The CSIS working paper indicates that the EU’s Carbon Border Adjustment Mechanism (CBAM) has a minimal overall impact on Indonesia’s macroeconomy, with exports projected to decrease by only 0.1% and GDP increasing by a marginal 0.0002%. These limited effects are attributed to the narrow scope of products currently covered—such as iron, steel, and cement—and Indonesia’s relatively small share of these exports to the EU. However, sector-specific consequences are more significant, with industrial output in carbon-intensive sectors like ferrous metals and chemicals expected to decline. Furthermore, while CBAM aims to reduce global emissions, the study suggests it will only lower Indonesia’s national carbon levels by approximately 1%. A proposed domestic carbon tax of US$2 per ton is also found insufficient for substantial emission reductions, highlighting the need for higher carbon pricing and broader sectoral expansion to foster green industrial growth.
