Impact of international climate policy on Indonesia

This paper studies the impact of international climate policy on the economy and structure of the energy sector in Indonesia . We use an extended version of MERGE - Model for Evaluating the Regional and Global Effects of Greenhouse Gas Reduction Policies - to project Indonesia's energy development till the year 2100, for a business-as-usual and various mitigation scenarios. If the Organisation for Economic Co-operation and Development countries were to reduce emissions, Indonesia would export more gas but less oil and its per capita income would fall slightly. With international trade in emission permits, Indonesia would be an exporter of carbon permits as energy export sectors are almost the same as without emission abatement, but Indonesia would suffer a minor loss of income. If the country anticipates emission reduction targets relative to some future emissions, then it should increase its emissions in the short run. It should postpone exploiting its gas reserves and initially rely more on coal and imported oil. It could then become a substantial exporter of internationally tradable emission permits. If it anticipates emission reduction targets relative to currently projected emissions, then the optimal exploitation of coal gets shifted forward in time while gas exploitation moves backward, but to a lesser extent. Economic losses will be greater, but still not very large. International trade in emission permits would make the exploitation of Indonesia's coal reserves economically unattractive