Optimizing power sector decarbonization in Indonesia through an integrated policy modeling framework

Abstract

Indonesia’s power sector is still dominated by fossil fuels, which makes it difficult for the country to meet its climate goals. This study develops an integrated modeling framework to evaluate long term decarbonization pathways that combine a carbon tax (CT), an emissions trading system (ETS), and carbon capture and storage (CCS). We use a generation expansion model based on mixed integer linear programming and simulate six policy scenarios from 2025 to 2050 to assess impacts on ${\text{CO}}_2$ emissions, generation mix, capital investment, and system costs. Among integrated policies, the combined carbon pricing and CCS scenario (CEC) achieves the largest emissions reduction, reaching 389.1 Mt${\text{CO}}_2$ in 2050, a 68.2% decrease relative to the no policy scenario. This pathway also requires the highest annual capital investment, of USD 78.42 billion in 2050, compared with USD 26.33 billion in the no policy case. More moderate instruments, such as a carbon tax alone, deliver smaller reductions (45%) with lower costs. The CEC scenario attains an 83.6% renewable share of installed capacity by 2050, while the combined ETS and CCS scenario (EC) reaches 82.2%, driven by growth in solar PV, wind, biomass, hydropower, and geothermal. Sensitivity analyses indicate that solar deployment is highly responsive to capital cost changes and that increases in the carbon price beyond USD 63 per t${\text{CO}}_2$ yield diminishing marginal benefits. These results highlight the value of early and coordinated climate policy to support an equitable and sustainable transition, and the proposed framework offers a decision support tool for integrated energy and climate strategies under uncertainty.