Indonesia stands at a crossroads. The country has set ambitious goals to become a global leader in carbon capture and storage (CCS), offering a pathway for high-emission industries in Japan, South Korea, and Singapore to offset their pollution. According to ERIA report, with an estimated 69 gigatonnes (Gt) of CO2 storage capacity, Indonesia has the potential to cement itself as Southeast Asia’s first carbon storage hub.
Yet, while positioning itself as a green investment leader, Indonesia risks becoming a safe haven for carbon-intensive industries. With one of the weakest carbon taxes globally-just USne$2 per ton-set to be implemented after years of delay, multinational manufacturers fleeing Trump’s renewed trade war could relocate to Indonesia not for its sustainability credentials, but for its lax environmental policies.
This contradiction raises a critical question: Can Indonesia truly become a world-class CCS hub while simultaneously providing an escape hatch for polluting industries?
Adding to this dilemma, Indonesia is not just a key player in the carbon storage debate—it is also one of the world’s largest carbon emitters. Ranked fourth globally in carbon emissions, the country emits approximately 674 million tons of CO₂ annually. Much of this comes from coal-fired power plants, deforestation, and industrial pollution, placing Indonesia among the biggest contributors to global climate change.
This means that Indonesia is not only helping store emissions from other countries but actively adding to the world’s carbon burden. Without stronger domestic climate policies, its role as a carbon emitter may overshadow its ambitions to become a carbon storage leader.
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If Indonesia keeps its carbon tax at US$2 per tonne while retreating from the Paris Agreement, it is sending a clear message to high-emission industries: “Come here, and pollution comes cheap.”
On February 1, 2025, US President Donald Trump reignited a trade war, imposing 25 per cent tariffs on imports from Canada and Mexico and 10 per cent tariffs on Chinese goods. After negotiations, the US agreed to pause the tariffs on Canada and Mexico for 30 days. The economic implications are clear but where will these displaced industries go?
During Trump’s first trade war (2018–2019), multinational companies quietly shifted production from China to Southeast Asia, particularly to Vietnam and Indonesia, to take advantage of lower costs and looser regulations. Now, with a second trade war underway, Indonesia is once again positioned as an attractive destination for manufacturers looking to bypass tariffs and environmental restrictions. Instead of investing in decarbonisation, companies may simply relocate their emissions to Indonesia-undermining global climate efforts.
At first glance, this might seem like an economic win: more factories, jobs, and foreign investment. But the long-term consequences could be severe. Without stronger carbon regulations, Indonesia risks becoming the world’s leading enabler of carbon leakage - where emissions aren’t reduced, just outsourced to nations with weaker policies.
Trump’s trade war isn’t the only environmental threat. For the second time in his presidency, Trump has withdrawn the United States from the Paris Agreement, claiming that it unfairly restricts American industries. The consequences of this decision are rippling far beyond the US Indonesia, which has relied heavily on international climate finance, now faces an uncertain future for its green transition.
The government had secured US$20 billion under the Just Energy Transition Partnership (JETP) and a US$500 million loan from the Asian Development Bank (ADB) to shift away from fossil fuels. But now, with the US exiting the agreement, this uncertainty is fueling a controversial debate in Indonesia’s leadership: Should the country follow the US and withdraw from the Paris Agreement altogether?
If Indonesia keeps its carbon tax at US$2 per tonne while retreating from the Paris Agreement, it is sending a clear message to high-emission industries: “Come here, and pollution comes cheap.” That signal will not go unnoticed. Heavy industries such as steel, cement, and fossil fuel-dependent manufacturing could relocate to Indonesia, taking advantage of weak regulations while other nations tighten their emissions policies. This would erode Indonesia’s credibility on the global stage.
Meanwhile, as the US escalates a trade war, other regions are taking the opposite approach. The European Union’s Carbon Border Adjustment Mechanism (CBAM) will impose tariffs on carbon-intensive imports from countries that lack strong emissions regulations. If Indonesia becomes a carbon haven, it risks facing higher trade barriers, particularly on key exports like palm oil, steel, and textiles. Instead of benefiting from Trump’s trade war, Indonesia could find itself locked out of climate-conscious markets.
At the same time, Indonesia is aggressively marketing itself as a Carbon Capture and Storage (CSS) leader, with major projects in the Sunda-Asri Basin and Ubadari Field already in development. CCS has been framed as a cornerstone of Indonesia’s climate strategy.
But here’s the problem: Countries investing in CCS don’t just need storage space, they need policy stability. Japan, South Korea, and Singapore will not store CO2 in a country that simultaneously welcomes carbon-intensive industries. International investors and governments will hesitate to commit long-term CCS storage agreements in a country that undercuts global climate efforts by becoming a haven for emissions-heavy companies.
Competitor nations like Malaysia are already securing CCS partnerships with Japan and integrating CCS into broader climate policies. If Indonesia fails to align its emissions policies with its CCS ambitions, it risks losing CCS investments to regional rivals.
Indonesia does not have to choose between economic growth and climate responsibility, but it must stop sending mixed signals.
If Indonesia is to balance its economic ambitions with its climate responsibilities, it must take decisive action rather than wavering on its commitments. Instead of considering an exit from the Paris Agreement, Indonesia should seize the opportunity to position itself as a regional leader in climate diplomacy. If the world expects Indonesia to accelerate its shift away from fossil fuels, it must also provide the financial means to do so.
At the same time, Indonesia’s carbon tax must be strengthened. A mere US$2 per tonne levy is insufficient—one of the lowest in the world and nowhere near enough to influence business decisions. Instead of allowing polluting industries to take advantage of this weak policy, Indonesia should follow Singapore’s model, gradually increasing the tax to at least US$10–US$20 per tonne by 2030.
Furthermore, Indonesia’s carbon tax must extend beyond coal-fired power plants. Focusing solely on the energy sector is a short-sighted approach. High-emission industries such as manufacturing, transportation, and deforestation-heavy sectors must also be taxed, or businesses will simply shift their emissions to areas where regulations remain weak. Without a comprehensive framework, Indonesia will continue to be a preferred destination for carbon-intensive industries looking for regulatory loopholes.
Equally important, CCS investment must be tied to stricter emissions regulations. Indonesia cannot market itself as a leader in carbon storage while simultaneously offering a haven for industries that refuse to cut emissions. If Indonesia truly wants to attract international CCS investment, it must ensure that polluters operating within its borders are held accountable, preventing the country from becoming a global carbon dumping ground.
Trump’s trade war and climate rollback are not just about tariffs and policy shifts-they are a test of Indonesia’s climate leadership. Indonesia has an opportunity to position itself as a green investment hub, a CCS leader, and a key player in global decarbonization. However, it cannot do so while making itself attractive to carbon-intensive industries.
The time for half-measures is over. Will Indonesia embrace its role as a climate leader, or will it become the world’s next carbon dumping ground? The choices made today will define Indonesia’s economic and environmental future for decades to come.
Rizka Nugrahaeni is a graduate student pursuing a Master of Public Policy at The University of Chicago, specialising in Energy and Environment Policy. She is also a tax analyst at the Directorate General of Taxes, Indonesia Ministry of Finance.
