Transition Towards
Low-Carbon Economy:
Industrial Sector Strategy
March 8, 2022
Bogor, West Java
Leonardo A. A. Teguh Sambodo, PhD
Director for Industry, Tourism, and Creative Economy

Green Growth as a
New Source of Growth

Indonesia experience early sign of de-industrialization
1990
1991
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2020
2021
1990
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1990
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2005
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2009
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2011
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15,0
17,0
19,0
21,0
23,0
25,0
27,0
29,0
31,0
33,0
35,0
8,0 9,0 10,0 11,0 12,0
Manufacturing
GDP
(%
of
GDP)
GDP per capita, PPP (Constant Price 2017 International $), Ln
Share of Manufacturing GDP and GDP per
capita
Indonesia Korea Selatan Singapura
South Korea:
High income: 1996
Share of manufacturing GDP: 24,7%
Singapore:
High income: 1991
Share of Manufacturing
GDP: 26,6%
Source: World Development Indicators (modified)
South Korea Singapore
Source: BPS (2023)
Share of Manufacturing GDP (%)
Manufacturing GDP Growth (%)
5,6
8,7
5,3
5,0
-15,0
-10,0
-5,0
0,0
5,0
10,0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2020 2021 2022
Industri Pengolahan Industri Batubara dan Pengilangan Migas
Industri Nonmigas PRODUK DOMESTIK BRUTO
19,98 19,86 19,86 19,81 19,82 19,28 19,14 18,79 19,21 17,84 17,97 18,32
2,12 2,04 1,96 1,86 1,92 1,95 1,83 1,84 1,86
1,84 1,79 1,94
17,86 17,83 17,90 17,95 17,90 17,33 17,32 16,95 17,36
16,01 16,18 16,39
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2020 2021 2022
Industri Pengolahan
Non Migas
Industri Batubara
dan Pengilangan
Migas
Industri Pengolahan
Coal and oil and gas refinery
GDP
Manufacturing
Non oil and gas manufacturing
Non oil and gas
manufacturing
Coal and oil and
gas refinery
Manufacturing
3

Green economy: prospective approach towards sustainable future
Source: McKinsey & Company, and Bappenas
4
According to the Green Economy Report by Bappenas, pursuing a green
economy will offer multiple benefits and lead Indonesia to reach the Net Zero
Emissions (NZE) target by 2060 or sooner
~68%
reduction
in emission intensity
by 2045
1.8 million
Additional green jobs in
2030 (in the energy sectors
EVs, land restoration, and
waste management)
6.1-6.5%/yr
25-34%
higher gross national
income (GNI) by 2045
40,000
Lives saved in 2045 alone
from reduced air pollution
USD 4.75 T/yr
Ecosystem restoration of
services value by 2060
Average GDP growth
until 2050

High economic
volatity
Industry players need to adjust
their brand and market
positioning to be agile and
dynamic
Global economic
power will shift
from G7 to E7
The development of new
emerging countries will open
up new opportunities for
industry players
Global demographic
changes and urbanization
• The upper middle class population drives the
demand for products that are sustainable and
environmentally friendly
• The high growth of the young population
needs to be accompanied by improvements in
the quality of education and the availability of
jobs.
Highly sophisticated
technology
The adoption of smart technology in
the processing industry will continue
to increase, thus requiring HR
readiness.
Indonesia's exports are still
dominated by 'traditional trade', even
though participation in GVC has been
proven to increase the productivity of
Indonesian companies (learning
effect).
Rapid technology
life cycle
• Industrial technology evolves
towards industry 5.0, 6.0, etc.
(higher speed, smaller size)
• In the 2021 Global Innovation
Index (GII), Indonesia is ranked
87th out of 132 countries.
Source: various resources
Environment and
Sustainability
Industry players must adapt to
the 'New Protectionism Regime'
towards greener products,
technologies and processes.
Participation in
GVC
Managing more complex risks and challenges…
5

6
Further Global Risks:
Industry need to adjust with the new ‘protectionism regime’
Source: www.euractiv.com
Scope of
products in
CBAM:
Cement Iron/Steel
Alumunium Electricty Fertiliser
CABM will be put into place in October
2023 (transitional period until 2025),
with a focus on imported goods of
‘carbon-intensive’ industries.
Key takeaways:
CBAM will be implemented in
phases. This policy’s objective is to
prevent the risk of carbon leakage by
ensuring equivalent carbon pricing
for domestic and imported products
in certain sectors)
Opportunity: (i) encourage the use of
GHG emission-efficient technologies by
producers from third countries, and (ii)
open new market for greener products
and cleaner technologies for industries
Impact for developing countries:
1. CBAM will increases costs (tariff equivalent
for ASEAN are 1,6% to 17,1%, differ depending
on the products) and decrease export (decline
in ASEAN between -6,1% to -56,6% from
baseline in 2030);
2. decrease GDP (decline in ASEAN between -
0,013% to -0,201% from baseline in 2030); and
(iii) reduce welfare
Source: www.consilium.europa.eu; Xiaobei et.al (2022), TCD IMF

7
How affordable is the transition?
7
Through international trade, green
production processes diffuse to
developing countries to meet
developed countries' demand for
green products. But the shift
process cannot be instant (supply
side issue).
Key Points:
Developing countries that can quickly
switch to environmentally friendly
processes will win the green market.
Consumers are more concerned about
production use technology with less
environmental pressure
Concern for the environment as an
instrument of non-tariff barriers
More environmentally friendly
technologies and processes
DEVELOPED COUNTRIES
✔ Producers in developing countries are
facing increasing demands for exports of
green products;
✔ However, supply chains cannot change
green production processes instantly
because technological changes may be
too costly and capacity building takes a
long time to adjust.
✔ Low awareness and responsibility
towards the environment
✔ It is difficult to introduce green markets
because the government does not have
enough budget or capacity to introduce
green public procurement
✔ The majority of consumers do not buy
products labeled as environmentally
friendly
DEVELOPING COUNTRIES THE GAP
Source: Direktorat Perdagangan, Investasi,dan Kerja Sama Ekonomi Internasional, Bappenas

Strategy for Industrial
Sector

9
Synergising economic growth and environment
▪ Many studies show that economic growth and the environment (including climate change), have a
positive correlation, as shown by the 2018 Nobel Laureate in Economics study:
William Nordhaus: “The DICE model displays the linkages between CO2 concentrations,
climate, adverse economic impacts of climate change, and examples of economic models
that produce CO2. The model is used to determine the "carbon social cost", which is the
future losses incurred due to increased CO2 emissions”
Paul Romer: “Endogenous development theory is strongly influenced by innovation and
technology. Technological change itself will be determined by economic decision-making
and market pressures. This theory shows how policies and regulations can generate new
economic ideas and innovations. This has led to studies on how investment in research
and development can lead to new technologies that are more environmentally
friendly”
Therefore, there is a need for an economic concept that is not linear but also pays attention to
the environment, namely a circular economy (CE) that is able to overcome economic and
environmental problems

10
Green industry: the development of a sustainable manufacturing
industry is also expected to encourage changes in consumer trends
Environment
Economy
Social
Sustainable
Manufacturing
Development
• Facilitation of industrial agglomeration
• Fostering the formation of industrial clusters
• Encouraging and facilitating transactions
between domestic companies
• Machinery revitalization to
improve product quality and
reduce waste
• Encouraging best practices in
managing the manufacturing
sector
• Clean production
• Waste handling
• Increasing the skills and
competence of the workforce
through up-skilling and re-
skilling
• Facilitation of training and
benchmarking
Energy saving and low
emission technology
Renewable energy
Energy, water and raw
material efficiency
Waste prevention and
Control
1. 2. 3. 4.
Source: Ministry of Industry (2021, 2022)

11
To support the implementation of green industry in Indonesia,
a number of enabling conditions must be met
Challenges Enabling Conditions
Education and Law Enforcement
Commitment of Stakeholders
Infrastructure (Including Technology) and
Innovative Financing Schemes
The interest rate for this project is still high due
to the lack of green project portfolios.
Achieving Supply-Demand Balance
Market acceptance of quantity and quality is
crucial
Improve Understanding
Knowing the implications and scope
(what to do first, who’s doing what)
Fiscal Incentives (stimulus for the recycling
industry, raw materials from waste, green
technology adoption, etc).
Reduce import for raw materials
Reducing imports of raw materials will indirectly increase
the potential for reuse domestic waste to become industrial
raw materials
Extended Producer Responsibility (EPR) Policy with a
mandatory reporting scheme
Recycling product standardization through
policies that encourage the use of recycled
materials.
Product standardization in order to extend
life-product.

Promoting green production through Green Industry Standard
Assessment of the Green
Industry Standard (SIH) by the
Ministry of Industry
Implementation of
Green Industry in 2019
had saved water up to
IDR 20 trillion
Source: Ministry of Industry
Production Process
(Weight: 70%)
Waste/Emission
Management
(Weight: 20%)
Company
Management
(Weight: 10%)
Implementation of the
Green Industry in 2022
had saved energy up to
IDR 9.8 trillion
Based on Law Number 03 of 2014 about Industry
1,187
Companies have received the green
industry award from 2010 – 2022
12

Other standards relevant to green industry promotion
13
The criteria for evaluating company
performance ratings in environmental
management are regulated in the
Regulation of the Minister of
Environment and Forestry Number 1
of 2021
PROPER Mechanism
In total, in 2020, there will be
savings of IDR 107 trillion from
efforts to save water resources,
energy, waste and hazardous waste
and reduce the burden of water
pollution and emissions.

… and expanding the implementation of circular economy
Paradigm shifting
From LINEAR
Extraction &
Production
Consumption Collection Landfill
Linear supply chains cost more, are prone to volatility and are
harmful to our environment
Circular supply chains reduce costs, provide better price
stability and protect the environment. The Circular Economy
is broader than waste management and recycling
Collection
Recycle
Processing
Design/
Manufacture
Consumer
Goods
Towards CIRCULAR
Sources: Bappenas, 2020
14
• The practices of Circular Economy are restorative, regenerative by designs, and effectively using materials and energy to retain their value.
• Most of the circular economy initiatives focused on the environmental perspectives with limited role of trade, technological innovation, and
financial market– which are essentials for accelerating the circular transformation.
• There is a need to design an inclusive approach policy that facilitates active participation from all relevant stakeholders, including broader public.
Note

Impact of circular economy on Indonesia’s economic growth
A circular economy could generate an additional economy-wide GDP impact of IDR
593-638 trillion in 2030. The economic impact from circular economy could boost
overall GDP growth by 2.3 – 2.5 percent in 2030
Source: BPS; Bank Indonesia; Ministry of Environment and Forestry; ADB; WRI; ITU; expert interviews
Based on system dynamics analysis, the additional GDP impact on the 5
focus sectors could be up to IDR 312 trillion by 2030
If Indonesia started implementing circular activities from 2021 onward and
achieved the full economic potential of a circular economy, the circular
economy could increase Indonesia’s GDP growth rate by 0.6 percent in 2030
312
21
Scenario 1: Consumer
approach
Scenario 2: Producer
approach
Scenario 3: Consumer and
producer approach
GDP Impact by 2030
IDR trillion
Note: The economic impact in
the system dynamics analysis
only consider the direct impact
on the five focus sectors, not the
broader impacts on other sectors
from implementing circular
economy opportunities in those
sectors
-1.563
4,9 4,9 4,9 4,9 4,9 4,9
0,1 0,2 0,2 0,3 0,5 0,6
2025 2026 2027 2028 2029 2030
GDP growth rate in Indonesia (%)
Business-as-usual GDP growth
Contribution of circular economy to GDP growth
5,0 5,1 5,1 5,2 5,4 5,5
Strategies to boost Indonesia’s GDP:
▪ Improve productivity, particularly of investments by reducing waste and
increasing the lifespan of assets
▪ Circular economy can create new business models and investment
opportunities to drive growth
▪ Circular economy can improve the resilience of the economy to ecosystem
services shocks
593
638
Input-Output Table Modelling Incremental Capital - Output Ratio (ICOR)
Modelling
GDP Impact in 2030
IDR Trillion +8%
Equivalent to 2.3 –
2.5% of Indonesia’s
projected GDP in 2030
15

Eco Industrial Park
Eco-industrial park development in Indonesia
Green Industry
Standard
▪ Integrating Social,
Economy, and
Environmental aspects
▪ Energy Efficiency
Public Disclosure Program
for Environmental
Compliance (PROPER)
▪ Water resource management
▪ Material Flow Analysis and
Waste Management
Source : International Framework for EcoIndustrial Parks UNIDO, 2017
Social
Challenges in Eco-Industrial Park Implementation
▪ Social conflicts with local residents
▪ Skill enhancement, environmental
quality improvement, CSR,
community capacity building efforts
Economy
▪ Business collaboration
between industrial park
stakeholders
Management
▪ Commitment of manager and
tenant (in delivering estate
regulation, environmental
documents)
Environment
▪ Water Resources, Energy
Resources, Solid Waste
Management, Hazardous
Waste Management
TanahKuningIndustrialParkDevelopment Plan
inIndonesia EmbracetheGreenConcept
The development of KI Tanah Kuning is
designed to use green infrastructure
▪ Kayan River hydropower (9000 MW)
▪ Sanitation natural purification
with artificial wetlands
▪ Water Conversion and
Recycling System
▪ Controlled landfill
If Tanah Kuning begins its operational, it must comply with the
control mechanism determined by the government, including:
Government Regulation Number 142 of 2015 → Obligation to have AMDAL
Government Regulation Number 22 of 2021 → Implementation of Environmental
Protection and Management
Source: Ministry of Industry and
Ministry of Environment and
Forestry, 2020
16

17
Industry 4.0 and digitalization: application of data and digital technology
become a solution to reduce global emissions by up to 20%
Adoption of digital technology
can help accelerate the
transformation towards net-
zero-emissions
An analysis conducted by Accenture
and the World Economic Forum
(WEF) shows that the application of
digital technology can result in up
to a 20% reduction in CO2
emissions, from the 2050 target
needed to achieve the net-zero
emission target set by the
International Energy Agency, if
implemented in the energy,
materials, and mobility industries,
which contributed to around 34%,
21% and 19% of total emission in
2020.
These industries can reduce
emissions by 4-10% by rapidly
adopting digital technologies.
* These three sectors are also the
sectors with the highest
potential to reduce emissions
Sumber: World Economic Forum

18
Three steps to increase digital adoption while reducing global
emissions
Countries can realize their net-zero
carbon ambitions more quickly by
adopting digitalization to decarbonize
industries.
● There must be open data that is shared, autonomous,
connected, and enables transparency that underpins
policies and services.
● Investment is required in a modern data architecture
that facilitates data availability, standards and quality,
and can be shared across the value chain and with
public, private and community partners.
● Consider the option of having one well-managed
data-sharing platform that enables efficiencies in the
development of applications and business processes
that consume additional energy.
Preparing for Data Disclosure
● Prioritize digital inclusion and skills development.
● Ensure that the current and future workforce has access to the new
technologies and skills needed to leverage digital technologies and transform
high-emission business processes.
● Increase government, business and community collaboration to increase
inclusive access to digital technology and sustainable practices.
Digital Technology Inclusivity
Digital Partnership
● Encouraging collaboration for digital transformation across priority areas.
● Partnerships between private companies, start-ups, technology providers,
investors and public institutions to increase investment, reduce technology
risks and accelerate knowledge sharing.

19
Fastest Growing Green Skills Globally, by Category
Source: Linkedin (2021)
• Various technical skills are required to
support a green transition.
• The most important skill changes occur
at the medium to high skill level.
• In the early stages, the company usually
reskills and upskills its staff as needed.
Over time, the government participated
through educational institutions.
• Rapid developments have occurred in
the renewable energy sector and waste
management.
• Regulations for building insulation and
recycling are key to the development of
skills in construction and manufacturing.
Source: ILO (2019)
The transition towards a green industry also needs uplift
through skills competence standardization

Green investments can support the development of green
industries and jobs
Green Investment
is an investment activity that is focused on
companies that are committed to:
59%
41% FDI
DDI
Total Investasi
USD 21,18 Miliar
2014 2015 2016 2017 2018
↑ 54.5%
↓ -24.8%
↑ 5.6%
↑ 13.1%
3,251
5,177
3,892
4,109
4,648
9.81%
Kontribusi terhadap total realisasi
investasi pada tahun 2014-2018
Miliar USD
2014 2015 2016 2017 2018
Total Investment
USD 21.18 Billion
contribution to total investment
realization in 2014-2018
Billion USD
Regulations related to Green
Investment include:
1. preserving the natural environment,
2. producing alternative renewable
energy sources,
3. implementing clean air and clean
water projects, as well as
4. investment activities that are
environmentally friendly.
20
1. Law Number 25 of 2007 concerning investment
▪ For the government: provide facilities to investors
who invest while preserving the environment
▪ For investors: implementing corporate social
responsibility, and gradually allocating budget for
site restoration (for investors in non-renewable
natural resources business).
2. Presidential Decree Number 16 of 2012 Concerning
the General Investment Plan (RUPM) mandates
Green Environment-Based Investment

Sustainable finance: potential, but not yet benefited the
manufacturing sector in green transition
21
Debt based Other bonds Sharia Financing Trust Funds Capital Markets Impact
Investments
Philanthropy Development
Partners
Blended Finance Debt for
Nature
Swaps
Insurance
Ecological Fiscal
Transfers
E.g. Zakat Bonds,
Green Sukuk
E.g. Impact/
Outcome-based Bonds
E.g. Government, NGO
E.g. Private sectors debt and
equity
E.g. Both equity and debt
E.g. CSR, Direct Grants
E.g. ADB, UNDP
E.g. Coral Reef
Insurance, Parametric
Insurance
E.g. Terrestrial examples
E.g. Combination of potential
instruments
E.g. SDG Bonds, Green Bonds,
SOE, Banking Sectors, Fin-
tech, NGO/Donor-supported

22
Blended finance in development financing strategy
Coordination:
• Ministry of National Development
Planning
• Ministry of Finance
• Financial department at ministry
• Development partner, NGO,
philanthropy organization
Governance:
• Inter-ministerial coordination
• Coordination related to SDGs goals
that have been established
Existing monitoring frameworks:
• National Mid-term Development Plan
(RPJMN)
• SDG dashboard & e-monev
• SDGs VNR and annual report
• Annual plans target and indicators
• Green, blue, and PPP financing
guidelines
Source: OECD
Current study:
• Total official support for SD (TOSSD)
• SDG costing
• Development Finance Assessment
(DFA) snapshot
• Public financing and financial
planning
• Article IV consultation
Existing elements of financing
strategy:
• National Mid-term Development Plan
(RPJMN) financing strategy
• SDG Roadmap financing strategy
Existing financing policies:
• MTEF
• State budget
• Income strategy
• Monetary policy easing & inflation targeting
• Sustainable Finance Roadmap (phase II)
• PPP policy
• Business regulation
• Sustainable investment promotion
• Equity fundraising

• Harmonization of regulations to support the application of
green industries.
• Encouraging the implementation of green investment and
green economy thereby encouraging the provision of fiscal
incentives.
• Collaborating with the central and regional
Ministries/Agencies to promote sustainable development.
Government
Society
• Applying up to green industry certification.
• Conducting R&D to improve the efficiency of
production processes, raw materials, and
energy.
• Prepare for the development of an integrated
and collaborative Green Industrial Estate.
Practitioners and Academics
• Increasing environmentally friendly technological
innovations: electric vehicles, renewable energy
(solar panels).
• Production process innovation for energy and
resource efficiency.
• Technology and digital integration through the
development of data science, machine learning,
simulation, engineering systems and robotics.
• Increase awareness of the importance of using
environmentally friendly products and
products produced from environmentally
friendly processes.
• Participate in protecting the surrounding
environment by supporting industry and green
industrial areas.
Industry
Indonesia's green industry transition requires
multi-stakeholders collaboration and support
23

Thank You