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Nestled in the heart of Southeast Asia, Indonesia is a vibrant archipelago with a rapidly growing economy and a robust commitment to climate action and sustainable development. As the G20 President in 2022 and the ASEAN Chair in 2023, Indonesia is leading in sustainable growth, and represents a beacon of opportunity for investors seeking transformative investments that align with sustainable, ESG goals.
Indonesia has embarked on an ambitious healthcare reform with the aim to become a regional vaccine hub and improve healthcare for its people, tapping on the Digital Health Transformation Strategy 2024. This presents unique opportunities for global investors to be part of Indonesia’s healthcare transformation.
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As calls for climate action intensifies, Indonesia has stepped up as the President of G20 in 2022 to help create a framework to deliver a fair energy transition. Discover Indonesia's multi-pronged approach for climate action to reduce global and domestic emissions.
A fair and equitable sustainable energy transition
Indonesia has committed to be a net zero country by 2060, beginning with the development of Nusantara, the new capital and one of the first sustainable forest city. This presents many opportunities for investors and businesses to grow with Indonesia’s sustainable transformation.
Indonesia’s green transformation is vital in driving its next stage of economic growth. Southeast Asia’s largest economy offers immense opportunities in clean energy technologies, sustainable finance and a fair carbon market ecosystem.
Nusantara, Indonesia’s new capital city, will be one of the world’s first forest cities. Located on Borneo Island, the city will feature cutting-edge technology based on sustainable and inclusive development. Nusantara will set a new standard for all Indonesians to live by.
Indonesia boasts an array of crucial natural resources from nickel to cobalt and silica, which are key for the world’s net zero ambitions. To maximise the potential of these critical minerals, the country is embarking on a half a trillion dollar pivot to move up the value chain.
Southeast Asia’s largest economy is ripe for economic transformation. With abundant natural resources, healthy economic growth and a youthful population, Indonesia’s economy is primed for a seismic shift.
PRODUCED BY REUTERS PLUS FOR
The global climate crisis is often characterized as a struggle between developed and developing nations. But framing it as such does not improve the global response. Instead, the solution is to shift the discourse in favor of international cooperation. Understanding the need to work together, Indonesia is inviting foreign investors to be part of its green economic transformation. The country’s green transition is both vital and ambitious—and offers immense opportunity in Southeast Asia’s largest economy, which is forecast to be the world’s fourth largest by 2050.
reen economic transformation
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Indonesia’s ambitions to be net zero by 2060 “can drive the next stage in its economic transformation,” according to an International Energy Agency (IEA) report published in September 2022. The report states that the adoption, domestic development and export of innovative clean energy technologies, such as batteries, critical minerals and renewables equipment, all have “large growth potential.” The IEA estimates that Indonesia needs about US$8 billion per year in additional investments through 2030 to remain on track to achieve its sustainability goals. Meaningful reductions in greenhouse gases could be achieved through expanded use of renewable energy sources such as hydrogen and hydrogen-based fuels, nuclear, solar and wind, and carbon capture, all of which are in their commercial infancy in Indonesia.
Indonesia’s government is strongly committed to the climate issue and energy transition,
says Bahlil Lahadalia, Indonesia’s Minister of Investment, referring to the increase in the country’s decarbonization targets from 29% to 31.8% (by its own efforts) or from 41% to 43.2% (with international support) in November 2022.
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“Being home to the world’s third largest tropical forest area, we understand the potential of our contribution to the world in terms of natural climate solutions,” continued Lahadalia.
To further Indonesia’s green credentials, Indonesia’s Ministry of Investment/BKPM has provided almost US$13 billion in sustainable investments to 69 projects including solar power plants in Banten and East Kalimantan and waste treatment in East Java. As part of its efforts to slow climate change, Indonesia also plans to launch a carbon exchange this year. Recently, the Financial Services Authority (OJK) launched OJK Regulation No. 14/2023 on carbon trading through carbon exchanges. This is a significant move for the country, as coal-fired plants generate more than half of Indonesia’s electric power and the country has the capacity to supply up to 20% of global carbon credit demand by 2030 exclusively from natural climate solutions (NCS), according to McKinsey. Only business entities operating in Indonesia will be allowed to trade allowances on the exchange, which will have a cap-and-trade system that limits pollution levels. In February, the Indonesian government launched the first phase of mandatory carbon trading for nearly 100 coal-fired power plants owned by state utility Perusahaan Listrik Negara (PLN), and it has made agreements to accelerate their closure. “We believe that a carbon market will address climate change issues. It is one part of our incentives to encourage sustainable finance and drive more green investment. Thus, a transparent, inclusive, and fair carbon economic ecosystem must be created,” says Lahadalia.
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oving beyond coal
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The country’s Just Energy Transition Partnership—an agreement between Indonesia and the United States, Japan, Canada, Denmark, the EU, France, Germany, Italy, Norway, and the United Kingdom, announced in November 2022 at the G20 Summit in Bali —will provide US$20 billion over the next three to five years to help speed Indonesia’s energy transition. The agreement specifies that renewable energy must comprise 34% of Indonesia’s power generation by 2030, up from 10% in 2022. A second program in Indonesia, under the Asian Development Bank’s Energy Transition Mechanism (ETM), aims to negotiate terms with power companies for early retirement of coal-fired plants. Late in 2022, ADB signed a memorandum of understanding with Cirebon Electric Power (CEP) to explore early retirement of its 660-megawatt coal-fired plant in West Java. Once a definitive agreement is reached, ADB is expected to provide an early retirement facility in the form of senior debt, on the condition that the tenor of the power purchase agreement between CEP and PLN will be shortened. Indonesia has also launched its ETM Country Platform, a government financing and investment framework that will fund and manage the country’s energy transition activities.
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“A green and low carbon economy is one of the main strategies to transform our economy. In the roadmap towards net zero emissions by 2060, Indonesia has set ambitious targets by 2030. They include 42% of new and renewable energy in the energy mix, dominated by solar, also utilization of 2 million electric cars and 13 million electric motorcycles. Thus, we are strengthening the incentives and regulations for green investment to mobilize more capital for green projects.” says Lahadalia. “Coordination and collaboration among stakeholders such as the government, the private sector, civil society, academia and the international community is important and will help foster a common vision,” continues the Minister. “This will also help to leverage expertise and resources.”
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mmense opportunities
Indonesia burned a record amount of coal in 2022. While these programs are a good start, there is no denying that a lot more needs to be done. New renewable energy will account for 52% (or 20.9 gigawatts) of total power capacity added by 2030. This will require US$50 billion in investments, according to the National Electricity Supply Business Plan 2021-2030. The IEA report states that “international cooperation, technology transfer and financial support will be essential” to realize Indonesia’s net zero ambitions. It is time to lay aside the emphasis on disparities between countries’ efforts and ambitions to mitigate climate change, as no nation will escape its impacts. The development of clean energy value chains will significantly diversify Indonesia’s economy and could offer huge gains for enterprises with the required know-how. Through its natural landscape, Indonesia has the potential to make an enormous contribution to realizing the world’s net-zero ambitions and this should not go to waste.
INDONESIA
Driving the EV Revolution
Private vehicles are responsible for more than 25% of global oil use and 10% of global energy-related CO2 emissions.
Indonesia experienced huge growth in EV sales in 2022
Why is Indonesia touted to be a leading EV hub?
Electric vehicles (numbers in units)
2022 7,600 Units
2020 230 Units
Motorbikes (numbers in units)
2022 26,000 Units
2020 1947 Units
Strategic geographic location
Indonesia’s location in Southeast Asia provides access to a rapidly growing regional market for EVs.
Indonesia has the largest population in Southeast Asia and is expected to be the 4th largest economy in the world by 2050
Potential of huge domestic demand
South East Asia
Indonesia
Indonesia has the largest nickel reserves and is the world’s biggest nickel producer. The country is also the world’s second-largest cobalt supplier Domestic supply of copper and bauxite is also ample, benefitting electronics manufacturing in general.
Abundant natural resources
Nickel reserves (tons)
21m Indonesia
19m Australia
11m Brazil
7.6m - Russia
6.5m Others
4.8m - Philipines
1.6m Madagascar
3.7m - South Africa
2.8m - China
5.5m Cuba
2.7m - Canada
1.8m Guatemala
0.44m - Columbia
0.11m - US
Indonesia is already the second-largest automotive producer in Southeast Asia.
Automotive giant
Myanmar - 3.18
Number of motor vehicles produced in Southeast Asia in 2022, by country (in 1000s)
Philippines - 92.22
Vietnam 232.41
Indonesia 1,470.15
Thailand 1,883.52
Indonesia is a major oil importer and transitioning to EVs can reduce its dependence on fossil fuel imports — aligning with the country’s goal of achieving energy security and reducing trade deficits.
Energy Independence
Tax incentives for EV manufacturers
Corporate income tax holiday (up to 20 years) for investment in EV industry
Tax deduction of up to 300% of costs incurred in R&D & technological innovation
Import duty exemption on semi-knocked down kits for EV
Target of 400,000 battery electric vehicles by 2025
Target of 1.8m battery electric bikes by 2025
Presence of global players
In 2020, Honda announced an investment of US$370m to produce EVs in Indonesia
In 2020, Toyota announced an investment of US$2b to produce EVs in Indonesia
In 2021, Mitsubishi announced an investment of US$779m to produce hybrid and battery EVs in Bekasi
In 2019, Hyundai announced an investment of US$1.5b to produce EVs in West Java plant
Wuling invested US$1b from 2015-2021 for localized EV production in Indonesia
Indonesia's US$20+ billion EV opportunity
Cell manufacturing and battery management system US$3-4.5b
Auto R&D and manufacturing US$12.5-15b
Vehicle sales and dealership $1-2b
Charging infrastructure $2-3b
Service maintenance and battery recycling $0.5 - $1.5b
Indonesia Is Driving The World’s EV Future
Tax Incentives
Ambitious government targets
Australia
Brazil
Russia
Others
Cuba
Philippines
South Africa
China
Canada
Guatemala
Madagascar
Columbia
United States
Nickle reserves (tons)
21m
19m
11m
7.6m
6.5m
5.5m
4.8m
3.7m
2.8m
2.7m
1.8m
1.6m
Lower risk weight of 75% for loans for EV value chain activities and exemption from maximum credit limit if guaranteed by BUMN
Government grants free access to government owned BEV-related technology to EV players
Professional certification for battery industry
Tax incentives for EV end-users
Exemption from road restrictions for 4W EV
Lower risk weighting of 75% for loans for EV purchasing
Luxury goods tax reduction for EVs – 0% for battery or fuel cell EVs if local content requirement met
Parking fee discount
IDR7m subsidy for EV-2-wheelers; other subsidies for 4-wheelers
The EV end-user
The manufacturer
Vehicle sales and dealership (US$)
Service maintenance and battery recycling (US$)
Charging infrastructure (US$)
Auto R&D and manufacturing (US$)
Cell manufacturing and battery management system (US$)
$3–4.5b
$12.5–15b
$2–3b
$0.5–$1.5b
$1–2b
In 2023, Ford and Volkswagen (PowerCo) announced that it will join PT Vale Indonesia and China’s Zhejiang Huayou Cobalt to build a $4.5 billion nickel processing plant
In 2021, LG Energy Solution and Hyundai Motor Group started building a $1.1 billion EV battery plant in Karawang, Java
In 2022, China’s CATL announced $5.97 billion in joint investments to build a battery chain project focusing on mining, recycling and manufacturing
