What's Happening?
Indonesia's National Economic Council (DEN) is urging the country to accelerate the verification of industrial emissions to significantly reduce compliance costs under the European Union's Carbon Border Adjustment Mechanism (CBAM). A simulation conducted
by DEN revealed that accurate verification could cut compliance costs by approximately 90% compared to using the EU's default emission values. This finding, based on a single-case comparison of EU default figures against specific data from Indonesia's Ministry of Industry, highlights a critical vulnerability for Indonesian exporters. Relying on default values could render certain Indonesian products, such as hot-rolled coils and carbon steel wire rods, uncompetitive in the European market, with carbon costs potentially exceeding their selling prices. DEN member Mochamad Firman Hidayat emphasized the immediate need for robust Measurement, Reporting, and Verification (MRV) frameworks, particularly for high-risk sectors like iron and steel, to safeguard export competitiveness. According to DEN's 2025 data mapping, Indonesia's exports to the EU under CBAM-covered product groups amount to approximately US$2.32 billion, representing about 11.9% of its total exports to the bloc.
Why It's Important?
The push for accelerated industrial emission verification is crucial for Indonesia's economic stability and its trade relationship with the European Union. The potential 90% reduction in compliance costs underscores the significant financial burden that could be avoided by Indonesian exporters. Without accurate and verifiable data, Indonesian products risk being priced out of the EU market, which could lead to substantial revenue losses for key industrial sectors. This situation also highlights the broader global trend of carbon pricing mechanisms, as other trading partners may adopt similar measures, potentially creating wider headwinds for Indonesia's global exports, which stand at roughly US$33.3 billion for vulnerable product groups. The development of an integrated and internationally recognized measurement framework is essential not only for EU compliance but also for enabling carbon-related trade with other international partners, ensuring Indonesia's long-term competitiveness in a carbon-conscious global economy.
What's Next?
Indonesia is expected to intensify its efforts in establishing robust Measurement, Reporting, and Verification (MRV) frameworks for industrial emissions, with a focus on high-risk sectors like iron and steel. The Industry Ministry is already advancing decarbonization roadmaps across nine key industrial subsectors, including metals, cement, chemicals, and fertilizers. A critical next step involves ensuring seamless alignment between the Industry Ministry’s emerging emission measurement mechanisms and the Environment Ministry’s carbon trading oversight to prevent regulatory fragmentation. Exporters face a critical window, as CBAM certificates for 2026 imports will be purchased starting in February 2027, and initial annual declarations and surrender of certificates must be completed by September 30, 2027. The success of these efforts will determine Indonesia's ability to maintain its export competitiveness in the EU market and adapt to evolving global carbon pricing standards.
Beyond the Headlines
Beyond the immediate economic implications, Indonesia's response to the EU's CBAM reflects a broader challenge for developing nations in adapting to global climate policies. The need for an integrated and internationally recognized measurement framework highlights the complexities of harmonizing national industrial practices with international environmental standards. This situation could spur significant technological advancements and capacity building within Indonesian industries as they strive to accurately measure and report emissions. Furthermore, the emphasis on preventing regulatory fragmentation between different ministries underscores the governance challenges inherent in implementing comprehensive climate policies. This initiative could also serve as a model or a cautionary tale for other countries facing similar pressures from carbon border adjustments, potentially influencing the development of global trade and climate policy frameworks in the coming years.
