Public Disclosure Authorized Public Disclosure Authorized Angella Montfaucon Csilla Lakatos Bayu Agnimaruto Public Disclosure Authorized Public Disclosure Authorized Trading in Green Policy Notes on Climate Change and Trade in Indonesia NOV. 2023 This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights & Permissions © 2023 The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org Some rights reserved The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Please cite the work as follows: “Montfaucon, Angella, Csilla Lakatos and Bayu Agnimaruto, 2023. “Trading in Green: Policy Notes on Climate Change and Trade in Indonesia” © World Bank.” AT T RI B U T I O N P. 1 Contents 040624 48 Executive Summary POLICY NOTE 3 The Role of Trade Policies in Indonesia’s Green Transition POLICY NOTE 1 Indonesia's Green International Competitiveness and Green Trade POLICY NOTE 2 Firm- Level Opportunities and Challenges of Green Goods, Technologies, and Services Trade in Indonesia P. 2 Figures Figure 1 CO 2 EMISSIONS EMBODIED IN INDONESIA’S EXPORTS AND IMPORTS 12 Figure 2 CO 2 EMISSIONS IN TRADE: CROSS-COUNTRY COMPARISON (METRIC TONS OF CO 2/US$1 MILLION) 12 Figure 3 SOURCES OF EXPORTED CO 2 (%) 12 Figure 4 USE OF CO 2 CONTAINED IN IMPORTS (%) 12 Figure 5 CO 2 EMISSIONS EMBODIED IN EXPORTS BY SECTOR (MILLIONS OF METRIC TONS) 13 Figure 6 CO 2 EMISSIONS EMBODIED IN IMPORTS BY SECTOR (MILLIONS OF METRIC TONS) 13 Figure 7 GLOBAL SHARE OF GREEN GOODS EXPORTS 17 Figure 8 MAJOR TRADING PARTNERS FOR GREEN GOODS 18 Figure 9 GLOBAL SHARE OF GREEN GOODS IMPORTS 18 Figure 10 GREEN GOODS TRADE IN INDONESIA 18 Figure 11 GREEN GOODS EXPORTS BY CATEGORY, 2020 19 Figure 12 GREEN GOODS IMPORTS BY CATEGORY, 2020 19 Figure 13 INDONESIA’S GREEN COMPETITIVENESS RANKING 22 Figure 14 GREEN COMPETITIVENESS: REGIONAL COMPARISON OF RANKINGS 22 Figure 15 INDONESIA’S GREEN COMPETITIVENESS POTENTIAL BY GREEN PRODUCT CATEGORIES 23 Figure 16 GREEN GOODS EXPORTERS AND IMPORTERS: NUMBER (LHS) AND PERCENT (RHS) OF TOTAL 31 Figure 17 GREEN GOODS TRADE IN TRADERS’ BASKETS (PERCENT) 31 Figure 18 FIRM SIZE OF EG TRADERS (SURVEY RESULTS) 31 Figure 19 OWNERSHIP OF EG TRADERS (SURVEY RESULTS) 31 Figure 20 TWO-WAY TRADERS ARE MORE LIKELY TO EXPORT GREEN GOODS (PERCENT) 31 Figure 21 ..BUT LESS LIKELY TO IMPORT (PERCENT) 31 Figure 22 GREEN GOODS BASED ON END-USE CLASSIFICATION AND FUNCTION (% SHARE, WITHIN EACH CATEGORY) 34 Figure 23 AVERAGE SHARE OF IMPORTS BY GREEN GOOD CATEGORY AND FIRM TYPE (2014-18) 35 Figure 24 AVERAGE SHARE OF EXPORTS BY GREEN GOOD CATEGORY AND FIRM TYPE (2014-18) 35 Figure 25 TECHNOLOGY INTENSITY OF GREEN GOODS IMPORTS FOR IMPORTER-EXPORTERS 37 Figure 26 TECHNOLOGY INTENSITY OF GREEN GOODS EXPORTS BY IMPORTER-EXPORTERS 37 Figure 27 TWO-WAY TRADERS’ ENTRY RATES 41 Figure 28 EXPORTER-ONLY FIRMS’ ENTRY RATES 41 Figure 29 TWO-WAY TRADERS EXIT RATES 41 Figure 30 IMPORTER-ONLY/EXPORTER-ONLY FIRMS EXIT RATES 41 Figure 31 IMPORT CHALLENGES 45 Figure 32 EXPORT CHALLENGES 45 Figure 33 CHALLENGES WITH PRODUCT STANDARDS 46 Figure 34 DUTY-FREE OR SPECIAL PERMITS OR SUBSIDIES FOR TRADING EG 46 Figure 35 CHALLENGES RELATED TO INTERNATIONAL TRADE OF ENVIRONMENTAL SERVICES 46 Figure 36 INDONESIA’S AVERAGE TARIFFS ON GREEN GOODS IMPORTS 2019 55 Figure 37 TARIFFS FACED BY INDONESIAN GREEN GOODS EXPORTS 2019