Indonesia's green transition could reshape Its industrial future

The strategic value of Indonesia’s low-carbon transition will depend on its ability to convert global technological change into domestic production capacity,

Jakarta (ANTARA) - Indonesia’s transition to a low-carbon economy puts the country at a strategic point in its industrial development, as clean investment and technology could strengthen domestic production while also creating new dependence on overseas supply chains.

The shift is becoming more important as changes in global energy and transportation open new markets for electric vehicles, renewable energy, energy storage and efficiency technologies.

Indonesia has strong foundations for capturing these opportunities, including a large domestic market and an established manufacturing base.

Non-oil and gas manufacturing grew 5.32 percent year on year in the second quarter of 2026, accounted for 16.83 percent of gross domestic product (GDP) and employed 19.99 million workers.

Manufacturing value added reached US$275.61 billion in 2025, placing Indonesia first in Southeast Asia and 12th globally.

Minister of National Development Planning/Head of the National Development Planning Agency (Bappenas) Rachmat Pambudy estimates that the green economy could create about 1.2 million jobs annually and support average annual GDP growth of 6-7 percent.

A national roadmap covers 28 strategic commodities across eight key sectors, with investment needs estimated at US$618.1 billion through 2040, including electric vehicles, batteries, battery energy storage systems, solar components, biofuels and hydrogen.

Yet the size of the opportunity does not automatically translate into stronger domestic industry. Its value will depend on Indonesia’s ability to turn demand for low-carbon technologies into production, skills and value added that grow at home.

Deepening the chain

Electric vehicles offer a concrete example.

Indonesia has about 541,000 electric vehicles on the road, while total investment in vehicle assembly has approached Rp30 trillion, according to House of Representatives Commission VII Deputy Chair Evita Nursanty.

She said the rapid growth should be directed toward strengthening the component industry and developing technological capabilities, rather than simply expanding the market.

The government is promoting that effort through the Domestic Component Level (TKDN) policy.

The government’s EV industrial roadmap sets minimum domestic component levels at 40 percent in 2026, rising to 60 percent in 2027–2029 and 80 percent from 2030.

Fourteen companies have invested Rp24.13 trillion in four-wheeled electric vehicle manufacturing, with annual production capacity of 409,860 units. The TKDN policy is intended to ensure that these large investments increasingly involve domestic component manufacturers and suppliers.

Domestic content, however, creates greater value when it develops into real production capabilities. Local suppliers need room to improve quality, solve technical problems and meet global standards that continue to evolve. That is where investment can begin to deepen the industrial base.

Capabilities developed through EV manufacturing could also support other low-carbon industries, including battery energy storage systems, industrial efficiency technologies and related equipment.

Knowledge and skills are another critical part of the process.

James Karnadi, chairman of the Youth Community for Securing Indonesia (AMAN), said Indonesia needs to play a more active role in the production, innovation and value creation of low-carbon technologies.

He stressed the importance of knowledge transfer, workforce development and stronger local industrial ecosystems.

Investment can provide a foundation for continuous learning. Experience gained during production can help domestic companies and workers build the capabilities needed to increase capacity and move from simply using technology toward developing their own solutions.

Capturing value

Deepening production will have limited impact if Indonesian products cannot remain competitive in global markets.

Changing environmental standards are making production processes increasingly important for access to international supply chains.

Dendy Apriandi, director of Investment Deregulation at the Ministry of Investment and Downstreaming, said the use of green energy is increasingly becoming an early consideration for products seeking access to some markets, including Europe.

Manufacturers therefore need to maintain cost efficiency and product quality while adapting production processes to environmental requirements. Meeting those requirements will become increasingly important if Indonesian products are to stay in global supply chains rather than simply enter them.

Technology will also determine how much economic value Indonesia can capture. Foreign technology can accelerate the development of production capacity, but greater benefits can emerge when Indonesian companies learn to operate, adapt, maintain and eventually develop technologies for their own production needs.

That capability cannot be built through physical investment alone. Industries need workers whose skills keep pace with technological change, while vocational schools, universities and research institutions need stronger links with real production and supply-chain needs.

Bappenas estimates that about 2.5 percent of the workforce, or 3.45 million people, is currently directly engaged in environmental activities. Another 36.5 percent, or 49.12 million workers, could potentially transition to green jobs.

Bappenas has identified supporting ecosystems, vocational education and training, and partnerships with businesses as part of its strategy to develop green jobs.

Those figures show that technological transition is also a workforce development agenda. Without the right skills, investment could expand production capacity without sufficiently increasing domestic expertise to develop new technologies and processes.

Closer links between industry, education and research can help address that gap. Production problems can provide opportunities for applied research, while process improvements and new solutions can build knowledge within companies and their supply chains.

As those capabilities grow, Indonesian companies can move into higher-value positions in global supply chains, increase value added and expand export markets.

This is where the low-carbon transition meets Indonesia’s industrialization agenda. Demand creates markets, investment adds capacity and supply chains expand production. Technology and skills determine how much of the resulting economic value can be retained domestically.

If these elements develop alongside investment, the expansion of clean technologies can strengthen manufacturing, workforce capabilities and export competitiveness at the same time.

Without that foundation, however, the growth of the low-carbon market could simply shift the form of dependence, from fossil-fuel technologies to clean technologies whose higher-value components and expertise remain concentrated overseas.

The strategic value of Indonesia’s low-carbon transition will depend on its ability to convert global technological change into domestic production capacity, knowledge and competitiveness.

That is how the low-carbon transition can become a durable engine of industrialization in Indonesia.

*Martha Herlinawati Simanjuntak is a journalist at the ANTARA News Agency

Disclaimer: The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of the ANTARA News Agency.