Decarbonization in Indonesia Trends and Forecast
The future of the decarbonization market in Indonesia looks promising with opportunities in the oil & gas, energy & utility, agriculture, government, automotive & transportation, aerospace & defense, and manufacturing markets. The global decarbonization market is expected to grow with a CAGR of 11.8% from 2025 to 2031. The decarbonization market in Indonesia is also forecasted to witness strong growth over the forecast period. The major drivers for this market are the increasing investment in decarbonization technologies to reduce costs associated with carbon emissions, the growing awareness of the effects of climate change, and the stricter emissions standards across the world.
• Lucintel forecasts that, within the services category, the sustainable transportation service segment will remain the largest segment over the forecast period.
• Within the end use category, oil & gas will remain the largest segment.
Emerging Trends in the Decarbonization Market in Indonesia
The decarbonization market in Indonesia is undergoing rapid transformation as the country seeks to address its climate commitments and transition to a low-carbon economy. Indonesia’s government has set ambitious targets to reduce carbon emissions, and several key trends are emerging that are shaping this transformation. These trends are influenced by global pressures, national policies, technological advancements, and economic shifts. As the decarbonization agenda progresses, Indonesia is witnessing innovative solutions and significant investments that could accelerate the transition to a greener future. Below are five key emerging trends in Indonesia’s decarbonization market.
• Renewable Energy Adoption: Indonesia is accelerating the adoption of renewable energy sources, particularly solar, wind, and geothermal, to reduce its dependence on coal. The government has set a target of achieving 23 percent renewable energy in the national energy mix by 2025. As technological advancements lower costs, Indonesia is increasing its renewable energy capacity, especially in rural areas. This shift aims to enhance energy security, create new jobs, and reduce the carbon footprint of the energy sector. However, the challenge lies in scaling up infrastructure and addressing grid reliability.
• Carbon Pricing and Market Mechanisms: Indonesia is developing carbon pricing mechanisms to encourage businesses to reduce emissions. The government is implementing carbon tax policies, starting with high-emission sectors like coal and oil. Additionally, Indonesia is exploring the establishment of carbon markets that could link with international carbon trading platforms. This mechanism will create financial incentives for businesses to innovate in decarbonization technologies, potentially leading to more effective emission reductions. However, there are concerns regarding the enforcement of such policies and the need for a robust regulatory framework.
• Electric Vehicle (EV) Adoption: The electric vehicle market in Indonesia is gaining momentum, driven by government incentives and increasing consumer awareness. With rising concerns about air pollution and fossil fuel reliance, Indonesia is pushing for more EV adoption through tax incentives and infrastructure development. By 2040, the government plans to have at least 2.1 million electric vehicles on the road. This shift presents growth opportunities for industries related to EV manufacturing, charging stations, and battery production. However, challenges remain in terms of infrastructure, cost, and consumer readiness.
• Sustainable Agriculture Practices: Sustainable agricultural practices are becoming a key focus as Indonesia seeks to decarbonize its land use sector. Efforts include promoting agroforestry, precision farming, and the reduction of methane emissions from rice paddies. Sustainable palm oil production, which is vital to Indonesia economy, is also being prioritized with stricter sustainability standards. These practices not only contribute to emission reductions but also improve food security and create economic opportunities for rural communities. The challenge lies in scaling these practices while balancing economic interests.
• Energy Efficiency Improvements in Industry: Industries in Indonesia are increasingly focused on improving energy efficiency to reduce emissions and operational costs. The government is incentivizing the adoption of cleaner technologies, such as energy-efficient machinery and green building standards. There is also growing investment in energy-saving practices across key industrial sectors, including manufacturing, cement, and mining. These initiatives are critical for reducing emissions in the industrial sector, which is one of the largest contributors to carbon emissions in Indonesia. However, challenges include high initial investment costs and a lack of awareness about energy efficiency benefits.
These emerging trends are transforming Indonesia’s decarbonization landscape by focusing on renewable energy adoption, carbon pricing, electric vehicles, sustainable agriculture, and industrial energy efficiency. While challenges remain, the momentum toward a greener economy is growing, offering significant opportunities for innovation, investment, and job creation. As Indonesia continues to advance its decarbonization efforts, these trends will shape the country’s sustainable future, contributing to both economic growth and global climate goals.
Recent Developments in the Decarbonization Market in Indonesia
Indonesia has recently made notable progress in its decarbonization efforts as the nation strives to meet climate targets and reduce carbon emissions. These developments are primarily driven by government initiatives, technological advancements, and private sector involvement. Key developments include the expansion of renewable energy projects, the introduction of carbon pricing mechanisms, the rise of electric vehicles, sustainable agricultural practices, and improvements in industrial energy efficiency. These efforts are crucial for Indonesia to meet its 2030 emission reduction targets and to align with international climate agreements. Below are the most recent developments in the decarbonization market.
• Expansion of Renewable Energy Projects: Indonesia has significantly expanded its renewable energy portfolio, particularly solar, wind, and geothermal energy, in response to rising energy demands and environmental goals. The government has ramped up investments in clean energy infrastructure, with several large-scale solar and wind projects underway. This expansion is crucial for meeting the target of 23 percent renewable energy in the national energy mix by 2025. Furthermore, Indonesia is exploring offshore wind farms and expanding geothermal capacity. While progress has been made, challenges such as grid integration and financing remain significant barriers.
• Carbon Pricing Initiatives: In 2023, Indonesia introduced a carbon tax on high-emission industries to incentivize businesses to reduce their carbon footprints. The tax initially targets coal power plants, with plans to expand to other sectors over time. This development is a significant step toward establishing a carbon pricing system, which will encourage the adoption of cleaner technologies and promote carbon market participation. Indonesia is also considering linking its carbon pricing system to international markets. However, the success of these initiatives will depend on effective implementation, monitoring, and enforcement.
• Electric Vehicle (EV) Development: The electric vehicle market in Indonesia has witnessed rapid growth, fueled by government incentives, including tax breaks for EV manufacturers and consumers. Several domestic and international companies have begun manufacturing EVs, and charging infrastructure is expanding across major cities. The government aims to have 2.1 million electric vehicles on the road by 2040, positioning Indonesia as a leader in Southeast Asia’s EV market. The development of a local EV industry will help reduce emissions from transportation, but challenges related to battery production and charging infrastructure still need to be addressed.
• Sustainable Palm Oil Production: Sustainable palm oil production is a crucial part of Indonesia’s decarbonization strategy, as palm oil is a significant export and a major driver of deforestation. The Indonesian government has introduced stricter sustainability standards for palm oil producers, with a focus on reducing emissions and protecting forests. Major companies are adopting more transparent supply chains, and the government is promoting agroforestry as an alternative to monoculture plantations. While progress is being made, challenges remain in balancing economic growth with environmental conservation.
• Industry-Specific Energy Efficiency Programs: The Indonesian government is actively promoting energy efficiency in industrial sectors, such as manufacturing, mining, and cement production, to reduce carbon emissions. Programs to incentivize the use of energy-efficient technologies are gaining momentum, with a focus on upgrading machinery and adopting cleaner production methods. Several industries have committed to lowering their carbon emissions, with some large corporations setting ambitious targets. However, overcoming the initial high costs of energy-efficient technologies and ensuring widespread adoption across industries remain significant hurdles.
The recent developments in Indonesia’s decarbonization market reflect the country’s commitment to reducing emissions and transitioning to a greener economy. With advancements in renewable energy, carbon pricing, electric vehicles, sustainable agriculture, and industrial efficiency, Indonesia is making notable strides toward meeting its climate goals. However, challenges in infrastructure, financing, and policy enforcement need to be addressed to ensure the long-term success of these initiatives.
Strategic Growth Opportunities for Decarbonization Market in Indonesia
Indonesia presents several strategic growth opportunities in the decarbonization market, particularly in sectors such as renewable energy, transportation, agriculture, and industry. With growing environmental awareness and government support for green technologies, these sectors offer significant potential for both local and international investors. As Indonesia moves toward a low-carbon future, opportunities for innovation, job creation, and sustainable growth are expanding. The following are five key growth opportunities across various decarbonization applications in Indonesia.
• Renewable Energy Projects: Indonesia’s renewable energy sector is experiencing substantial growth, driven by the government’s commitment to achieving 23 percent renewable energy by 2025. Solar, wind, and geothermal energy are key areas of expansion. Large-scale solar farms and wind turbine installations are expected to become more common as the cost of renewable technologies continues to decrease. Geothermal energy, abundant in Indonesia, presents a significant opportunity for growth, particularly in the country remote islands. These opportunities are poised to drive job creation, reduce carbon emissions, and increase energy security.
• Electric Vehicle (EV) Market: The electric vehicle market in Indonesia offers substantial growth potential, especially with government incentives promoting EV adoption. The government aims to have 2.1 million electric vehicles on the road by 2040, creating demand for EV manufacturing, battery production, and charging infrastructure. There is also an opportunity for Indonesia to become a regional hub for EV production, leveraging its growing manufacturing sector. Investment in charging infrastructure and battery technology will be critical to realizing these opportunities. The EV market will also contribute to reducing transportation-related emissions in the long run.
• Energy Efficiency Technologies in Industry: Energy efficiency is becoming a priority in Indonesian industry, where sectors such as manufacturing, cement, and mining contribute significantly to emissions. Companies are seeking ways to reduce operational costs and meet government regulations on emissions. Growth opportunities lie in the development and adoption of energy-efficient technologies, such as advanced machinery, automation systems, and green building materials. Programs incentivizing the adoption of these technologies are opening doors for innovation in the industrial sector. By reducing energy consumption, these technologies will help lower carbon emissions in some of the country’s most carbon-intensive sectors.
• Sustainable Agriculture and Agroforestry: Sustainable agriculture practices, particularly agroforestry, offer significant growth potential in Indonesia, given the country’s reliance on agriculture and the growing demand for eco-friendly products. Programs that promote sustainable palm oil production, precision farming, and low-emission rice cultivation are gaining momentum. Additionally, agroforestry initiatives are seen as a solution to deforestation while also improving agricultural productivity. These practices provide long-term environmental and economic benefits, such as carbon sequestration and soil preservation, while diversifying the income streams of rural communities.
• Carbon Capture and Storage (CCS): Carbon capture and storage (CCS) technology presents a promising growth opportunity for Indonesia, particularly in its fossil fuel-dependent industries. Indonesia is exploring CCS as a means of mitigating the carbon emissions associated with coal-based power generation and heavy industries. The government is collaborating with international partners to develop pilot CCS projects. As the cost of CCS technology continues to decline, Indonesia could become a regional leader in this technology, contributing to global emission reduction efforts while maintaining energy production.
Strategic growth opportunities in Indonesia’s decarbonization market are diverse and abundant, ranging from renewable energy to electric vehicles, energy efficiency, sustainable agriculture, and carbon capture. These opportunities offer both economic and environmental benefits, positioning Indonesia for sustainable growth. However, overcoming challenges related to infrastructure, investment, and policy implementation will be crucial for realizing these opportunities and achieving the nation’s decarbonization goals.
Decarbonization Market in Indonesia Driver and Challenges
A combination of technological, economic, and regulatory drivers and challenges influences the decarbonization market in Indonesia. These factors shape the country’s efforts to transition to a low-carbon economy while addressing its energy needs and economic growth. Key drivers include government policies, renewable energy investments, and growing consumer demand for green solutions, while challenges encompass infrastructure limitations, financing issues, and resistance to change from established industries. Understanding these drivers and challenges is crucial for formulating effective strategies to accelerate decarbonization in Indonesia.
The factors responsible for driving the decarbonization market in Indonesia include:
• Government Policy and Regulatory Support: The Indonesian government plays a pivotal role in driving the decarbonization agenda through policy frameworks and regulatory support. The 2025 renewable energy target of 23 percent is a clear commitment to shifting toward a low-carbon economy. Incentives such as tax breaks for electric vehicles, renewable energy projects, and energy-efficient technologies have stimulated investments in green sectors. Additionally, the government is working to develop carbon pricing mechanisms to create financial incentives for emission reductions. Continued policy support will be crucial for achieving long-term decarbonization goals.
• Technological Advancements: Technological innovations in renewable energy, energy efficiency, and carbon capture are key drivers of decarbonization in Indonesia. The cost of solar and wind power is rapidly decreasing, making these technologies more viable for large-scale adoption. Similarly, advances in electric vehicles and battery storage technologies are opening new opportunities in the transportation sector. Energy efficiency improvements, particularly in industrial applications, are also contributing to emissions reductions. These advancements provide the necessary tools to reduce carbon footprints and accelerate the transition to cleaner energy.
• International Climate Commitments: Indonesia’s participation in international climate agreements, such as the Paris Agreement, has provided a strong external driver for decarbonization efforts. The country is under pressure to meet its emission reduction commitments, which has led to the adoption of more stringent environmental policies. Access to international climate finance and technology transfer is another significant factor that supports Indonesia’s decarbonization initiatives. Global market trends toward sustainability and green investments are also influencing the country’s transition to a low-carbon economy.
• Private Sector Investment: Increased private sector investment in renewable energy, electric vehicles, and sustainable agriculture is a key driver of decarbonization in Indonesia. Many international and domestic companies are seeking to align their operations with global sustainability standards, investing in green technologies and low-carbon solutions. This trend is being supported by both government incentives and market demand for eco-friendly products. The private sector is increasingly viewed as a partner in achieving Indonesia’s decarbonization goals, with opportunities for innovation, collaboration, and growth.
• Rising Public Awareness and Demand for Green Solutions: Growing public awareness of climate change and environmental issues is driving demand for cleaner, greener products and services in Indonesia. Consumers are becoming more conscious of the environmental impact of their choices, leading to increased demand for renewable energy, electric vehicles, and sustainable products. This trend is putting pressure on businesses to adopt more sustainable practices and invest in green technologies. Public awareness campaigns and education initiatives are expected to further increase demand for decarbonization solutions across various sectors.
Challenges in the decarbonization market in Indonesia are:
• Infrastructure Limitations: One of the key challenges facing Indonesia’s decarbonization efforts is its underdeveloped infrastructure. The country’s energy grid is outdated and not well-equipped to handle the integration of intermittent renewable energy sources like solar and wind. Additionally, the lack of widespread charging infrastructure for electric vehicles poses a barrier to their adoption. Expanding and modernizing infrastructure to support decarbonization technologies will require significant investment and long-term planning.
• Financing and Investment Gaps: Securing adequate financing for decarbonization projects remains a significant challenge in Indonesia. While the government is providing some incentives, the country still faces gaps in financing for large-scale renewable energy projects, energy efficiency initiatives, and infrastructure upgrades. The high upfront costs associated with clean energy technologies and the perceived risks by investors are slowing the transition. Bridging this financing gap will require innovative financing models and stronger participation from both the public and private sectors.
• Resistance from Established Industries: Resistance to change from established industries, particularly coal and oil, poses a significant challenge to Indonesia’s decarbonization efforts. These industries are major contributors to the country’s economy and employment, making it difficult to shift toward greener alternatives. Coal remains a dominant energy source, and oil is essential for transportation. Overcoming this resistance will require clear transition pathways, retraining programs for workers, and financial incentives for industries to adopt cleaner technologies.
The major drivers and challenges impacting Indonesia’s decarbonization market reflect a complex landscape of opportunities and obstacles. While government policy, technological advancements, and international commitments are strong drivers, challenges related to infrastructure, financing, and resistance from established industries need to be addressed. Successfully navigating these drivers and challenges will determine how quickly Indonesia can transition to a sustainable, low-carbon economy while balancing economic growth and environmental goals.
List of Decarbonization Market in Indonesia Companies
Companies in the market compete on the basis of product quality offered. Major players in this market focus on expanding their manufacturing facilities, R&D investments, infrastructural development, and leverage integration opportunities across the value chain. Through these strategies, decarbonization companies cater to increasing demand, ensure competitive effectiveness, develop innovative products & technologies, reduce production costs, and expand their customer base. Some of the decarbonization companies profiled in this report include:
• Company 1
• Company 2
• Company 3
• Company 4
• Company 5
• Company 6
• Company 7
• Company 8
• Company 9
• Company 10
Decarbonization Market in Indonesia by Segment
The study includes a forecast for the decarbonization market in Indonesia by services, technology, deployment, and end use.
Decarbonization Market in Indonesia by Services [Analysis by Value from 2019 to 2031]:
• Carbon Accounting & Reporting Services
• Sustainable Transportation Services
• Waste Reduction & Circular Economy Services
Decarbonization Market in Indonesia by Technology [Analysis by Value from 2019 to 2031]:
• Renewable Energy Technologies
• Energy Efficiency Solutions
• Electric Vehicles
• Carbon Removal Technologies
• Carbon Capture and Storage
Decarbonization Market in Indonesia by Deployment [Analysis by Value from 2019 to 2031]:
• On-premises
• Cloud
Decarbonization Market in Indonesia by End Use [Analysis by Value from 2019 to 2031]:
• Oil & Gas
• Energy & Utility
• Agriculture
• Government
• Automotive & Transportation
• Aerospace & Defense
• Manufacturing
• Others
Features of the Decarbonization Market in Indonesia
Market Size Estimates: Decarbonization in Indonesia market size estimation in terms of value ($B).
Trend and Forecast Analysis: Market trends and forecasts by various segments.
Segmentation Analysis: Decarbonization in Indonesia market size by services, technology, deployment, and end use in terms of value ($B).
Growth Opportunities: Analysis of growth opportunities in different services, technology, deployment, and end use for the decarbonization in Indonesia.
Strategic Analysis: This includes M&A, new product development, and competitive landscape of the decarbonization in Indonesia.
Analysis of competitive intensity of the industry based on Porter’s Five Forces model.
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FAQ
Q1. What are the major drivers influencing the growth of the decarbonization marketin Indonesia?
Answer: The major drivers for this market are increasing investment in decarbonization technologies to reduce costs associated with carbon emissions, growing awareness of the effects of climate change, and stricter emissions standards across the world.
Q2. What are the major segments for decarbonization market in Indonesia?
Answer: The future of the decarbonization market in Indonesia looks promising with opportunities in the oil & gas, energy & utility, agriculture, government, automotive & transportation, aerospace & defense, and manufacturing markets.
Q3. Which decarbonization market segment in Indonesia will be the largest in future?
Answer: Lucintel forecasts that sustainable transportation service segment will remain the largest segment over the forecast period.
Q4. Do we receive customization in this report?
Answer: Yes, Lucintel provides 10% customization without any additional cost.
This report answers following 10 key questions:
Q.1. What are some of the most promising, high-growth opportunities for the decarbonization market in Indonesia by services (carbon accounting & reporting services, sustainable transportation services, and waste reduction & circular economy services), technology (renewable energy technologies, energy efficiency solutions, electric vehicles, carbon removal technologies, and carbon capture and storage), deployment (on-premises and cloud), and end use (oil & gas, energy & utility, agriculture, government, automotive & transportation, aerospace & defense, manufacturing, and others)?
Q.2. Which segments will grow at a faster pace and why?
Q.3. What are the key factors affecting market dynamics? What are the key challenges and business risks in this market?
Q.4. What are the business risks and competitive threats in this market?
Q.5. What are the emerging trends in this market and the reasons behind them?
Q.6. What are some of the changing demands of customers in the market?
Q.7. What are the new developments in the market? Which companies are leading these developments?
Q.8. Who are the major players in this market? What strategic initiatives are key players pursuing for business growth?
Q.9. What are some of the competing products in this market and how big of a threat do they pose for loss of market share by material or product substitution?
Q.10. What M&A activity has occurred in the last 5 years and what has its impact been on the industry?