Indonesia's contribution to global carbon flows: Which sectors are most responsible for the emissions embodied in trade?

Abstract

Motivated by recent developments in global carbon policies, such as the carbon border adjustment mechanism (CBAM) in Europe and carbon pricing in Indonesia, this paper elaborates on CO2 emissions embodied in products entering and leaving Indonesia and identifies carbon-intensive sectors responsible for carbon leakage. This was performed by using global multi-regional input-output analysis and consumption-based accounting (CBA) - production-based accounting (PBA) ratio. In 2016, the annual CO2 emissions embodied in Indonesia's exports and imports were 114 and 95 Mt. CO2, respectively. Considering final demand only, these values reduce to 32 and 22 Mt. CO2 or 0.9 and 0.6 % of total CO2 emissions in global trade, respectively. The electrical and machinery sector makes up the most CO2 emissions in Indonesian exports. In terms of per USD, metal products and petroleum, chemical and non-metallic mineral products are among the most carbon-intensive sectors, thus likely to be affected by the CBAM policy. Furthermore, Indonesia's emissions under CBA were slightly lower than PBA, indicating that minor carbon leakage occurred in 2016, but this is subject to uncertainty. Assessing the relative CO2 emissions of various economic sectors is suitable for manufacturing goods whose processes are typically dominated by fossil combustion. However, this is not the case for the agriculture sector as its carbon footprint values are underestimated due to the exclusion of land use, land use change, and forestry emissions. Overall, our findings can serve as a baseline to further explore how a transition towards a low-carbon economy in Indonesia could improve global-trade carbon balances.