How investors can tap into Indonesia’s green growth transition
Published on July 18, 2023
Over the past five decades, Indonesia has witnessed a sweeping economic transformation that has improved the lives of its citizens. But this growth hasn’t been without a significant toll on the environment. Today, Indonesia is the fourth largest greenhouse gas (GHG) emitter globally, a consequence of rising affluence.
Now, with the looming threat of climate change and the potential risk of losing 17%-40% of its GDP if global warming breaches the 2°C threshold established by the Paris Climate Agreement, it is time for Indonesia to chart a new path: “green growth.”
Green growth refers to an economic trajectory that is both economically robust and environmentally sustainable. For Indonesia, the task ahead involves decoupling carbon emissions from growth. Specifically, it will need to achieve a 40% to 50% reduction in carbon emissions per unit of GDP by 2030. To make this transition, an estimated US$350 billion per year is projected to be spent in both the public and private sectors by 2030, a testament to the nation’s commitment to its 2060 net-zero ambitions.
AC Ventures and Boston Consulting Group recently released the country’s premier report on the decarbonization sector and its far-reaching implications for green growth potential, outlining a pivotal role for the nation on the global stage as it seeks to transform its economy.
The transition to green growth requires the active participation of all stakeholders – from innovators to investors and policymakers. It offers an opportunity not just to preserve the environment, but also to unlock new engines that can further propel Indonesia’s economy at large.
Driving this shift will involve three key areas: strategy and professional services, solutions optimizing GHG intensity, and emission offsetting. By 2030, these are anticipated to represent potential markets of US$46 billion, US$350 billion, and US$3.5 billion respectively.
“Indonesia holds tremendous decarbonization potential. For example, the international demand for voluntary carbon credits is set to skyrocket, increasing by about 27% annually until 2030. Currently, around 30% of the world’s total carbon reserves are in Indonesia’s peatlands alone,” explained Lauren Blasco, Head of ESG at AC Ventures.
“When we commoditize their preservation, Indonesia is poised to be a frontrunner in this expanding market. We foresee our carbon credit market expanding to 140 million tons by 2030, a huge leap from the 40 million issued in the past decade. At a projected rate of US$25 per ton, this market alone could bring in US$3.5 billion annually, signaling a significant opportunity.”
For businesses in Indonesia, the journey to green growth involves a multitude of strategies. These include optimizing the energy mix and storage with a focus on renewables, transitioning to electric vehicles, establishing low-carbon industrial and operational processes, and managing supplier and customer emissions more effectively.
Additionally, businesses can redesign products and supplier networks for greater sustainability and remodel waste management and prevention practices to drive green growth ambitions.
In parallel, investors should look at ventures that explore the creation and trade of credits for carbon offsetting within burgeoning carbon markets. These markets not only provide a financial incentive to reduce emissions but also stimulate investments in cleaner, more efficient technologies.
Businesses can establish carbon-offset projects, implement nature-based solution offset initiatives like reforestation campaigns and carbon-sequestering farming techniques, and launch high-tech carbon capture and storage initiatives.
Further, companies can issue or trade carbon credits, build and operate carbon-trading platforms, and make use of carbon credit markets, both compulsory and voluntary. These strategies can serve as essential tools to incentivize the reduction of emissions while supporting Indonesia’s green growth objectives.
The transition to a green economy in Indonesia isn’t just a necessity—it’s an opportunity. An opportunity to foster sustainable economic growth, reduce the risks associated with climate change, and catalyze new industries. It’s a journey that requires the collaboration of innovators developing the technologies of tomorrow, investors willing to finance the transition, and policymakers crafting conducive frameworks.