Net-Zero Roadmap for Indonesia’s Steel Industry

Global Efficiency Intelligence: Ali Hasanbeigi, Cecilia Springer, Cassandra Savel

ASEAN Centre for Energy: Dan Resky Valeriz, Zulfikar Yurnaidi, Vu Trong Duc Anh

While Indonesia produces a relatively small share of the world’s total steel, it is the second-largest steel producer in Southeast Asia, the 4th largest exporter of steel globally by value, and the 14th largest steel producing country in the world, with production expected to grow rapidly (IBAI 2024). In 2023, Indonesia’s crude steel production reached nearly 17 million tons (Mt) and this is expected to grow to up to 60 Mt per year in 2060. The steel industry plays a critical role in Indonesia’s economic development, supporting key sectors such as construction, automotive manufacturing, and infrastructure while contributing to industrial growth and job creation across the country.

This Net-Zero Roadmap for Indonesia’s Steel Industry (‘Roadmap’) describes the current status of Indonesia’s steel industry and outlines four future industry development scenarios: Business-as-Usual (BAU), Moderate, Advanced, and Net-Zero, looking at the impacts of these scenarios through to 2060.

The analysis applies five core decarbonization pillars:

1) material efficiency and demand management

2) energy efficiency and electrification of heating

3) fuel switching and cleaner electricity

4) transitioning to low-carbon iron and steelmaking technologies, and

5) carbon capture, utilization, and storage (CCUS).

Under the Net Zero scenario, the steel industry’s emissions in Indonesia would be lower by 86% compared to 2023 levels, and by 94% compared to the projected emissions under the BAU scenario in 2060. This outcome is driven by slower growth in crude steel production due to material efficiency and steel demand management in the country, as well as high adoption of low-carbon steelmaking technologies. The Net Zero scenario also incorporates greater deployment of CCUS and energy efficiency improvements relative to other scenarios. In contrast, under the BAU scenario, emissions continue to rise due to growing steel production and limited technological transition.

Each decarbonization pillar plays a distinct role. Under the Net Zero scenario, the pillar for transitioning to low-carbon iron and steel-making technologies delivers the greatest share of emissions reductions relative to BAU, primarily through the adoption of scrap-based EAFs, NG-DRI-EAF, green H₂-DRI-EAF, and iron ore electrolysis. Material efficiency and demand management, energy efficiency and electrification of heating, and fuel switching and cleaner electricity each make similar, moderate contributions, while CCUS plays a smaller role for steel industry decarbonization. We also assumed that Indonesia would import a small amount of green iron produced by green H2-DRI, which is then used in EAFs to produce steel.

The Roadmap shows the contribution required of each pillar over time to bring the BAU scenario’s emissions down to Net Zero levels (Figure 3). The area of the graph that shows each pillar in different colors shows the cumulative contribution of each decarbonization pillar to the total decarbonization of the steel industry in Indonesia from 2023 to 2060. While material efficiency/demand management, energy efficiency/electrification of heating, and fuel switching/cleaner electricity play a large role between the base year and 2030, from 2030 onwards, the technology shift to low-carbon iron and steelmaking pillar plays the largest role. CCUS and imported green iron are each expected to play a small role, with adoption starting in 2030s.

The Roadmap considers the economic feasibility of the lower-carbon scrap-EAF, green H₂-DRI-EAF, and NG-DRI-EAF steel production routes, relative to BF-BOF. Our analysis shows that scrap-based EAF steelmaking in Indonesia is generally more cost-competitive than BF-BOF, even without carbon pricing. The cost structure for EAF is dominated by scrap costs, which make up around 75% of the total Levelized Cost of Steel (LCOS), making scrap supply stability critical for sustaining competitiveness.

Green H₂-DRI-EAF offers up to 97% CO₂ emissions reductions compared with the BF-BOF pathway. We project that green H₂-DRI-EAF will be more expensive than BF-BOF even at a hydrogen price of $1/kg under current input material costs, especially coal and coke prices. However, the gap is expected to narrow as hydrogen costs decline with technological advancement and policy support. In addition, a decrease in the price of coking and thermal coal in the past two years has made BF-BOF production cheaper. Despite this, our analysis finds that while Indonesia faces higher costs for green steel per ton of steel initially due to less mature hydrogen infrastructure, the green premium at the final product level remains small: around $300 per passenger car and $830 per residential building unit (50 m2), suggesting that green steel adoption would have minimal impact on end-user affordability. Furthermore, carbon pricing mechanisms and long-term reductions in hydrogen costs would make green H₂-DRI-EAF more competitive (Figure 4).

Notes: Assumed 5% steel scrap is assumed to be used in both BF-BOF and DRI routes. For this analysis, it is assumed that carbon pricing will be applied in the form of credits or allowances for green H2-DRI-EAF plants. Eligible plants would receive carbon credits based on the reduction of their carbon intensity relative to the benchmark set by BF-BOF operations, which can then be traded on the carbon market.

This Roadmap shows that achieving the Net Zero GHG emissions in Indonesia’s iron and steel sector requires unprecedented deployment of low-carbon solutions and coordinated action. It presents an action plan tailored to Indonesia’s context, detailing what the government, steel producers, consumers, and supporting industries must do to enable this transformation.

Summary of recommendations

Enhancing Material Efficiency and Demand Management:

In the near term (2025–2030), efforts to enhance material efficiency should focus on issuing national guidelines to optimize steel use in construction, integrating material efficiency criteria into public procurement processes to reward reduced steel usage, and running widespread awareness campaigns to promote efficient design practices among architects, engineers, and manufacturers. Steel producers should conduct comprehensive assessments of their production lines to identify material waste and improve yields, develop high-strength lightweight steel grades to reduce steel consumption in end-use applications, and set internal targets for material efficiency to institutionalize best practices across their operations.

For the medium term (2030–2040), Government of Indonesia should establish mandatory material intensity reduction targets for key steel-consuming sectors, update infrastructure design standards to explicitly require material-efficient practices in public projects, and promote industrial symbiosis programs to increase scrap reuse across sectors. Steelmakers should adopt advanced digital tools for real-time yield monitoring to continuously reduce offcuts and waste, and engage in cross-sector industrial networks to exchange scrap and by-products with other industries, maximizing resource efficiency and lowering primary steel demand.

Enhancing Energy Efficiency and Electrification of Heating:

In the near term, the government should mandate plant-wide comprehensive energy audits to establish efficiency baselines, expand support for waste heat recovery systems to capture and reuse heat from steel processes, and develop a guideline for electrifying low- and medium-temperature heating. Steel companies should implement quick-win measures like sealing furnace leaks and upgrading combustion controls, invest in waste heat recovery equipment, and replace outdated burners with modern, high-efficiency models to cut energy use and emissions.

By the medium term, steel companies should adopt real-time energy monitoring systems in large steel facilities to drive continuous improvement. Steelmakers should electrify rolling mills and finishing lines using clean power sources, adopt AI-enabled energy management systems for optimizing furnace operations, and transition high-impact processes like ladle preheating to electric heating, cutting fossil fuel reliance and emissions.

Enhancing Fuel Switching and Cleaner Electricity:

In the near term, policies should ensure the steel industry’s renewable electricity needs are included in power sector expansion plans, establish a clear regulatory framework for corporate renewable PPAs, and streamline processes to make corporate procurement of renewables easier. Steel companies should carry out plant-level feasibility studies for switching from coal to cleaner fuels like natural gas (in the near term as a transition fuel), sign long-term renewable PPAs to secure stable clean energy, and retrofit combustion systems to prepare for future fuel transitions.

For the medium term, the government should require industrial consumers like steel plants to source a growing share of their electricity from renewables, reform tariff structures to incentivize off-peak clean energy use, and modernize the grid and transmission infrastructure with expanded renewable generation to ensure steel producers can access low-carbon power. Establishing a national task force on industrial fuel switching and building on-site hydrogen storage and distribution systems at steel plants will be essential, along with steelmakers committing to science-based emissions reduction targets, including clear milestones for switching to cleaner energy.

Transitioning to Low-Carbon Iron and Steelmaking Technologies:

In the near term, the government should restrict new blast furnace approvals, strengthen scrap collection and quality standards to secure high-quality feedstock for EAFs, and provide financial incentives for upgrading or building EAF and DRI facilities. Other critical actions include developing green hydrogen production hubs linked to steel regions, publishing national guidelines for hydrogen-ready DRI plants, and planning for pilot programs to demonstrate low-carbon steel technologies such as H2-DRI.

For the medium term, the government should plan for a gradual phase-out of high-emission BF-BOF lines beyond set CO₂ benchmarks, support commercial pilot plants for H2-DRI, promote green iron imports as part of a diversified low-carbon supply strategy, and integrate renewable power directly into EAF operations through infrastructure upgrades and market reforms. Establishing certification systems for green steel and carbon credits are also essential.

Adopting Carbon Capture, Utilization, and Storage (CCUS):

In the near term, the government should publish a national CCUS roadmap with steel-specific priorities, establish clear legal and regulatory frameworks for ownership, liability, and permitting of CO₂ capture and storage, and conduct geological surveys to confirm suitable storage sites. Funding early CCUS pilots in steel plants and having companies perform feasibility studies for implementing capture technologies will build experience and reduce technology risks, while engaging with technology providers will help steelmakers identify optimal capture solutions for their facilities.

In the medium term, efforts should focus on building shared CO₂ transport and storage infrastructure to lower deployment costs and enable CCUS access for multiple emitters. Creating incentives for CO₂ utilization in commercial applications like construction materials or fuels will help offset capture costs, while promoting international cooperation with experienced countries can secure technology transfer and concessional financing. Steel companies should move to full-scale CCUS installations, partner with industrial peers for shared infrastructure, and pilot projects to convert captured CO₂ into valuable products.

Recommendations for Steel Consumers

In the near term, public procurement should mandate the inclusion of Environmental Product Declarations (EPDs) or carbon footprints in tenders, rewarding low-carbon steel producers, while large private buyers should adopt green procurement guidelines favoring suppliers with verified emissions data. Key steel consumers should issue forward-looking purchasing commitments for green steel, sending clear demand signals to steel producers to invest in cleaner technologies.

In the medium term, expanding green public procurement to major infrastructure projects will drive predictable demand for low-carbon steel, and procurement guidelines should incentivize suppliers that exceed sustainability criteria. Coordinating buyer alliances and green steel clubs can aggregate demand for low-carbon steel, while promoting indirect demand signals such as specifying green steel in building codes or investor disclosures will reinforce the market shift towards sustainable steel.

To read the full report and see complete results and analysis of this new study, download the full report from the link above.

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