Indonesia’s journey toward a sustainable future is well underway, with incredible progress being made across many sectors. Yet, a silent giant has long loomed over this transition: heavy industry, responsible for 24% of emissions in the country (IEA, 2022).

Sectors like steel have seen a dramatic rise. In 2024, Indonesia has risen to become the fourth-largest exporter of iron and steel globally, a significant leap from its previous ranking of 17th (MoI, 2025).

At the same time, the domestic industry is struggling from over competition from ultra-cheap steel coming in due to global overcapacity.

The innovation that can address these 2 problems is green steel. Decarbonising the steel industry means dramatically less emission, less pollution, and a more competitive product in a global market.

Green steel: A driver, not a barrier to growth

The Indonesian government has set a bold vision: achieving eight per cent economic growth. Across the world, we often see this ambition pitted against climate goals, a false choice that suggests we must sacrifice one for the other.

In fact, the drive for economic growth is precisely what should propel the decarbonisation of sectors like steel. Currently, the Indonesian steel industry largely relies on high-emission production methods, resulting in a high average carbon intensity that makes it increasingly vulnerable in global trade. This status quo is not sustainable and poses a direct threat to long-term market access and competitiveness. This urgent need to mitigate risks and secure future viability compels Indonesia to diversify its products and markets now.

By proactively producing low-carbon steel, Indonesia can transform a climate challenge into a massive economic opportunity, enabling the country to remain competitive in international trade and powerfully support national development goals.

The global environment is signaling a seismic shift in demand, and Indonesia is perfectly positioned to capitalise on it.

Mechanisms like the European Union’s Carbon Border Adjustment Mechanism (CBAM) are game-changers. By acting as a carbon tax on imported goods, CBAM presents a risk to producers who delay, but also a huge opportunity. By moving early, Indonesia can become a key player in a new global supply chain.

The cost of inaction

Failure to seize these market opportunities for green steel carries significant risks that could directly undermine Indonesia’s growth ambitions.

We recently convened about 20 organisations working on industry and steel decarbonisation, and the consensus was sobering: inaction has direct costs.

• The “CBAM tax”: Producers who fail to decarbonise will soon face tariffs that erode profit margins, making them uncompetitive in crucial export markets.
• The “dumping ground” risk: As other nations adopt stricter environmental policies, they may offload their cheaper, high-emission steel elsewhere. Without proactive measures, Indonesia’s domestic market could become a dumping ground, undercutting domestic companies which provide massive employment.
• Lost jobs, lost growth: Decarbonisation is a powerful job-creator, driving demand for advanced manufacturing and green technologies. A failure to transition early risks hindering this job creation, leading to a loss of competitiveness, a decline in GDP, and missed opportunities for human development.

Putting Indonesia on the pathway to greener steel

Here’s the good news. We know how to get there. The Ministry of Industry under the Green Industry Center is producing a technology and policy roadmap in partnership with WRI and IESR to get to net zero in 2050. The ASEAN Center for Energy and The Global Efficiency Intelligence have also published a similar roadmap.

The solution: Indonesia’s iron and steelmaking needs to move away from the high-emission Blast Furnace–Basic Oxygen Furnace (BF-BOF) process and shift toward Electric Arc Furnaces (EAFs) that utilise scrap or direct-reduced iron (DRI).

While these technologies exist, often it’s not as simple as implementing it. Other factors such as availability of materials, financing, and lack of demand are significant bottlenecks.

This is where policy plays an important role. Much like how China focused its policies for a renewable energy industry transformation, we can focus ours to transform the iron and steel industry.

There have been some policies identified that can enable these transformations. Protecting domestic production from dumping is a clear one, as well as globally aligned green steel standards, and strengthening the scrap industry. But one policy that can leverage the rest is to create demand from Green Public Procurement (GPP). By guaranteeing a stable domestic buyer for early-stage low-carbon steel, the government sends a powerful signal that guarantees returns and substantially reduces the capital risk for producers. This can lead to unlocking financing mechanisms, allowing companies to build, adopt the technologies, and bridge our production to meet the global needs in the near future.

A clear choice for Indonesia’s future

The choice facing Indonesia’s steel industry is not a painful trade-off between the environment and the economy. It is a clear choice between a high-opportunity future of innovation and global leadership, or one of stagnation and decline.

The Ministry of Industry is leading the way with its roadmap that includes innovative solutions like the Green Industry Service Company Ecosystem and an Emissions Trading Scheme (ETS) for Industry. Others must follow the lead with domestic market creation, smart trade protection, and power sector decarbonisation. This will not only safeguard its crucial domestic industry, position itself as a frontrunner in the global green economy, but also build a healthier and sustainable Indonesia for generations to come.

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