Carbon crossroads: Petrochemicals boom tests Indonesia’s climate goals

In July 2025, the Indonesian government inked an investment deal worth nearly USD 6 billion with PT Taikun Petro Chemical. This China-backed consortium has been established to build a refinery and petrochemicals complex in North Kalimantan province, on the island of Borneo.

The new project is expected to produce more than 7.2 million tonnes of products per year, according to Alexandra Arri Cahyani, head of the public relations bureau at Indonesia’s Ministry of Industry. The products will include methanol and acetic acid, key building blocks for plastics. The government estimates the project will add USD 9 billion to GDP per year and reduce reliance on imports. Indonesia’s ultimate aim is to increase the added value of its downstream industries.

Backed by the Chinese companies Tongkun, Xinfengming and Tsingshan, the complex is located in the under-construction Kalimantan Industrial Park Indonesia. The park will focus on EV battery production, downstream processing of minerals such as aluminium, and petrochemical manufacturing. In 2023, the then-president Joko Widodo touted it as the world’s largest “green industrial park”, powered in part by hydropower from the Kayan and Mentarang rivers. But it will also be fuelled by coal, according to the Center of Economic and Law Studies, an Indonesian think-tank.

The PT Taikun project is set to expand the country’s petrochemical refining capacity by up to 10 million tonnes of crude oil per year. But it is not the only significant petrochemical project in Indonesia in recent years. In November 2025, the government inaugurated a plant owned by South Korea’s Lotte Chemical in the city of Cilegon, on the western coast of Java. According to Reuters, this facility will produce a million tonnes of ethylene (the gas used to make polyethylene, a common plastic) annually.

The petrochemicals industry is among the most carbon-intensive on earth. Such large-scale petrochemical investments could therefore increase Indonesia’s emissions and prolong its dependence on fossil fuels, potentially complicating the national commitment to reach net zero by 2060.

Decarbonising petrochemicals: A reality check

In a written response to Dialogue Earth, Cahyani said “the chemical subsector is classified as a ‘hard-to-abate’ sector.” This refers to renewable energy’s inability to power the high temperatures required in petrochemical manufacturing. She acknowledged that the steam cracking process required to synthesise some raw materials for plastic production generates significant CO2 emissions. Cahyani also noted that “the project planning of PT Taikun Petro Chemical is closely linked to greenhouse gas emission growth projections.”

Experts consulted by Dialogue Earth agree the petrochemical sector is difficult to decarbonise.

Petrochemical production processes are complex, noted Fabby Tumiwa, executive director for the Institute for Essential Services Reform (IESR), an Indonesian think-tank. Finding low-carbon alternatives is very difficult and demand for plastic remains “exceptionally high”, he added, because substitute materials are difficult to source. Furthermore, the introduction of bio-organic plastics might only replace simple items, like plastic baskets.

“It is far more difficult to replace materials like HDPE [high-density polyethylene] that are required for numerous applications, especially when alternative technologies are not yet commercially viable because producing plastic from traditional petrochemistry remains much cheaper,” Tumiwa added.

Because “petrochemical products cannot easily be replaced by alternatives, the risk of locking Indonesia into continued fossil fuel dependence therefore remains”, added Putra Adhiguna, managing director of the Energy Shift Institute, an Asia-focused energy finance think-tank.  

In 2022, Indonesia’s chemical sector emitted around 10.3 million tonnes of CO2-equivalent from direct production processes (the transformation of raw materials) alone, excluding emissions from energy use. Around a quarter of that came from petrochemicals, accounting for about 0.2% of national emissions. Though this is a small share, experts say it could grow as production expands. The petrochemical industry has been designated a national strategic project, meaning its growth is shielded from regulations such as the captive coal power plant ban, enacted in 2022.

The government is currently drafting a new regulation on industrial decarbonisation, slated for release in late 2026. It aims to set the first standardised emission-reduction targets for the country’s factories.

In late 2025, the industry ministry, in collaboration with the World Resources Institute Indonesia and the IESR, published an industrial decarbonisation roadmap. Chemicals, including petrochemicals, are one of nine priority subsectors for decarbonisation identified in the roadmap.

Dialogue Earth consulted Nada Zuhaira, a sustainable business and net-zero analyst at the World Resources Institute Indonesia. When asked how realistic it is to decarbonise the petrochemicals sector in the short to medium term, she said it “requires a combination of strategies tailored to different emission sources and stages of production”.

Zuhaira highlighted potential approaches along the petrochemicals value chain, including: the use of breakthrough technologies to reduce methane emissions, like carbon capture; switching to low-carbon electricity; reducing consumption through greater product reuse and recycling; switching fuels and feedstocks to lower-carbon alternatives, such as green hydrogen; and reducing methane emissions through improved leak detection and repair.

But Zuhaira warned that breakthrough technologies like carbon capture are still immature and not yet commercially competitive. Tumiwa noted that considering such technology as a way to continue using fossil fuels is a “dangerous” approach, because at present: “The [carbon capture] technology itself is unreliable; real-world projects so far show that actual performance falls far short of targets.” In addition, large-scale deployment and widespread adoption would be complex and costly, because pipeline infrastructure would be required to transport captured CO2 to the geological formations capable of storing it.

Carbon capture, such as this Carbfix project in Iceland, may eventually help to abate the emissions of carbon-intensive sectors like petrochemicals, but the technology is currently immature (Image: Oksana Baliukeviciene / Alamy)

Zuhaira pointed to energy efficiency as the “most practical and commercially available option” in the short term. “However, energy efficiency alone is expected to contribute no more than 15% of total emissions reductions by 2050, because rapidly growing demand will continue driving overall emissions higher,” she added. Demand for materials such as methanol and olefins (foundational inputs for many everyday plastics and clean energy technologies) is expected to more than double by 2050, she said.

Strong regulation needed

Expanding production of petrochemicals without strict controls could increase emissions significantly, said Tumiwa.

Stricter emissions limits in other countries, including China, are giving rise to the danger that older, more polluting technologies “are now being dumped into countries like Indonesia where regulations are lax”, he noted.

The government must be firm, Tumiwa added, by conducting technology audits and setting emission caps “to prevent Indonesia from becoming a dumping ground for outdated, dirty technology”. He said that such policies should apply across all heavy processing industries. “Otherwise, the investing companies get the output while we bear the environmental burden of their emissions.”

In Europe, strong regulation including carbon pricing has driven change in its petrochemical sector, Zuhaira said. For instance, in the Netherlands and Germany, policies such as the European Union’s Emissions Trading System (the EU ETS), alongside emissions reduction targets, have led their industries to pursue process electrification, chemical recycling and bio-based feedstocks. “[These countries’] success has depended less on technology than on regulation,” Zuhaira said. “Meaningful carbon pricing has made decarbonisation a business necessity rather than a voluntary commitment.”

For Indonesia, new petrochemical projects, including those in North Kalimantan, should set out emissions reduction targets from the start, she said. This is because facilities built today are likely to be operating until the 2050s and 2060s, when Indonesia aims to reach net zero.

“Constructing new facilities without a credible decarbonisation roadmap risks creating stranded assets, while reducing future access to export markets increasingly affected by measures such as the EU Carbon Border Adjustment Mechanism,” she added.

Cahyani said financial incentives currently provided by the government, such as tax holidays and allowances for new petrochemical investments, still do not take into account how environmentally friendly an investment plan is. She added that the Ministry of Industry is preparing regulation containing emission-reduction target standards to “provide clarity on expected industrial contributions toward achieving [national decarbonisation] targets”.

Cahyani added that the supporting policy ecosystem being designed includes funding mechanisms and fiscal incentives such as green taxonomy, subsidies and the application of carbon pricing mechanisms.

Zuhaira noted how many petrochemical products are still crucial, and need to be produced: medical plastics, building insulation, as well as solar panel and EV battery components – “indispensable for the clean energy transition itself”.

“The challenge therefore is not eliminating petrochemicals altogether, but changing how they are produced,” she said. “In that sense, petrochemical decarbonisation is achievable,” but only if “accompanied by structural reforms led by government, including: stronger regulation; expanded clean energy infrastructure; and adequate financial incentives and industrial support”.