Decarbonising Indonesia’s manufacturing sector: Case studies from the food and beverage, textile and chemical industries

For Indonesian manufacturing companies, the need to become more sustainable comes from two urgent priorities: decarbonising production and more efficient energy use.

In Indonesia, the manufacturing sector plays a leading role in the economy as it constitutes 41 per cent of GDP.

The manufacturing sector accounts for approximately 28 per cent of Indonesia’s emissions, with the top emitting subsectors including chemical, cement, pulp and paper, food and beverage, iron steel, plastic, soap and detergent and textile.

With today’s technologies, these sectors can reduce emissions and transition to low-carbon operations even while guiding national policies are still being consolidated. 

For this report, Climateworks Centre analysed energy efficiency technologies and interviewed experts in the chemical, textile and food and beverage industries, which are the focus of this report.

We found that while most energy efficiency technologies have matured, their application is still varied.

This presents a significant opportunity: sectors, where energy consumption is high (e.g. chemicals, textile and food and beverage), stand to benefit most from adopting mature technologies.

These sectors can achieve substantial energy savings by upgrading to energy-efficient equipment and processes, which reduces operational costs and improves competitiveness. 

Decarbonisation and energy efficiency strategies rely on adopting efficient technologies, optimising processes and minimising energy use during non-productive times.

Although these technologies require upfront investment, they offer significant long-term financial gains by reducing utility costs and reliance on fossil fuels.

For industries such as cement, steel and chemicals, transitioning to energy-efficient processes and low-carbon technologies can improve productivity and lower operational expenses.

Moreover, energy savings realised over time can create a robust financial foundation for future reinvestment in additional low-carbon technologies.

Small businesses often struggle to access financing for these technologies.

While upfront costs can be a barrier, policy and financial solutions exist to support such efforts.

Policies like tax incentives, energy efficiency standards and renewable energy certificates can help reduce upfront costs and encourage investment.

Public-private partnerships, green bonds and low-interest loans are increasingly available to provide capital for low-carbon business investment.

These mechanisms can ensure that both large and small enterprises can access the resources required to implement energy-efficient technologies and decarbonise operations.

Many manufacturers require significant capital investment to upgrade equipment, transition to lower-carbon alternatives such as biofuels and improve energy efficiency.

Key strategies for these sectors include optimising HVAC systems, upgrading to LED lighting and improving compressed air systems – each an opportunity to reduce energy consumption and enhance operational efficiency.

Investing in more efficient technologies will help industries meet regulatory requirements and position themselves for long-term sustainability and competitiveness in an increasingly low-carbon global economy. 

Balancing initial capital expenses with their potential return on investment is crucial for businesses considering energy efficiency upgrades.

While achieving the desired returns may require larger upfront investments, the long-term savings in utility costs and operational efficiencies often justify the expense.

To ease the upfront cost of technologies, businesses can explore alternative funding sources beyond the capital budget to accelerate their transition to energy-efficient technologies while ensuring a sustainable and cost-effective path toward decarbonisation.

The International Financial Reporting Standard for climate-related disclosures (IFRS S2) and Climateworks’ four pillars of decarbonisation, described in detail in this report, share common components around energy efficiency, renewable electricity and electrification.

International standards such as IFRS S2 are key to getting businesses to consider climate change.

They require companies to publicly share information about climate-related risks and opportunities, including emissions, targets and transition plans. This increased transparency helps investors and other stakeholders make informed decisions about the company.

Indonesia is preparing to implement similar standards, with the Indonesian Financial Services Authority developing regulations to align with international standards.

The chemicals industry faces strict IFRS S2 requirements across all decarbonisation pillars, while IFRS S2 for the processed foods industry focuses primarily on energy efficiency and renewable energy.

In the textile industry, which contributes significantly to global carbon emissions, IFRS S2 emphasises identifying sustainable, genuinely eco-conscious companies, as the industry’s energy use disclosures are still evolving.

The International Sustainability Standards Board, which develops the IFRS, continually refines these standards by considering industry-specific sustainability challenges and aligning metrics with business models and economic activities.

Using the Transition Plan Taskforce framework can also improve corporate attractiveness to sustainable investors, linking decarbonisation efforts to funding opportunities.

Transition planning involves setting climate targets and strategically adjusting business models for a low-carbon future, and it is critical for companies, especially in economies where technical and data limitations are barriers.

Companies able to codify their emissions reduction plans in a ‘transition plan’ are better candidates for government and financial support, such as green financing, which can drastically accelerate their decarbonisation efforts.

Sector-specific decarbonisation guidance can help companies implement practical, impactful decarbonisation measures and transition to low-carbon operations in a financially feasible way.

This report highlights ready-to-implement measures manufacturing companies can use to decarbonise while supporting broader business goals.

This report also includes a framework for decarbonisation efforts broadly, which can help guide companies as they develop transition plans and communicate their decarbonisation plans to stakeholders in Indonesia and globally through disclosure that follows international sustainability disclosure standards.

This report presents decarbonisation measures for three top-emitting subsectors in Indonesia’s manufacturing industry – food and beverages, textile and chemical.

The analysis shows how readily available technology can support companies’ decarbonisation plans across four pillars of decarbonisation: improving energy efficiency, using renewable electricity, electrification and fuel switching and reducing non-energy emissions.

The report evaluates practical short- to medium-term actions, available technologies and their respective emissions reduction potential given the increasing importance of comprehensive transition plans for businesses complying with climate-related disclosure mandates like IFRS S2.

Download the report [PDF 2mb]

ISBN: 978-1-7637231-1-5