Decarbonization of the Iron and Steel Industry Needs a Comprehensive Roadmap

press release
The Executive Director of IESR, Fabby Tumiwa
The Executive Director of IESR, Fabby Tumiwa

Jakarta, March 20, 2024 – Indonesia’s iron and steel industry is experiencing consumption growth. Data from the Coordinating Ministry for Economic Affairs shows that in 2022, the average steel consumption was 15.62 million tons annually. This number exceeds the average steel production of around 12.46 million tons annually. Meanwhile, in terms of exports, the iron and steel industry experienced an increasing trend from USD 7.9 billion in 2019 to USD 28.5 billion in 2022.

Increased consumption of iron and steel on a national level directly impacts the amount of greenhouse gas emissions. According to the Institute for Essential Services Reform (IESR) report, the iron and steel industry alone contributes to 4.9% of total industrial emissions. This amounts to approximately 430 million tons of carbon dioxide in 2022, equivalent to 20-30 million tons per year. To promote greener and more sustainable business practices, the IESR recommends that the government and iron and steel industry players work together to reduce emissions.

The Executive Director of IESR, Fabby Tumiwa, stated it is crucial to address the transfer of iron and steel production process technology to decarbonize the iron and steel industry sector. Currently, 80% of iron and steel production in Indonesia is still produced using blast furnace technology, which relies heavily on coal and coke as fuel. This means that reducing emissions in Indonesia’s iron and steel industry will become increasingly challenging if the use of blast furnace technology continues to rise.

“Steel is a vital material required for various developmental purposes, including producing technologies that support the worldwide shift towards renewable energy. To generate 1 MW of renewable energy using solar panels and wind turbines, we need approximately 20-180 tons of steel. Therefore, it is essential to decarbonize the steel industry to ensure that the technology supply chain becomes low-carbon through increased energy efficiency. One way to achieve this is by switching to environmentally friendly technology, using renewable energy, and optimizing the use of recycled steel (scrap),” said Fabby Tumiwa in the Webinar Accelerating the Transformation of the Steel Industry in Indonesia and Southeast Asia organized by IESR and Agora Industry. 

The urgency to reduce carbon emissions in the iron and steel industry is influenced globally by low-emission product regulations, carbon limits for exports, and carbon trading. At the national level, Farid Wijaya, a Senior Analyst at IESR, stated that decarbonizing the iron and steel industry can help achieve Indonesia’s economic growth goals, protect the domestic supply chain and future economy, and increase export competitiveness for global markets that value environmentally friendly practices.

“To reduce carbon emissions in the industry, it is essential to establish regulations and standards for building a green industry ecosystem. This ecosystem should include the provision of green energy and low-carbon technology. To effectively achieve this goal, each industry and association needs to develop a clear roadmap for decarbonization. Currently, this roadmap only exists for a few sectors and has not yet been established as a regulation that can serve as a basis for action by industry players and associations,” Farid said. 

The IESR study provides recommendations to encourage the reduction of carbon emissions in Indonesia’s industrial sector. Firstly, the Ministry of Industry should complete the industrial decarbonization roadmap by the end of 2024 or sooner. Secondly, the study recommends strengthening the reporting and data collection process regarding implementing the Minister of Industry Regulation No.2/2019, which concerns the procedures for submitting industrial data through the National Industrial Information System (SIINAS). This will ensure the disclosure of industrial sustainability reports for transparency and access to information, mainly reporting on energy and raw material use and waste generated. Finally, the study suggests benchmarking green industry production processes and expanding the scope and limit values of green industry standards (SIH) from voluntary and referring to local best practices to mandatory, based on the emission reduction needs in 2060 or earlier.

Kajol, Southeast Asia Climate-Neutral Industry Program Manager, Agora Industri, said the transformation of the iron and steel industry requires three strategies, namely the use of direct and indirect renewable energy, resource efficiency and the implementation of a circular economy, and ending the carbon cycle with the use of Carbon Capture Use and Storage (CCU/S) and biomass and bioenergy supplemented with CCS (BECCS).

Fausan Arif Darmadi, Infrastructure Development Analyst, Center for Green Industry, Ministry of Industry (Kemenperin), it is worth noting that the party has introduced a green industry standard (SIH) that covers various aspects such as raw materials, auxiliary materials, energy, production processes, products, business management, and waste management. Minister of Industry Regulation (Permenperin) No. 12 of 2023 also sets limits on energy use, water consumption, and greenhouse gas (GHG) emissions for coated steel. This regulation aims to assist companies in adopting an efficient and eco-friendly production process.

“The commitment of the industrial sector is crucial in reducing carbon emissions. As a result, the Ministry of Industry has offered training to the steel industry on calculating greenhouse gas (GHG) emissions and determining the economic value of carbon. Meanwhile, a comprehensive guide to aid in calculating the economic value of carbon is currently in development,” said Fausan.

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.

Kata Data | Civil Society Coalition: 3 Rules Set Back Energy Transition Commitments

Program Manager of Energy Transformation, Institute for Essential Services Reform (IESR), Deon Arinaldo said that the draft KEN RPP makes Indonesia only reach peak emissions in 2035. This is seven to ten years later than the need to limit the global average temperature rise to below 1.5°C according to the Intergovernmental Panel on Climate Change (IPCC) report.

Read more on Kata Data.

Navigating Water Illuminates the Plains of Sriwijaya

Palembang, February 27, 2024 – The Jelajah Energi South Sumatra group was welcomed by the thunderous sound of the fast-flowing Endikat River and the cloudy weather upon their arrival at Muara Endikat, also known as the mouth of the Cawang River, in Singapore Village, Kota Agung District, Lahat Regency, South Sumatra. This region is known for its breathtaking natural beauty and has significant potential to provide electrical energy for the local population.

Located about a 1 to 1.5-hour drive away from Pagar Alam City, the Jelajah Energi South Sumatra group reached PLTMH Green Lahat. This Mini Hydro Power Plant (MHP) has been operational since 2015 and has an electrical energy production capacity of 3×3.3 Megawatts (MW), making its total capacity 9.9 MW.

“7 MW of the total energy produced is allocated to meet the electricity needs of Pagar Alam City, while the remaining 30% is distributed to Lahat Regency,” said Kastiono, plant manager of Green Lahat MHP. 

Next to MHP Green Lahat, MHP Endikat (both under the parent company PT Manggala Gita Karya) has also been built with a 3 x 2.67 MW capacity, which will be operational in 2022. The two independent power producers (IPPs) utilize the flow of the Endikat River to produce electrical energy that is sold to PLN and used later by the community.

Kastiono explained that before the construction of the MHP, the residents residing around the power plant in Pagar Alam City and Lahat Regency used to experience a drop in electricity voltage. The poor quality of electricity was influenced by various factors, including the power plant’s location being too far from the substation, which led to unstable voltage. Additionally, Kastiono admits that the electricity production from MHP Green Lahat depends on the conditions around the river upstream.

“The most crucial aspect is the greening of the upstream. Everything must be controlled, and there should be no illegal logging. However, the responsibility of maintaining forest cover in the watershed also involves other agencies,” he said.

Rizqi Mahfud Prasetyo, Project Coordinator of Sub National, Sustainable Energy Access, IESR mentioned that according to IESR’s study, Indonesia has 27.8 GW of MHP/MH potential, of which 287.7 MW is located in South Sumatra. 

“In addition to increasing the renewable energy mix in PLN’s electricity. MHP can improve the quality of energy access for people who may not have been reached by the PLN network,” Rizqi said.

Rizqi also added that the geography and topography of some of Indonesia’s contoured areas allow for the existence of river flows and river drops. River flow has the potential to be utilized as a power plant, one of which is in PLTM Green Lahat which utilizes the Endikat river flow.

The presence of MHP Green Lahat and MHP Endikat instills a sense of hope in the communities of South Sumatra by providing dependable electrical energy and bolstering the infrastructure and local economy. These micro-hydro power plants are expected to continue to offer sustainable benefits to the community and the environment in the long run.