The steel and iron industry in Indonesia has experienced consumption growth. Data from the Ministry of Economic Affairs shows that nationally in 2022, average steel consumption was 15.62 million tons per year. This figure is higher than the average production of steel, which is around 12.46 million tons per year. Meanwhile, from the export side, the iron and steel industry has experienced an increasing trend from USD 7.9 billion in 2019 to USD 28.5 billion in 2022.
The increase in national iron and steel consumption contributes to an increase in greenhouse gas emissions. The Institute for Essential Services Reform (IESR) notes that the iron and steel industry accounted for 4.9 percent of total industrial emissions, reaching the equivalent of 430 million tons of carbon dioxide in 2022, or around 20-30 million tons of carbon dioxide per year. Therefore, the IESR urges the government and players in the iron and steel industry to make efforts to reduce emissions in order to achieve greener and more sustainable practices.
IESR Executive Director Fabby Tumiwa stated that decarbonization efforts in the iron and steel industry sector need to address the shift in production process technologies for iron and steel. Currently, 80 percent of iron and steel production in Indonesia is still produced using blast furnace technology, with fuel dominated by the use of coal and coke (a solid carbon material derived from the distillation of low-ash, low-sulfur coal). This means that the more the ratio of blast furnace technology used in national iron and steel production increases, the more difficult it will be to reduce emissions in the iron and steel industry in Indonesia in the following years.
“Steel is a critical material needed in various aspects of development, including for technologies to support energy transitions worldwide. The application of 1 MW of renewable energy technology such as solar panels and wind turbines requires around 20-180 tons of steel. Therefore, the decarbonization of the steel industry is crucial to ensure that the supply chain of technologies becomes low-carbon through increased energy efficiency, which can be achieved by switching to environmentally friendly technologies, using renewable energy, and optimizing the use of recycled steel (scrap),” said Fabby Tumiwa during a webinar on Accelerating the Transformation of the Steel Industry in Indonesia and Southeast Asia organized by IESR and Agora Industry.
The urgency of decarbonizing the iron and steel industry sector is also influenced globally by the existence of low-emission product regulations and the setting of carbon limits for exports, as well as carbon trading. At the national level, IESR Senior Analyst Farid Wijaya said that decarbonizing the iron and steel industry can drive Indonesia's economic growth, especially in achieving Indonesia Emas 2045, protecting the domestic supply chain and future economy, and enhancing export competitiveness for a global market that is increasingly conscious of environmentally friendly practices.
“The effort to decarbonize the industry needs to be accompanied by building a green industry ecosystem within the framework of regulations and standards, providing green energy, and low-carbon technologies. It is also necessary to have a roadmap for each industry and association, which is currently limited to a few sectors and has not yet become a regulation that can be used as a basis for decarbonization action for industry players and associations,” said Farid.
IESR's study provides recommendations for driving industry decarbonization in Indonesia. First, the completion of the industrial decarbonization roadmap by the Ministry of Industry by the end of 2024 or earlier. Second, strengthening reporting and data collection on the implementation of Minister of Industry Regulation No. 2/2019 regarding the procedures for submitting industrial data through the National Industrial Information System (SIINAS) and ensuring the transparency of industrial sustainability reports for transparency and access to information, especially reporting on energy and raw material use and waste generated. Third, establishing benchmarks for green industrial production processes and expanding the coverage and value limits of green industry standards (SIH) from being voluntary and referring to local best practices to being mandatory and tailored to the needs of emission reduction by 2060, or earlier.
Kajol, Manager of the Neutral-Climate Industry Program for Southeast Asia at Agora Industry, stated that the transformation of the iron and steel industry requires three strategies: the direct and indirect use of renewable energy, resource efficiency and the application of circular economy principles, and the closure of the carbon cycle through the use of Carbon Capture Use and Storage (CCU/S) and biomass and bioenergy equipped with CCS (BECCS).
Fausan Arif Darmadi, Infrastructure Development Analyst at the Green Industry Center, Ministry of Industry (Kemenperin), emphasized that they have launched green industry standards (SIH) that include provisions regarding raw materials, auxiliary materials, energy, production processes, products, management, and waste management. In addition, there is also Minister of Industry Regulation (Permenperin) No. 12 of 2023 concerning limits on the use of energy, water, and greenhouse gas emissions (GHG) for coated steel. With these regulations, it is hoped that they can serve as guidelines for companies to carry out efficient and environmentally friendly production processes.
“The commitment of the industrial sector is the most important thing in the decarbonization process. Therefore, the Ministry of Industry has provided training on greenhouse gas emissions (GHG) calculations for the steel sector, including the calculation of its carbon economic value. Meanwhile, a complete guide on calculating the economic value of carbon is currently being developed,” explained Fausan.
