Encouraging the Decarbonization of MSMEs in Indonesia

press release

Jakarta, March 14, 2024 – Micro, Small, and Medium Enterprises (MSMEs) have become one of the important pillars of the Indonesian economy. Based on data from the Ministry of Cooperatives and Small and Medium Enterprises (Kemenkop), the MSME sector contributed to the Gross Domestic Product (GDP) by 60.5 percent and contributed to employment reaching 97 percent of the total workforce in 2021. 

On the other hand, MSMEs produce greenhouse gas emissions that are responsible for the climate crisis. Based on a study by the Institute for Essential Services Reform (IESR), estimated energy-related emissions from MSMEs reached 216 MtCO2 in 2023, equivalent to half of the national industrial sector emissions in 2022. For this reason, the Institute for Essential Services Reform (IESR) encourages MSME players to make efforts to reduce emissions to achieve greener and more sustainable businesses. 

The Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, said that MSMEs have a significant role to play in achieving Net Zero Emission (NZE) by 2060 or sooner. According to him, reducing emissions or decarbonizing the entire supply chain in the MSME sector will open opportunities for Indonesian MSMEs to compete at the global level.

“Our study found that 95 percent of emissions from MSMEs come from burning fossil energy. Reflecting on this data, the government needs to start identifying opportunities and challenges in decarbonizing MSMEs. The government also needs to propose strategies and provide assistance in the form of financial and technical assistance to MSMEs so that they are able to plan and encourage investment to reduce greenhouse gas (GHG) emissions,” Fabby said in a webinar on Decarbonization Opportunities for Small and Medium Enterprises (SMEs) in Indonesia and Learning from Global Experiences.


In collaboration with Lawrence Berkeley National Laboratory (LBNL), IESR formulated a study that offers solutions to decarbonize MSMEs, especially in the Small and Medium Industry (SMI). SMEs were chosen because the subsector emits higher emissions than other SME subsectors. In addition, SMEs can employ up to 100 people, potentially providing jobs for local residents. This can be a reference to ensure a just transition, both at the local and national level.

The IESR and LBNL analysis recommends technology upgrades and electrification to decarbonize SMEs. The study takes three examples of SMEs with their decarbonization solutions First, electrification for the textile and clothing sector. Second, the construction sector that needs to increase the use of low-carbon cement, innovative concrete formulations and propose eco-friendly equipment to building owners. Third, the tanning industry sector to encourage the penetration of variable renewable energy (VRE), such as solar panels and domestic wind turbines.

Energy Data Analyst of IESR, Abyan Hilmy Yafi, mentioned, through the initial strategy of decarbonizing SMEs, several economic benefits will be obtained such as the creation of new business opportunities, increasing brand value, and attracting customer trust. Not only that, decarbonization will also improve production processes, profitability, and competitiveness while reducing climate change risks and ensuring a positive impact on the environment.

“MSMEs need to get more assistance because many MSME players do not know about energy, its units and how to make it efficient. With collaboration between the government, private sector, and the community, MSMEs can become agents of change that drive the transition to a clean and sustainable economy for a better future for all,” Abyan said. 

Head of the Green Industry Development Program Team, Ministry of Industry, Achmad Taufik, said that his party is working on green funding/investment for SMEs from banks, private and international sources. In addition, his party is exploring several models and preparing studies to strengthen green industry service providers. 

“For small and medium industries in an effort to transform towards green industry, we will help with training and capacity building, access to green technology, access to markets or creating new markets,” said Achmad. 

Highlighting decarbonization opportunities in the Small and Medium Enterprises (SMEs) sector, Energy and Environmental Policy Researcher, LBNL, Bo Shen stated that the application of energy efficiency is an attraction for the market in choosing SME products. In China, energy efficiency certification for SMEs is the basis for large companies to take SME products, he said. Meanwhile, learning from the United States, a number of universities have created government-funded industrial assessment centers to determine the estimated energy consumption and emissions of SMEs. 

“There are several effective ways to encourage energy savings in SMEs in Indonesia that can be applied. Among them, the availability of a standardized and transparent system to track, assess and communicate the energy performance of SMEs. Second, the existence of a government-supported evaluation scheme in business image improvement. Third, the existence of clear decarbonization targets for the government, multinational companies and SMEs,” said Bo Shen. 

Note to Editors:

MSMEs are all micro, small and medium-sized enterprises/businesses. 

Small and Medium Enterprises (SMEs) means excluding micro enterprises.

Small and Medium Industry (SMI) is a business that has a production process/conversion of raw/half-raw goods to finished goods that has a small to medium business size.

The type of micro, small, medium can be seen from the capital/income/number of employees.