Although carbon density has decreased by almost 50% since 2005, the World Bank claims that Indonesian technology and services have not kept up with this transformation. Indeed, Indonesia’s green transformation is currently hampered by policies that appear to prevent effective sustainability practices from being adopted within businesses. However, in a new report, the World Bank has made several key recommendations for Indonesian policymakers¹:-

1. Reduce tariffs on the import of environmental goods (EGs) and plastic substitutes further, potentially via multilateral agreements.
2. Streamline non-tariff measures (NTMS) on EGs/plastic substitutes and review trade regulations.
3. Harmonise SNIs with international product standards and introduce necessary climate policies in support of this endeavour.
4. Accelerate growth in the renewable energy (RE) sector by relaxing local content requirements, strengthening the domestic supply chain and establishing demand for RE/RE enabling projects.
5. Include effective and enforceable environmental provisions in trade agreements and participate in international (plurilateral/multilateral) trade policy initiatives regarding EGs.
6. Ensure that trade and climate policies complement each other and enact policy changes where this is not the case.

Ultimately, the World Bank suggested that policy failings, rather than those of the private sector are responsible for Indonesia’s unfulfilled potential within its green transformation, and strongly implied that in resolving policy gaps, further positive change would follow. The private sector was also acknowledged as key to Indonesia’s diversification potential, with growth to be unlocked via the introduction of substantive and broad regulations. 

IMPLICATIONS:

Trade policies play a key role in addressing climate change worldwide. Poor policies lead to a lack of regulation and reformation of existing processes, generating an environment ripe for corruption, dangerous practices and outdated techniques. On the other hand, strong policies can greatly aid Indonesia’s green transformation by introducing sustainable requirements and processes and standards for SOEs and the private sector to comply with. Additionally, although trade flows facilitate emissions, it can also act as a solution through its promotion of the trade of EGs and substitute plastics. Indonesia has significant untapped potential in its exports of EGs, while increasing its imports will allow access and transmission of green technologies. Furthermore, Indonesia’s private sector has substantial potential for growth as the trade of intermediate and capital EGs will unlock Indonesia’s potential in the trade of the broader EG value chains. However, any policies implemented must contain values of equality, to ensure that no one is left behind as Indonesia’s green transformation changes industries and affects livelihoods.

^[1] Montfaucon, Angella Faith, Lakatos, Csilla, Agnimaruto, Bayu, and Silberring, Jana Mirjam, (2023), “Trading Towards Sustainability: The Role of Trade Policies in Indonesia’s Green Transformation”, The World Bank. Retrieved: https://www.worldbank.org/en/country/indonesia/publication/green-trade