Will economic sophistication contribute to Indonesia's emission target? A decomposed analysis

Abstract

Indonesia aspires to reduce 29%–41% of the nation's carbon emissions by 2030 and to reach net zero‑carbon emissions by 2060. The production paradigm of the Indonesian economy still relies entirely on dirty energy sources, including coal, oil and gas. As it is a natural resource-abundant developing country, we simulate the decomposed carbon emissions response to mounting economic growth and the Economic Complexity Index (ECI) for the next 20 years, applying a dynamic simulated autoregressive distributed lag approach using time series data from 1966 to 2018. Our investigation demonstrates that economic growth and increased ECI help to reduce carbon emissions–oil use intensity and vice versa. Conversely, gas and coal emissions intensities respond positively to ECI, but negatively to economic growth. Our findings confirm that inadequate technological improvement in gas and coal use-oriented industries are detrimental to decoupling the economic growth–emissions relationship.