Exploring the mitigation potential for carbon dioxide emissions in Indonesia’s manufacturing industry: an analysis of firm characteristics

Abstract

This study investigates ways to effectively reduce carbon dioxide (CO2) emissions in Indonesia’s manufacturing industry, by firm characteristics. It is important to determine the firm characters that have the greatest potential to decrease CO2 emissions. The Logarithmic Mean Divisia Index (LMDI) method is used to decompose CO2 emissions into the key factors influencing changes in CO2 emissions, such as economic activity, industrial structure, energy intensity, energy structure, and emissions coefficient during the 2010–2018 period. The findings indicate that changes in CO2 emissions in industrial sub-sectors vary. High technology firms had the lowest average emissions compared to firms with other technology. Large-sized firms had the lowest emissions than small and medium firms. Foreign private firms had lower emissions than national private firms did. Firms in the Java–Bali location had, on average, highest emissions than those outside Java–Bali. Exporting firms had lower average emissions intensity compared to non-exporting firms. This study’s novelty is an analysis of the effect of components that affect changes in CO2 emissions in firm groups based on their characteristics so that policymakers can focus on the potential reduction in CO2 emissions in certain groups of firms, namely firms that use the most energy intensively, is inefficient, and uses low-quality energy. Comparative analysis using firm characteristics reveals that energy-intensive firms’ economic growth determines changes in CO2 emissions in Indonesia’s manufacturing industry.