacts on and keeping the economy afloat has sectors in the right direction and
low- and middle-income households. required enormous efforts. Indonesia manage the transition. Additional
has included some green investments expertise will be needed in different
More broadly, it is important to in its stimulus packages, but like many ministries, along with reliable data
recognize that Indonesia’s growth and governments around the world, it has to inform policy-making, technical
prosperity has been fueled, to a great also prioritized protecting existing capacity-building, and enhanced
extent, by high-carbon development: industries. This can help avoid near- resources.
from coal extraction, to plantation term job losses, and policy-makers
agriculture, to large-scale infrastructure often perceive investments in well- The final subsection of this report lays
investments aimed at building a established industries as “safer” than out recommendations for addressing
modern, well-connected Indonesia, green investments. However, as the these challenges.
267
IEA, 2020, “Sustainable Recovery”; Garrett-Peltier, 2017, “Green versus Brown: Comparing the Employment Impacts of Energy Efficiency, Renewable Energy, and
Fossil Fuels Using an Input-Output Model,” Economic Modelling; see also Lim, Ng, and Zara, 2021, “Implementing a Green Recovery in Southeast Asia”; Gulati et al.,
2020, “The Economic Case for Greening the Global Recovery through Cities: 7 Priorities for National Governments.”
5.1 An agenda for action:
Building on the LCDI
Sections 2 and 4 described key actions needed in

priority sectors, placing them in a global context to
show that while the net-zero pathways for Indonesia are
undoubtedly ambitious, they are well within the realm
of the feasible, and of what other countries have already
set out to achieve. Foundations for many of those
actions have already been laid: for example, Indonesia
already has plans to phase out fossil fuel subsidies
and is piloting emissions trading; the Peatland and
Mangrove Restoration Agency is already in place, with
substantive targets.
Yet along with sectoral policies and actions, achieving

net-zero by mid-century will require strong leadership
and a well-coordinated, whole-of-government approach.
The first step is crucial:
• Commit to a vision of a decarbonized, climate-

resilient, sustainable and inclusive Indonesia as
the foundation for “building back better” after the
pandemic, with a net-zero target consistent with
the urgency of the climate crisis. This can deliver
a faster, employment-rich recovery than returning
to business-as-usual growth. A formal policy
commitment, backed by strong political leadership,
would send a powerful signal to markets, the finance
community, development partners, ASEAN neighbors
and the world that Indonesia is ready to lead in the
climate transformation. A clear vision is also essential
to guide policy-making, attract investments and trade
opportunities, and ensure that actions across sectors
are all moving the country in the same direction, and
never undermining one another.
Choosing a net-zero target year will require a close

review of the scenarios presented in this report and
deliberations among key ministries to ensure a common
understanding and agree on an ambitious, but feasible,
target. Given how fast the climate is changing, and
consistent with other G20 countries’ ambitions, the
target year should be 2060 at the latest. However,
the economic analysis in this report suggests that a
2045 or 2050 target would be even more beneficial for
Indonesia.
Photo by Silas Baisch via Unsplash
The next two recommendations focus on building support for recovery. Support for additional coal power capacity is
the net-zero agenda all across the public sector, in the private of particular concern. Any projects that cannot meet this
sector, and throughout Indonesian society: basic standard should be reconsidered, and their funding
allocation should be reassigned. This could also free up
• Prioritize dialogue across government ministries, and fiscal space for investments to jump-start Indonesia’s
across levels of government (central, regional and economic transformation.
local), to ensure a common understanding of the net-
zero vision and its implications for public policy and • Identify green and low-carbon development projects
investments. This engagement should not be top-down, with significant potential to qualify for green recovery
but rather a true collaboration. This is essential to ensuring funding internationally, such as those available
that different ministries understand one another’s needs, through the ADB, the World Bank, and other bilateral
priorities and concerns, and that subnational governments or multilateral donors. As noted in Sections 1 and 3, the
can bring their own knowledge, best practices and availability of targeted finance for a green recovery is a
pressing needs to the table, and exchange ideas with one prime opportunity for Indonesia to obtain international
another and with other levels of government. Ultimately, support for projects that are crucial to achieving net-zero.
Indonesia can only build a net-zero, resilient and inclusive For example, with minimal solar power developed to date,
future if leaders at all levels share a common vision. yet enormous potential, this is a chance to jump-start
the country’s solar industry through the COVID recovery.
• Engage stakeholders—including domestic and Vehicle electrification and EV infrastructure projects
international businesses, finance sector leaders could also provide significant economic stimulus while
and civil society—from the outset in the process of laying strong foundations for net-zero. Another area with
translating the net-zero vision into plans. The private great near-term job creation potential is nature-based
sector can be a vital partner in transforming Indonesia’s solutions, such as mangrove restoration in coastal areas
economy, or a major obstacle. It is important to understand with significant vulnerability to storm surge, erosion and
business leaders’ perspectives and find solutions that flooding.
advance the net-zero agenda while providing flexibility
and appropriate incentives and minimizing uncertainty.268 • Work with development partners to align international
Civil society also has a crucial role to play in ensuring a just finance with Indonesia’s net-zero vision and
transition and, more broadly, that the new, green economy complement domestic public and private finance
is equitable and inclusive. Indonesian and international for LCDI investment needs. The analysis presented in
academic experts and non-governmental organizations Section 3 indicates immediate needs of about US$40
(NGOs) can also be valuable resources in identifying low- billion per year between 2022 and 2025 (1.5–2% of GDP),
carbon and resilient solutions. scaling up to US$270–350 billion per year in 2026–2030
(5.6–7.4% of GDP) as LCDI investments accelerate
Four other priorities for near-term action focus on ensuring and become a central engine for capital formation
that Indonesia can finance the transition: and green structural transformation. As a developing
economy, Indonesia cannot decarbonize without robust
• Immediately review priority projects and other major international support, especially in that critical first
expenditures included in COVID-19 recovery and in the decade. Even if more private investment can be mobilized,
budget allocations linked to the medium- and long-term climate finance is key to accelerating Indonesia’s energy
development strategies, and adjust as needed to ensure transformation. Substantial support is also needed for
that they are aligned with Indonesia’s net-zero vision for Indonesia to continue its important progress on forest,
mid-century, and do not create stranded-asset risks or peatland and mangrove restoration and conservation,
further entrench fossil fuel dependency, unsustainable land including direct finance through REDD+ and technical
use or other unsustainable patterns. This is particularly assistance in accessing carbon markets. The multilateral
urgent given the large amounts of debt that Indonesia is development banks also have key roles to play, to ensure
incurring to manage the COVID crisis and ensure a strong that development finance flows are fully aligned with the
net-zero vision.
268
See, e.g., https://unfccc.int/news/new-financial-alliance-for-net-zero-emissions-launches.
Photo by DAI via Flickr Photo by Gunawan Teguh via Pixabay
A final and essential task ahead is to build the necessary • Build capacity for LCDI implementation at the
capacity to implement the LCDI, both across the national subnational level. The work to achieve net-zero will
government, and within subnational governments: involve not only national-level policies and investments,
but numerous actions at the provincial and even municipal
• Assess technical capacity and resource gaps in key levels (even if they are facilitated by national programs,
ministries and other national institutions engaged such as the Smart Cities movement). Since 2019, Bappenas
in LCDI implementation and prioritize closing those has entered into six memoranda of understanding (MoUs)
gaps. The dialogues required to build a common with provincial governments to build capacity and produce
understanding of net-zero pathways are a first key step, Provincial Green Development Plans aligned with the
but government institutions will need substantial support LCDI. More resources are needed, however, as the LCDI
to translate the LCDI into sector-by-sector policies and Secretariat and partners are already working at their full
programs. Capacity-building is thus crucial—in terms of capacity, and COVID-19 has further hindered progress.
both technical expertise, and the data and tools needed Ultimately, MoUs should be signed with all 34 provinces,
for implementation as well as monitoring and evaluation. and major cities should also be engaged in advancing the
This has implications for institutions’ budgets. Centralized, net-zero agenda.
shared resources and continued cross-ministerial
collaborations can help meet these needs. Knowledge Indonesia has made great strides through the LCDI, and
products created by Bappenas, for example, can ensure even amid the COVID-19 crisis, it has continued to look for
that Indonesian policy-makers continue to have the up-to- opportunities to raise its ambitions. Now is the time to set
date knowledge on relevant science, technology and policy the country onto a better growth path, starting with a green
innovations. ASEAN’s specialized centers (e.g. the ASEAN recovery from the pandemic. By embracing a net-zero target,
Centre for Energy and the ASEAN Climate Resilience Indonesia can build a more competitive, sustainable and
Network), in which Indonesia is already very active, could inclusive economy, secure its natural capital, and ensure a
play a key role as well. Such engagement could also help more prosperous and resilient future for its people.
raise climate ambition across Southeast Asia and expand
markets for Indonesian products—for instance, EVs.
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61d82e1e624faa1fa.
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https://apnews.com/article/business-environment-japan-yoshihide-suga-c96cc6c2e2e6ef65a035889582849f7f.
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https://www.thejakartapost.com/paper/2021/05/18/reviving-investment-to-accelerate-economic-recovery.html
Technical
Appendix
Photo by Tom Fisk via Pexels
A1. Description of the main model supporting LCDI
The model for which results are Figure A1-1 is a high-level representation of IV2045.
presented in this report, known within Key features of the model include:
the LCDI team as IV2045, is a System
• Ability to represent feedback relationships within and across key model
Dynamics model that integrates a
structures and to appropriately incorporate stocks (state variables) and flows that
set of feedback structures for the
characterize systems, non-linear relationships, and potential delays (material and
macro economy, society, and a
informational).
representation of natural capital,
including energy, land, water • It is built with an explicit goal of addressing key climate and development policies,
resources, biodiversity and carbon including those included under RPJMN 2020–2024, and more recently, additional
emission systems in Indonesia. It is a ones that are capable to deliver on Net Zero targets. In this regard, IV2045 is a
model that falls into the category of built around policy problems and not with a goal per se of replicating any specific
Integrated Assessment Methods and system structure.
built using System Thinking principles
• It is transparent, with model, data and supporting technical documentation being
and System Dynamics modeling
available for peer reviewing.
techniques, enabling a coherent,
comprehensive appraisal of social, • A model interface for enabling real-time policy analysis is available for policy
economic and environmental policies, consultations.
including low-carbon policies. • It is calibrated for the historical period from 2000–2020 and generates simulated
values for selected endogenous variables for the years 2021–2070.
• It is built in a modular way, including sub-structures that can be “switched on

or off” in order to build scenarios and counterfactual cases. One such type of
counterfactual is: what outcomes would result from a set of endogenous variables
such as GDP, employment, and air pollution if Indonesia were not constrained by
the quality and quantity of its natural resources.
IV2045 includes feedback relationships for:
• The economy, including the real sector (value addition and employment; total
and by main economic activities; and demand and supply components), the
government sector, and trade;
• Society, including modules for demographics, labor force participation, and labor
supply;
• Natural resources, including land use, biodiversity, energy, water and fisheries;
• Absorptive capacity: a representation of carbon emissions and climate impacts.
• COVID-19 dynamics, as explained in Appendix A4.
• Costs of individual interventions, policy packages, fiscal impacts, financing needs,

and inputs for economy-wide cost-benefit analyses.
• Value of externalities, including on air pollution and the social cost of carbon.
Critically, IV2045 is not an optimization model that maximizes or minimizes any objective function subject to constraints, or for
given set of policies or shocks. Instead, the economic structure of IV2045 can be placed in the realm of computational integrated
models, which abide by standard economic principles, respect fundamental macroeconomic identities, and represent the behavior
of macroeconomic agents. The main goal of IV2045 is not that of forecasting a set of endogenous variables or that of finding a
hypothetical, optimal solution to some policy question. Instead, it is a tool that allows policymakers to gain valuable analytical
insights from the assessment of alternative policy options and shocks while considering the complex relationships among the
social, economic, and environmental systems, including climate.
Figure A1-1. High-level representation of the IV2045 model used for this report
Poverty
• Wage
Wage distribution village-city
• Income distribution
Productivity enhancement
• Poverty line
Needs for & availability of

poverty alleviation funds
(social assistance)
• Poverty headcount
Population Energy needs

Energy
Energy availability
• Energy demand
Inflation impact
• City dwellers
• Exploitation of energy sources
• Villagers
• Energy availability
• Population by age (labor)
Energy • Energy imports
Energy needs
• Education availability
• Share renewable energy
Domestic water needs
Energy emission
Land requirement
Domestic water
Land availability
availability
Impact of changes in biodiversity on the population
Water Labor
Economy Land Use
Labor requirement • Demand for 7 sectors
• Surface water • Forest land
(C,G,I,X and M)
• Groundwater • Agricultural land
Water needs • Value added 7 sectors
for economy Land requirement • Residential & industrial land
• Rainfall water quality • Input-output linkages
Water availability • Other land
• Inflation/prices Land availability
for economy
Water availability for land

Land emission
Water needs for land

Industrial/economy emission
Needs SD
SD fisheries
fisheries
Available
Fishery GHG Emission
• SD Capture fisheries Impact of climate change in

Biodiversity • SD Aquaculture sustainable development fisheries
• Aquaculture productivity
Climate
Impact of climate change on biodiversity
Impact of land change on biodiversity
A2. Summary of net-zero targets
The tables below summarize the sector-specific targets modeled across scenarios, as discussed in Section 2.2,
including intermediate targets.
Energy
Electrification of road transport sector
Scenario Description/quantification of policy 2020 2030 2040 2045 2050 2060
Reference Case Zero 0.00 0.00 0.00 0.00 0.00 0.00
NZ2045 Ramp up starting in 2025 to 100% by 2040 0.00 33.33 100.00 100.00 100.00 100.00
Improve energy efficiency of industrial and domestic sectors, measured via energy intensity (energy demand per GDP unit)
Reference Case Constant at historical levels 0.88 1.50 1.50 1.50 1.50 1.50
NZ2045 Improves to reach 6% by 2030 1.50 6.00 6.00 6.00 5.03 4.61
Carbon price applied to CO2 content of coal, petroleum products and natural gas (US$)
Reference Case No new carbon price 0.00 0.00 0.00 0.00 0.00 0.00
NZ2045 Ramp up starting in 2022 to US$60/tonne by 2040 0.00 30.00 60.00 60.00 60.00 60.00
Target share of renewable energy sources in power generation capacity (excludes nuclear)
Reference Case Ramp up to 30% in 2030, then hold steady 16.40 30.00 30.10 30.70 30.30 30.30
NZ2045 Ramp up to 82% by 2060 (rest covered by nuclear) 16.40 60.14 75.30 78.63 81.00 82.00
Residential sector shift from biofuels and waste demand to electrification

Reference Case Maintained at current levels 0.00 30.00 30.10 30.70 30.30 30.30
NZ2045 Ramp up to 100% in 2045 0.00 40.00 80.00 100.00 100.00 100.00
NZ2050 Ramp up to 100% in 2050 0.00 36.00 62.00 80.00 100.00 100.00
NZ2060 Ramp up to 100% in 2060 0.00 22.00 50.00 62.00 80.00 100.00
Fossil fuel subsidy removal (% of existing subsidies)
Reference Case No subsidy removal 0.00 0.00 0.00 0.00 0.00 0.00
NZ2045 Ramp up to 100% removal by 2030 0.00 100.00 100.00 100.00 100.00 100.00
Share of hydrogen in transport sector liquid fuel and natural gas demand
Reference Case Zero 0.00 0.00 0.00 0.00 0.00 0.00
NZ2045 Ramps up to 100% in 2045, starting in 2030 0.00 0.00 70.00 100.00 100.00 100.00
Land
Increase mangrove restoration, in net terms (mangrove restoration minus degradation)

Reference Case No additional effort current current current current current current
125,000 ha/year in 2021–2024, then 12,000 ha/year
NZ2045 current 12,000 12,000 12,000 12,000 12,000
starting in 2025
NZ2050 current 12,000 12,000 12,000 12,000 12,000
starting in 2025
NZ2060 current 12,000 12,000 12,000 12,000 12,000
starting in 2025
Increase peatland restoration, in net terms (peatland restoration minus degradation)

NZ2045 Ramp up to 650,000 ha/year by 2038, then decline current 81,250 481,429 60,000 30,000 30,000
NZ2050 Ramp up to 390,000 ha/year by 2038 then decline current 79,254 299,048 152,763 78,036 57,895
NZ2060 Ramp up to 390,000 ha/year by 2038 then decline current 79,254 343,860 225,439 107,018 59,649
Increase reforestation, converting fallow land to secondary forest, in net terms

NZ2045 Ramp up to 250,000 ha/year by 2030 current 250,000 250,000 250,000 250,000 250,000
NZ2050 Ramp up to 250,000 ha/year by 2030 current 250,000 250,000 250,000 250,000 250,000
NZ2060 Ramp up to net 250,000 ha/year by 2040 current 125,000 250,000 250,000 250,000 250,000
Increase share of cropland with sustainable agriculture
Reference Case At current levels current current current current current current
NZ2045 Ramp up to 40% of agriculture sector by 2050 current 13.0 26.0 35.0 40.0 40.0
Green urban land, starting in 2030, to increase CO2 sequestration (multiplier with value 1=current CO2 sequestration level)
Reference Case No further greening (multiplier equals 1) 1.0 1.0 1.0 1.0 1.0 1.0
NZ2045 Ramp up to 3x of current level by 2060 1.0 1.0 2.0 2.5 3.0 3.0
Avoid conversion of primary forest loss to agricultural land

Reference Case Historical trends in loss of forest to agriculture current current current current current current
NZ2045 Ramp up avoided loss of forest to 100% by 2025 current 100.0 100.0 100.0 100.0 100.0
Waste and industry

Industrial wastewater recycling
Reference Case No change current current current current current current
NZ2045 Ramp up recycling rate to 100% by 2045 current 37.0 78.0 100.0 100.0 100.0
Share of municipal waste recycled (% of municipal waste generated)

Reference Case No change 1.4 1.4 1.4 1.4 1.4 1.4
NZ2045 Ramp up recycling rate to 40% by 2060 1.4 10.5 21.0 25.5 30.5 40.0
Change in per capita waste generation (relative to 2020 level)
NZ2045 Reduce by 70% by 2045, then hold steady 0.0 -25.0 -55.0 -70.0 -70.0 -70.0
NZ2050 Reduce by 70% by 2050, then hold steady 0.0 -22.0 -46.0 -60.0 -70.0 -70.0
NZ2060 Reduce by 56% by 2060 0.0 -13.0 -27.0 -35.0 -42.0 -56.0
Share of municipal waste collected (% of total generated)

NZ2045 Increase collection rate to 100% by 2040 80.0 90.0 100.0 100.0 100.0 100.0
Share of waste composted (% of waste generated)

NZ2045 Ramp up from 10% in 2020 to 40% by 2060 10.0 17.0 25.0 25.0 32.0 40.0
Emissions intensity of industrial processes and product use (IPPU), in thousands of tonnes CO2e per real Rp. 1 billion (year 2000)
NZ2045 Ramp down to 40% of 2020 level by 2060 0.030 0.022 0.015 0.014 0.013 0.012
Carbon capture and storage (CSS) as % of IPPU emissions

Reference Case No change current current current current current current
NZ2045 Ramp up starting in 2030, reaching 100% by 2045 current current 75.0 100.0 100.0 100.0
A3. Factors that improve socio-economic outcomes
in net-zero scenarios
The socio-economic benefits described in Section 2.3 are connected to improvements in total factor productivity (TFP),269
the availability of natural capital and associated primary resources, and reduced externalities in the net-zero scenarios
relative to the Reference Case. This appendix examines each of those factors.
A3.1 Total factor productivity
Traditional approaches, including neo-classical models, (on the negative side) to the depletion or degradation of
incorporate TFP as a proximate source of GDP growth, in natural capital or (on the positive side) from the rebuilding
excess to that generated by the accumulation of factor inputs or from the natural accumulation of such types of capital.
included in a representative output function. Generally, TFP
is introduced in models either as an exogenous input, or as a A TFP-comparable variable is included in IV2045. Aside
composite factor that combines an exogenous parameter or from the formation of human capital from health and
trend, and an endogenous element that responds to changes education, and from accumulation of public services
in other variables, such as the rate of accumulation of human infrastructure, the variable is affected by changes in
capital or physical infrastructure. the quantity and quality of the natural capital (e.g.
forest resources, water, biodiversity), changes in air
The models supporting LCDI, including IV2045, broaden the and water quality, elements associated with haphazard
spectrum of factors affecting GDP, including from changes industrialization and urbanization (waste, air pollution),
in the availability of environmental goods and services, due and the social cost of carbon. The formula used is:
Where TFP, TECH, HEAL, EDUC, EGHG, ENER, WAST, INFR, measures access to basic health care; education (EDUC) by
AIRQ, QHAB are indexes that proxy for factor productivity, changes in literacy; the impacts of GHG emissions (EGHG)
technological progress, health status, education, GHG by the social cost of carbon; waste (WAST) by municipal
emissions, energy costs, wastewater, infrastructure, air quality solid waste flows; infrastructure (INFR) by the provision of
and habitat quality. The superscript “i” refers to sectors of roads services; and air quality (AIRQ) by the concentration of
economic activity (primary, industry and services), while the particulate matter in the atmosphere (PM2.5). Habitat quality
subscript “t” refers to time. Such a characterization provides (QHAB) is an index that represents the effects of ecological
a basis for understanding the differential impacts of green vs. fragmentation and quantity and quality of elements that
non-green policies on social and economic outcomes. support biodiversity. Such a specification for TFP sheds light
In the equation, health (HEAL) is proxied by a variable that on the role of LCDI policies relative to alternative interventions.
269
(such as capital and labor). If outputs are growing faster than inputs, TFP is improving; the opposite means it is declining. For a succinct explanation, see the glossary of
the Asian Productivity Organization: https://www.apo-tokyo.org/resources/p glossary/total-factor-productivity-2/.
A3.2 Availability of natural capital and associated primary resources
Aside from the impact through TFP, green policies included and the country’s biodiversity. Sustainable agricultural
in the net-zero scenarios enhance agricultural productivity, practices, including better more effective use of fertilizer;
improve water quality and availability, expand infrastructure sustainable road construction; tackling pre-harvest losses;
services and energy access, and restore forests, mangroves treating wastewater; and innovations achieved through
and peatlands. These actions expand the availability of research and development (R&D) and additional infusions
environmental goods and services, all of which directly (and of human and physical capital would increase yields per
indirectly) contribute to output. hectare. Together with innovative businesses that directly
benefit from Indonesia’s biodiversity, these measures
LCDI policies tackle a primary concern in Indonesia by have the potential to boost the economic contributions
reconciling the need to expand output in primary activities of the primary sector while protecting primary forest and
to meet growing national demand, while preserving forests restoring degraded land.
A3.3 Externalities
IV2045 includes structural representations of different are air and water pollution, the generation of solid waste, as well
components of natural capital, trying to capture the provision as biodiversity losses (and corresponding ecosystem service
of environmental goods and services to the economy. Both losses). The social cost of carbon is also estimated.270
quantitative and qualitative factors are included. This way, the
model can estimate the (generally unintended) consequences Table A3-1 summarizes the externalities computed by IV2045,
of fueling economic activity, including from specific types of their definition (how they are computed), and the costs per unit
policies and investment. The consequences that are assessed of the different externalities, as identified in the relevant literature.
Table A3-1. Externalities reflected in the scenario analysis
Externality Computed as (definition) Costs per unit of the externality
Sum of costs of nitrous oxide (NOX),

Air pollution particulate matter 2.5 (PM2.5) and sulphur PM2.5 = US$120,000 per tonne
(excluding from dioxide (SO2) emissions; these are health SO2 = US$31,000 per tonne
transport) costs (mortality and morbidity) per unit NOX = US$4,600 per tonne
valued at 2010 prices
Open dumping: cost estimated via social cost of carbon at

Solid waste Environmental cost of open dumping (cost US$31 per tonne CO2e emitted by dumped waste
(open dumping and of GHG emissions) plus the total cost of
managed landfills) managed landfills (sanitary and others) Cost of managed waste: US$63.10 per tonne of managed
waste
270
Externality Computed as (definition) Costs per unit of the externality
Value added per acre-foot (1 acre-foot = 0.1233 hectare-

meters) used for agriculture production = US$60.49
Differences in value added by use of
Water opportunity Value added per acre-foot used for industrial processing =
water in agriculture, industrial processing
cost US$228.02
and thermal power generation
Value added per acre-foot used for thermal generation =
US$27.26
Net change in value of biodiversity

when land is converted from: Value of biodiversity of agricultural land = US$1,115 per ha
Biodiversity loss
1. agriculture to fallow
(change in value of Value of biodiversity of fallow land = US$45,058 per ha
2. forest to agriculture
ecosystem services Value of biodiversity of forest land = US$50,110 per ha
3. forest to settlement
provided) Value of biodiversity of urban land = US$352 per ha
4. fallow to forest
5. fallow to settlement
Sources of cost estimates: PM2.5, SO2, NOX: U.S. EPA, 2013; social cost of carbon: Nordhaus, 2017; cost of managed landfill: Dijkgraaf and Vollebergh, 2003.271
What is critical regarding these negative externalities is that, that occurred as a result of the externality. This reduces
while they do not have a market defined value, they impose a the resources (consumption and investment) available for
cost to society, which, in first instance may not be manifested activities that lead to a net increase in individuals’ well-being.
in monetary terms, but as a direct reduction in individuals’
well-being (including impacts on mortality, morbidity and The net-zero scenarios reduce those externalities, contributing
other elements affecting the quality of life). Those reductions to enhancing socio-economic outcomes. For example, they
are reflected in economic activity through a reduction, for reduce wastewater and improve air quality, both of which
instance, in the quantity and quality of human capital and affect human capital. Reducing those externalities has an
through inefficiencies in the production process (e.g. by unambiguously positive effect on well-being. The values of
increasing intermediate costs), all of which reduce potential externalities described in Table A3-1 can be combined with
and effective output. Notably, the monetary costs of mitigating standard metrics of well-being to discern the economy-wide
impacts of negative externalities are often registered as benefits of the net-zero scenarios. An ongoing challenge
positive effects on GDP (e.g. the costs of hospitalization, of under standard national accounting practices is to understand
waste management, and of public services to ease or solve how to combine typical proxies for well-being, such as income
traffic problems). In these circumstances what happens is that and GDP per capita, with other non-market elements that are
the “value addition” is not incurred to enhance individuals’ equally relevant for welfare analysis.
welfare but to offset (to certain degree) the loss of welfare
271
U.S. EPA. 2013. “Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 17 Sectors.” Technical support document. Research Triangle Park, NC, US: Office of
Air and Radiation, U.S. Environmental Protection Agency. https://www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-17-sectors.
Nordhaus, W.D. 2017. “Revisiting the Social Cost of Carbon.” Proceedings of the National Academy of Sciences of the United States of America 114 (7): 1518–23.
doi:10.1073/pnas.1609244114.
Dijkgraaf, E., and H.R.J. Vollebergh. 2003. “Burn or Bury? A Social Cost Comparison of Final Waste Disposal Methods.” Nota di Lavoro, No. 46.2003. Milan, Italy:
Fondazione Eni Enrico Mattei. https://www.econstor.eu/bitstream/10419/118076/1/NDL2003-046.pdf.
A4. COVID-19 modeling
The COVID-19 pandemic has disrupted socio-economic activity Key epidemiological parameters, such as the basic reproductive
in a way that is unprecedented in modern times. Both the number (R0), are incorporated in the model, while other
pandemic and the necessary measures to protect human life parameters are calibrated from data. SIR models can show how
affect well-being through several channels, including aggregate different public health interventions may affect the outcome of
supply and demand, human capital and investments. the epidemic, including on vaccination (when available), social
policy (e.g. lockdowns, social distancing and mask-wearing)
The empirical work that supports LCDI incorporates several and health responses (increasing capacity of hospitals).272 In
structures in the model created for this report that generate the context of Indonesia, the SIR model is calibrated using
endogenous values of susceptible population, infections national-level (weekly) data on infections and deaths, plus
and deaths from COVID-19; the associated socio-economic information on health sector capacity and social and policy
impacts; and the effects of policy responses (medical responses. All of this is fully integrated into the model.
emergency, social assistance, safety nets and stimulus
interventions) on variables that are relevant for climate, The model also brings in structures, following the emerging
environment and socio-economic policy analyses. economic literature,273 representing changes in aggregate
demand (consumption, investments), physical capital,
These structures use the so-called Susceptible-Infected- human capital and labor utilization that result from the
Recovered model (the “SIR model”), which is utilized in pandemic, immediate social and economic responses, and
epidemiology to represent the spread (dynamics) of a disease stimulus policies. Figure A4.1 presents a simplified, high-
as a result of biological and social factors. The SIR model level representation of the main interactions across systems
predicts the spread of a disease, including the number of incorporated in the model. They represent the dynamics of
susceptible individuals, the number infected, and the duration the disease (SIR model), community and policy responses,
of the epidemic, as well as alternative resolutions, including capacity of the health system, socio-economic structures, and
recovery, reinfection and deaths. feedback effects with GHG emissions and the environment.
Figure A4.1. General framework for the impact of COVID-19 on the economy
Feedback structure COVID-19 Emission

(SIR Model: Susceptible, Infected, Recovered) Mitigation
Virus Cost of
emission Emission
Behavior absorption/release
Demand: jobs,
Community dynamics feedback structure: safety nets System feedback structure Economy:
Obedience, trust Allocation: Government, industry/business
jobs, support
Sick, deaths
PSBB
Health system feedback structures: Demand: funds, facilities

Hospitals, medical personnel, facilities (care) Allocation: funds, facilities
272
For a technical, but accessible explanation of the SIR model using System Dynamics, see: https://vensim.com/coronavirus/.
273
See, for instance, Olivier Blanchard’s chapter on COVID-19 in the 8th edition of his Macroeoconomics textbook:
https://www.ssc.wisc.edu/ mchinn/Blanchard chapter.pdf. (The full book is available at
https://www.pearson.com/us/higher-education/program/Blanchard-My-Lab-Economics-with-Pearson-e-Text-Access-Card-for-Macroeconomics-8th-Edition/
PGM2030616.html).
A5. Unit costs of interventions
The table below summarizes the unit costs of different interventions modeled and provides the sources used for those costs.
Sector Cost item Unit costs Source
Informed by: EuropeOn. 2018. “Powering a New Value Chain in the

Automotive Sector: The Job Potential of Transport Electrification.”
Linearly decrease starting at
Average cost per Brussels: European Association of Electrical Contractors.
US$1,500 per charger in 2020 to
charger https://europe-on.org/wp-content/uploads/2020/02/EuropeOn-
US$750 per charger in 2070
Powering-a-new-value-chain-in-the-automotive-sector-the-job-
potential-of-transport-electrification.pdf.
Source: JATO Dynamics Ltd. 2019. “Electric Cars Cost Double the
Linearly decrease starting at
Price of Other Cars on the Market Today.” October 11, 2019.
Average cost per EV US$30,000 per EV in 2020 to
https://www.jato.com/electric-cars-cost-double-the-price-of-
US$22,000 per EV in 2070
other-cars-on-the-market-today/.
Based on Kimura, S., S. Suehiro, and N. Doi, eds. 2018. “An Analysis
Starting at US$127 per EV per year in of Alternative Vehicles’ Potential and Implications for Energy
Average O&M cost
2020 and converging to US$96 per Supply Industries in Indonesia.” ERIA Research Project Report 2017
for EVs
EV per year in 2060 No. 15. Jakarta: Economic Research Institute for ASEAN and East
Asia. https://www.eria.org/uploads/media/ERIA RPR 2017 15.pdf.
Starting at US$105,000 per bus per of Alternative Vehicles’ Potential and Implications for Energy
Average cost per
year in 2020 and converging to Supply Industries in Indonesia.” ERIA Research Project Report 2017
electric bus
Energy
US$75,000 per bus per year in 2060 No. 15. Jakarta: Economic Research Institute for ASEAN and East
of Alternative Vehicles’ Potential and Implications for Energy
Average O&M cost for Constant at US$2,000 per bus per
Supply Industries in Indonesia.” ERIA Research Project Report 2017
electric buses year
No. 15. Jakarta: Economic Research Institute for ASEAN and East
All but diesel and fuel oil based on assumptions in: IEA. 2020.
“World Energy Outlook 2020.” IEA Flagship Report. Paris:
Steam coal = US$950,000; diesel International Energy Agency.
= US$1.81 million; natural gas = https://www.iea.org/reports/world-energy-outlook-2020.
US$375,000; nuclear = US$2.65
Diesel from Tables 4.1 and 4.2 in: U.S. EIA. 2020. “Capital Cost
million; hydropower = US$2.2 million
Capital cost of and Performance Characteristic Estimates for Utility Scale
in 2021, rising to US$ 2.4 million by
power generation, Electric Power Generating Technologies.” U.S. Energy Information
2060; geothermal = US$2.94 million;
by technology Administration.
solar = US$678,000 in 2021, falling
(per MW of capacity) https://www.eia.gov/analysis/studies/powerplants/capitalcost/
to USR400,000 by 2060; syngas
pdf/capital cost AEO2020.pdf.
= US$1.98 million; wind = US$2.01
million in 2021, falling to US$1.4 Coal is assumed to be supercritical; gas is assumed to be gas
million by 2060 turbine; hydropower uses average between small and large scale;
synthetic gas based on biogas DG industry; wind uses average
between onshore and offshore.
All but diesel and fuel oil based on assumptions in: IEA. 2020.
“World Energy Outlook 2020.” IEA Flagship Report. Paris:
International Energy Agency.
Steam coal = US$40,000; diesel = https://www.iea.org/reports/world-energy-outlook-2020.
US$35,160; natural gas = US$20,000; Diesel from Tables 4.1 and 4.2 in: U.S. EIA. 2020. “Capital Cost
Average O&M cost of nuclear = US$130,000; hydropower = and Performance Characteristic Estimates for Utility Scale
power generation, by US$47,500; geothermal = US$57,500; Electric Power Generating Technologies.” U.S. Energy Information
technology (per MW of solar = US$12,000 in 2021, falling Administration.
capacity) to US$11,000 by 2060; syngas = https://www.eia.gov/analysis/studies/powerplants/capitalcost/
US$77,500; wind = US$49,000 in pdf/capital cost AEO2020.pdf.
2021, falling to US$37,250 by 2060 Coal is assumed to be supercritical; gas is assumed to be gas
turbine; hydropower uses average between small and large scale;
synthetic gas based on biogas DG industry; wind uses average
Energy
between onshore and offshore.
From Figure 12 in: IEA. 2019. “The Future of Hydrogen.” Paris:

Cost of hydrogen
US$2 per kg H2 International Energy Agency.
production
https://www.iea.org/reports/the-future-of-hydrogen.
Assuming US$300 per TOE, equivalent to US$7,165 per TJ, based

on: ADB. 2013. “Same Energy, More Power: Accelerating Energy
Energy efficiency
US$7,165 per TJ consumption Efficiency in Asia.” Manila: Asian Development Bank.
saving costs
https://www.adb.org/sites/default/files/publication/30289/same-
energy-more-power.pdf.
Values for Indonesia, industry sector, from Irlam, L. 2017. “Global

Unit cost of carbon Costs of Carbon Capture and Storage: 2017 Update.” Global CCS
capture and US$100.50 per tonne of CO2 avoided Institute.
sequestration https://www.globalccsinstitute.com/archive/hub/
publications/201688/global-ccs-cost-updatev4.pdf.
Planting density partly determines costs, with sparse enrichment

Average cost of land planting on degraded peatlands in Indonesia estimated to be
restoration (excluding between US$235 and US$315 per ha. The cost for enrichment
US$1,225 per ha
peatlands and planting increases with density, e.g., 3 meter tree spacing between
mangroves) seedlings costs between US$1,225 and US$1,575 per ha in
Indonesia.
Low end; reported costs per hectare range from US$3,000 to

US$510,000.
Source: Lewis, R. III. 2001. “Mangrove Restoration – Costs and
Land
Average cost of
US$3,000 per ha Benefits of Successful Ecological Restoration.” Rome: Food and
mangrove restoration
Agriculture Organization of the United Nations.
http://www.fao.org/forestry/10560-
0fe87b898806287615fceb95a76f613cf.pdf.
Canal blocking = US$1,795 per ha;

peatland revegetation = US$931 Mumbunan, S. 2019 (unpublished). “A Summary of Peatland
Average cost of
per ha; vegetative burn block = Thematic Study for the LCDI Global Report.” Prepared by WRI
peatland interventions
US$517 per ha; polyculture farming = Indonesia in support of the Low Carbon Development Initiative.
US$306 per ha
Average capital cost

per tonne of waste US$98.2 US$/tonne
collected
Average O&M cost

collected

landfilled
Average O&M cost

landfilled

recycled
Average O&M cost per

US$38.11 US$/tonne
tonne of waste recycled
Waste
Bassi, A., and G. Pallaske. 2021 (unpublished). “Technical Modeling

Average capital cost Work in Support of Indonesia Low Carbon Development Initiative.”
per tonne of waste US$207.95 per tonne
composted
Average O&M cost

composted

incinerated
Average O&M cost

incinerated
Average capital cost per

tonne of waste used for US$641.82 per tonne
energy recovery
Average O&M cost per

tonne of waste used for US$40.05 per tonne
energy recovery
A GREEN ECONOMY
in collaboration with
Ministry of National Development Planning/

National Development Planning Agency
Jl. Taman Suropati No.2 Jakarta, Indonesia
Phone: (+62) 21 3193 6207
A GREEN ECONOMY

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A GREEN ECONOMY

FOR A NET-ZERO FUTURE:

Ministr y of National Development Planning/Bappenas. 2021

About this report

In response, the Low Carbon

LCDI is a national priority program

Photo by Anna Jimenez Calaf via Unsplash

However, the COVID-19 pandemic has created a multidimensional crisis and

With regard to this, the Ministry of National Development Planning in collaboration

This report presents scientific analysis of three scenarios in achieving net-zero

2.1 The revised Reference Case and 4.6 Sustainable agriculture 72

87–96 6.1–6.5% 25–34%

1.8 million 40,000 Restore ecosystems

3.2 4.1 Boost

The energy sector is central to are so energy-efficient, electrifying

Natural resources are central to restoration would accelerate to 125,000

Waste management and industry

2020 levels by the respective net-zero enhance its manufacturing productivity

Committing to achieve net-zero Along with sector-specific measures,

Transforming Indonesia’s economy fossil fuel subsidies, and the carbon

Photo by Tom Fisk via Pexels

1.1 The economic impacts of COVID-19

Photo by Viki Mohamad via Unsplash

and as of 21 September, 125.8 million reclassified by the World Bank as a

Even before COVID-19 became These are massive investments, and

On 31 March 2020, President Widodo Vivid Economics’ Greenness of

2021.” CNN Indonesia.

Action and Biodiversity Goals (February 2021 Release).”

Photo by Nanang Sujana/CIFOR via Flickr

In laying out its development agenda, the RPJMN 2020–2024 highlighted

Forest cover Water scarcity on the islands The ideal habitat

50% from from

45% 9.6% 49.7%

1.3 Why Indonesia must build back better

Model,” Economic Modelling.

Woods, 2021, “Government Supports More Low Emission

Vehicle Options,” New Zealand Government – Press Releases.

Revealed,” New Zealand Government – Press Releases.

Photo by Joel Vodell via Unsplash

2.1.1 Reference Case: The costs of inaction

City in the World,” BBC News.

overestimating the benefits of high- 4.00 4.64

carbon growth. The two graphics

As noted, Indonesia has yet to commit conducted by the Ministry of

Photo by Yulia Agnis via Unsplash

Reference Case NZ2045 NZ2050 NZ2060

NZ2050 Energy Land use (AFOLU) Waste Industry (IPPU)

Source: LCDI modeling results.

Reduce primary energy

Starting from 16.4% in 2022, scale up

65% by 2030 (remaining share

No dedicated efforts to increase biofuels;

Starting in 2030, ramp up to assist in phase-

Improve the efficiency and

Introduce carbon price in 2022 and scale up

As outlined above, the energy strategy that underpins

Improved energy efficiency, which the International

• By making individual technologies more efficient

• By replacing less-efficient technologies with more