Economic growth often depends on affordable energy and a resource-driven industry that locks in high emissions.
Indonesia faces a deep policy and cost tension between economic development priorities and climate change mitigation commitments. The government has set ambitious goals to provide jobs, build infrastructure, expand energy access, and reduce poverty. Still, these priorities often run up against the cost and structural demands of transitioning to a low-carbon economy.
A central example of this tension is in the energy sector. Indonesia’s economy has historically relied on coal for electricity and industrial growth. Despite global climate commitments, coal still dominates the energy mix. It fuels key industries such as nickel processing, which supports the global electric vehicle supply chain but emits large amounts of CO₂ domestically. The country’s Just Energy Transition Partnership (JETP), signed at the G20 Summit in Bali in 2022, aims to accelerate the energy transition by mobilizing roughly USD 20 billion in public and private finance to cap power-sector emissions and scale renewables to at least 34% of generation by 2030. However, implementation has been slow, and the broader transformation remains underfunded.
At the same time, Indonesia’s Nationally Determined Contribution (NDC) under the Paris Agreement commits to reducing greenhouse gas emissions by about 31.9% unconditionally and up to 43.2% with international support by 2030 relative to business-as-usual. As the national Paris pledge highlights, land use and energy are key focus areas, including the rehabilitation of peatlands and REDD+ efforts.
Yet economic development policy still prioritizes cheap, reliable energy to fuel manufacturing, urbanization, and job creation. This drives continued reliance on coal, even as the country explores cleaner options such as renewables and, controversially, nuclear power, an idea floated by some government advisers as part of future energy planning.
These dynamics reveal the policy conflict. Economic growth often depends on affordable energy and a resource-driven industry that locks in high emissions. New industrial zones, infrastructure projects, and energy expansion help Indonesia meet development goals, but they can also increase emissions faster than mitigation measures can reduce them. This tension helps explain why climate mitigation often shifts in priority when economic pressures, such as post-pandemic recovery or global price volatility, rise. Growth and equity imperatives can overshadow longer-term climate goals when short-term political incentives align more closely with visible development outcomes than with abstract climate targets.
The cost dimension reinforces this conflict. Implementing the Just Energy Transition Partnership scenario alone could require tens of billions of dollars, with estimates of cumulative power-sector investments approaching USD 97 billion by 2030. At the same time, sectors such as nickel processing and plantation agriculture see emissions rise alongside export-driven production. Low-carbon industrial roadmaps, such as the National Nickel Industry Decarbonization Roadmap, aim to reduce emissions while maintaining competitiveness, but require coordinated policy and finance.
Does this tension mean Indonesia cannot limit the temperature rise to below 1.5 degrees Celsius? The answer is complex. On the one hand, current policies and targets still allow emissions growth and fall short of pathways consistent with the 1.5-degree goal. On the other hand, the government continues to integrate climate action into broader policy frameworks, such as long-term low-carbon development strategies, indicating growing recognition that economic growth and climate resilience must be mutually reinforcing.
There are pathways to bridge these barriers. First, reforming energy subsidies and redirecting funds toward renewable energy can expand access while reducing emissions. Second, just transition mechanisms in coal-dependent regions, such as East Kalimantan, can support workers through retraining and alternative employment opportunities. Third, integrating climate risk into infrastructure planning can reduce long-term losses while supporting productivity and economic stability.
Balancing economic development and climate mitigation remains one of Indonesia’s most significant policy challenges. The choices made this decade will determine whether development strengthens resilience or deepens future climate risks.
This post was submitted by Climate Scorecard Indonesia Country Manager, Netra Naik.