Enhancing Indonesia’s Competitiveness in the Sustainable Trade and Investment Landscape
Authors
Andree Surianta
Deasy Pane
In export competitiveness, conventional concerns like price and quality are no longer all that matters. Buyers increasingly prefer products made in more environmentally sustainable ways. Trading partners are responding to this reality with policy, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM) and China’s green product codes, and multinational companies are greening their supply chains.
Responding to this shift is key to competitiveness in global markets. This paper finds Indonesia is falling behind its Association of Southeast Asian Nations (ASEAN) peers. First, Indonesia has the highest trade-energy emissions (TEE) in the region, driven by an export basket dominated by aluminum and iron/steel processing, which are fuel-intensive industries. Indonesia is also a major ASEAN exporter of fertilizer, cement, and ceramics, sectors that rely heavily on natural gas as an energy source. Second, Indonesia has the lowest carbon competitiveness score among ASEAN countries (58.8). Its renewable share is not far below Malaysia and Thailand, but it combines the highest grid carbon intensity with the largest export dependence on CBAM-exposed sectors and the weakest export diversification. Singapore leads the ASEAN nations with the highest score at 84.9, followed by Vietnam at 79.2, Thailand at 77.5, Malaysia at 73.3, and the Philippines at 72.0
Reforms are needed to close this gap, and international economic agreements can serve as a catalyst. Indonesia has signed several comprehensive economic partnership agreements (CEPAs) and bilateral agreements that include provisions to advance sustainable trade, investment, and the transfer of green technology. Indonesia is also in the process of accession to the OECD, where sustainability is an important best practice. However, these external catalysts are undercut by domestic policy. First, monopolistic energy practices by state-owned enterprises slow the low carbon industrial transition. Second, carbon pricing remains underdeveloped: Law 7/2021 and Presidential Regulation 110/2025 provide a legal foundation, but coverage and enforcement are limited. Third, incentives to attract energy transition investment are insufficient: financial incentives are scarce and licensing and quota systems for low-carbon energy are inadequate, further weakening investor confidence. Fourth, the regulatory landscape is fragmented: overlapping mandates across ministries create uncertainty over implementation, information, and reporting, leaving businesses unsure where to seek guidance. Indonesia’s monitoring, reporting, and verification (MRV) system is also underdeveloped, limiting the credibility of industrial carbon accounting.
To strengthen Indonesia’s competitiveness, this paper recommends three actions. First, use trade agreements to accelerate low-carbon technology cooperation and investment facilitation. Second, adopt an open energy market to secure export competitiveness by removing PT Perusahaan Listrik Negara (PLN)’s monopoly bottlenecks, lifting renewable installation quotas, and phasing out fossil fuel subsidies. Third, develop a single, robust industrial carbon measurement mechanism for Indonesian exporters.
Felippa Amanta
