Indonesia's Steel Industry at Crossroads: Challenges and Opportunities in Green Transition

Global Carbon Regulations Drive Change

Indonesia's steel industry faces growing pressure to adopt greener technologies as global carbon regulations tighten. The European Union's Carbon Border Adjustment Mechanism (CBAM), effective immediately, adds carbon costs to imported goods including steel, forcing Indonesian producers to adapt. Currently, Indonesia is the 15th largest global steel producer with 16.8 million tons annual production, but its high carbon intensity of 1.6 tCO2e per ton poses significant challenges.

Technological and Policy Recommendations

Climate Catalyst suggests several key measures:

1. Transition to Electric Arc Furnace (EAF) technology using scrap metal
2. Adopt Direct Reduction Iron (DRI) with green hydrogen
3. Strengthen Green Public Procurement (GPP) policies to create domestic demand
4. Enhance Standar Industri Hijau (SIH) with third-party verification and Scope 3 emissions accounting

Challenges and Investment Needs

The transition requires significant capital expenditure, particularly for green hydrogen facilities and EAF infrastructure. Without strategic government support, the investment risk remains high for private players. The government must act as a market creator to ensure a smooth transition while maintaining industry competitiveness.

Opportunities in Green Transition

While challenging, the green transition also presents opportunities:

• Creation of new job opportunities in green technology
• Enhanced position in global supply chains
• Compliance with emerging international standards
• Reduced dependence on carbon-intensive processes