Indonesia has experienced stable economic growth over the past decade, transforming the country into one of the largest economies in Asia. However, further action is still needed to address poverty, inequality, unemployment, and environmental degradation .
In addition, the outbreak of the COVID-19 pandemic in the last two years has created a multidimensional crisis that has affected not only the economy, but also Indonesia’s progress in eradicating poverty and ensuring equality. At the same time, another crisis has been surging even before the pandemic started: climate change. As one of the most vulnerable countries to climate change impact, Indonesia is highly exposed to physical climate risks such as extreme weather, floods, droughts, and sea level rise. Both crises are expected to hinder Indonesia’s progress to achieve the 2030 sustainable development agenda and its goal of becoming a high-income country by 2045. Therefore, implementing business-as-usual approaches in development will be insufficient to guarantee long-term sustainable growth in the future .
Moving forward, pursuing a green economy in Indonesia is envisaged to bring in multiple benefits and lead Indonesia to reach its Net Zero Emissions (NZE) target by 2060 or sooner. According to a study by Bappenas, one of the key benefits to a green economy includes the country securing high average GDP growth up to 6.5% annually until 2050. Importantly, this economic growth would not compensate the environment and ecosystems .
In pursuing this, Indonesia has developed a Green Economy Index (GEI) as a tool to measure the country’s progress towards a green economy, by using selected indicators representing economic, environmental, and social nexus. Overall, Indonesia’s GEI shows a rising trend over the period 2011-2020, indicating that the country is on the right track towards green economic growth. However, each year the environmental pillar has the lowest composite index compared to the economic and social pillars. This is prompted mostly by a low share of renewable energy in Indonesia’s primary energy mix and the degradation of the country’s peatlands, signaling that more ambitious environmental policies are needed in order to transform Indonesia’s economy .
Key policies and governance approach
Green economy practices in Indonesia are centred on low carbon development and climate resilience policies. Both of which, have been integrated into the country’s National Medium-Term Development Plan (RPJMN) , which sets the country’s overall economic direction for 2020-2024. Improving environmental quality, increasing resilience against climate risk and disaster, and Low Carbon Development are all grouped together to make up one of the country’s seven development agendas in Indonesia’s 5-year plan .
Indonesia has also developed the Long-Term Strategy for Low Carbon and Climate Resilience 2050 (LTS-LCCR), which aims to achieve the country’s national development objectives, while taking into consideration the balance between emission reduction, economic growth, justice and climate resilient development . Through the LTS-LCCR, the Government envisages achieving the Forestry and Other Land Use Net Carbon Sink by 2030, referred to as FOLU Net Sink 2030 , as well as a significant transition in the energy sector .
Indonesia has embarked on a mixed energy use policy. The country has also established the development of clean energy sources as a national policy directive. Collectively, these policies will eventually put Indonesia on the path to decarbonisation. Government Regulation No. 79/2014 on National Energy Policy, sets out the ambition to transform, by 2025 and 2050, the primary energy supply mix with shares as follows: a) new and renewable energy at least 23% in 2025 and at least 31% in 2050; b) oil should be less than 25% in 2025 and less than 20% in 2050; c) coal should be minimum 30% in 2025 and minimum 25% in 2050; and d) gas should be minimum 22% in 2025 and minimum 24% in 2050. The Government also promulgated Presidential Regulation No. 22/2017 on National Energy Grand Plan which mandates the target of 23% New Renewable Energy (NRE) in national energy mix by 2025 and 1% reduction in energy intensity per year .
Additionally, in order to manage the trade-off between economic recovery and sustainable development post-COVID, the Ministry of National Development Planning/ Bappenas has established 6 strategies within Indonesia’s Economic Transformation framework aimed to lift the country’s economic growth trajectory back to the pre-COVID situation. These 6 strategies of economic transformation will serve as “the game changers” to achieve Indonesia’s Vision in 2045, and will include: (i) Improving the productivity of the economic sector, focusing on industrialization, the productivity of SMEs, and modernization of agriculture; (ii) Relocation of the New Capital city (IKN), which is expected to create a new source of growth and create balance between regions; (iii) Domestic economic integration, focusing on connectivity infrastructure such as superhub for air and maritime, and domestic value chain; (iv) Bolstering the competitiveness of human resources, focusing on the health system, education, and research and innovation; (v) Digital transformation, focusing on digital infrastructure, digital utilization, and strengthening enablers; and (vi) Green economy, focusing on low carbon economy and circular economy, blue economy, and energy transition .
Successes and remaining challenges
Indonesia’s Green Economy Index (GEI) has shown a rising trend over a ten-year period (2011-2020). A clear trajectory of reducing the emission intensity is driven mainly by FOLU-related policies, including the forest moratorium that has successfully kept the area of primary forest high since 2011. Based on each indicator’s progress, the economic indicators have shown the greatest progress, especially the ‘Final Energy Intensity’ indicator. Four indicators are categorised by having a good score (a score of more than 75), which are (i) forest cover; (ii) managed waste; (iii) industrial labor productivity; and (iv) life expectancy .
Though the environmental pillar has scored the lowest in comparison to the other pillars each year, the government has made progress in peatland restoration and has accelerated the development of new and renewable energy with the issuance of the Presidential Regulation No. 22/2017. As a result, between 2016 and 2020, about 1 million ha of degraded peatland was restored in Indonesia. Additionally, from 2015 to 2020, Indonesia’s share of renewable energy in primary energy sources doubled from 4.9% to 11.28%. Further, in the transport sector, biofuel now plays a crucial role by supplying 55.5 million BOE in 2020, a massive increase from just 8.4 million BOE in 2015, due to the success of the B20/B30 implementation regulation .
Despite these achievements, Indonesia’s environmental objectives still fall short in terms of achieving a green economy and are often inhibited by inconsistent implementation . For instance, the country’s energy mix is still dominated by fossil fuels which currently meet around 84% of the country’s energy demand . Going forward, Indonesia’s green transition will not be easy, as achieving a green economy still requires significant policy reforms, adjustments to investment priorities, integrated cross-sectoral planning, and strong coordination between public and commercial sectors as well as with international partners .
Nevertheless, although Indonesia still must take several steps to transition to a green economy, the launch of its Green Economy Index marks a new milestone in the country’s transition by providing an accurate and reliable methodology in measuring the country’s progress and achievements. The tool can also be used to identify opportunities for policy adjustments and priority improvements along the way . Overall, the launch of the GEI not only represents a significant evolution of the concept, but also the strong political will of Indonesia to carry the green economy forwards .
Initiatives and Development Plans
In 2021, Indonesia launched its Green Recovery Roadmap (2021-2024) to help the country recover from the impacts of COVID-19. The roadmap prioritizes green recovery initiatives in Indonesian national planning and budgeting processes through 12 actions that will be implemented over four phases: in 2021 (Respond); 2022 (Recovery); 2023 (Recovery and Re-evaluate); and 2024 (Reward).
A central part of the Green Recovery Roadmap is three pilot projects in the waste, energy, and plantation crop sectors. The projects will: i). Provide stimulus for 7,500 waste sector micro, small, and medium enterprises (MSMEs) to develop waste management performance improvements; ii). Install rooftop solar panels on 70 government buildings, totaling 14MW; and iii). Invest in plantation rejuvenation to increase crop productivity and farmer incomes while reducing emissions through avoided deforestation and degradation. In total, these pilot projects are projected to sustain and create more than 300,000 jobs in the next three years, avoid more than 400 million tCO2e over 25 years, and strengthen climate resilience.
In addition to helping Indonesia recover from the impacts of the COVID-19 pandemic, the roadmap also aims to ensure there are sufficient funding pathways to sustain longer-term green economic development in the country , .
The United Nations team in Indonesia, through a joint UN program – Accelerating Sustainable Development Goals (SDGs) Investment in Indonesia (ASSIST) – led by the United Nations Development Programme (UNDP), has kicked off the implementation of the Blue Finance Accelerator program, together with the Asian Development Bank (ADB) and the Indonesian Coordinating Ministry of Maritime and Investment Affairs. This program aims to increase the national and local government capacity and awareness of the blue economy and improve access to finance for select blue sector start-ups and Small, Medium Enterprises (SMEs) through capacity-building support and scale-up projects focused on the Blue Economy through the venture accelerator program .
Additionally, in August 2022, the Ministry of National Development Planning (Bappenas) in partnership with the UNDP in Indonesia, supported by the Government of Denmark launched "The Future is Circular: Concrete Steps for Circular Economic Initiatives in Indonesia". This book is a first step towards the development of a Circular Economic Policy Roadmap in Indonesia, in the context of Low Carbon Development, towards a green economy. It contains initiatives to implement the circular economy concept from 36 initiators in various sectors and actors such as the government, business actors, and non-governmental organisations in Indonesia. Cumulatively, the economic, social, and environmental benefits derived from these 36 initiatives include savings in operating costs of more than IDR 431.9 billion (around USD 30 million), job creation for 14,270 workers, emission reductions of more than 1.4 million tons of carbon dioxide equivalent (CO2e), energy savings of more than 4.8 million megawatt hours, water consumption reduction by more than 252 thousand billion cubic meters, and waste reduction of more than 827 thousand tons.
The implementation of the circular economy in Indonesia focuses on five sectors, namely food and beverage, textiles, construction, wholesale and retail trade, and electronics sectors, which have the potential to increase Gross Domestic Product by IDR 593-638 trillion by 2030, creating annual household savings of nearly 9% of the budget, equivalent to IDR 4.9 million or USD 344 per year, and create 4.4 million jobs with 75% of them for women. The implementation of a circular economy in Indonesia can also reduce CO2 emissions by 126 million tons and water usage by 6.3 billion cubic meters in 2030 .
Goals and Ambitions
Indonesia plans to build a new capital, which presents a major opportunity to demonstrate compact, connected, clean and resilient urbanisation. The city is to be built in eastern Borneo and is envisioned as a “forest city” with at least 50% green space, surrounded by healthy ecosystems, including reforested former oil palm fields and mines. If successful, the project can serve as a role model for other Indonesian cities and showcase the country’s commitment to protect biodiversity assets and promote urbanisation that is both low-carbon and resilient .
- Pursuing a green economy will offer multiple benefits and lead Indonesia to reach the Net Zero Emissions (NZE) target by 2060 or sooner. According to a study by Bappenas, benefits include securing high average GDP growth up to 6.5% annually until 2050, that does not compensate the environment or ecosystems; almost 100 billion tonnes of CO2eq projected to be saved over 2021–2060; and a predicted 1.8 million additional green jobs created .
- But moving towards a green economy will require significant policy reforms, adjustments to investment priorities, and strong coordination between public and commercial sectors as well as with international partners .
- The government should keep escalating the deployment of renewable energy .
- Securing finance for renewable energy investments represents an important barrier to accelerating Indonesia’s energy transition. Financing sources need to be expanded and local financing needs to grow. New financing models need to be developed and the capacity of national financing institutions needs to be strengthened to enable their participation .
- Build the country’s energy policies based on renewable energy development to drive economic growth and job creation, supported by a predictable long-term energy plan that prioritises clean energy investments consistent with national and regional (renewable) energy policies .
- In the short term to 2030, Indonesia should expand solar PV, electric vehicles and biofuel supply .
- Eliminating coal subsidies and including pollution induced costs for fossil fuel use could help create a level playing field for renewables .
- Increase investment in nature-based solutions, such as forest conservation and restoration.
- Law enforcement is needed for companies to undertake peatland restoration .
- Solid waste management needs to be improved from upstream to downstream in an integrated and comprehensive manner .
- The improvement of human capital in the industry needs to be accelerated further as a main driver for Indonesia to escape the middle-income trap. Some reskilling and upskilling of industrial workers should also be strategized cohesively to ensure a just transition towards the Green Economy .
- By adopting circular economy opportunities in 5 key sectors of the economy (food & beverage, textiles, construction, wholesale and retail trade, and electrical and electronic equipment), Indonesia’s GDP could increase by IDR 593 to 638 trillion (USD 42 to 45 billion) in 2030 (than it would under a “business-usual” approach); 4.4 million cumulative net jobs could be created between 2021 and 2030, out of which 75% could be for women; CO2e emissions and water use could be reduced by 126 million tonnes and 6.3 billion m3 in 2030, respectively (equivalent to 9% of the current emissions and 3% of the current water usage); and the average Indonesian household could save IDR 4.9 million (USD 344) annually, representing almost 9% of the current yearly household expenditure .
- Invest in sustainable urban mobility, including both public transport and walking and biking infrastructure, as well as in transit-oriented development .
- Scale up ecosystem restoration in and around cities to build resilience, including of mangroves and peatlands. Healthy coastal ecosystems also support livelihoods, especially for the poor .
- Leverage the Smart Cities movement to advance sustainability, resilience-building, and inclusion, with measures to ensure that small and mid-size cities can fully participate, and so can lower-income people .
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