Not reducing emissions may now have legal risks. What does it mean for Indonesia?
The impact of ICJ’s new ruling from a climate-trade perspective
This op-ed reflects the author’s own analysis and views and does not necessarily represent those of The Reformist.
Jakarta’s pre-dawn commuters can smell the city’s reliance on coal: a sharp hint of sulphur, fine ash hanging in the humid air, and a haze that blurs the skyline.
That everyday experience now carries legal weight. On 23 July 2025, the International Court of Justice (ICJ) ruled that knowingly allowing greenhouse-gas emissions to rise is an “internationally wrongful act.”
Routine smog is therefore more than an irritant: it can translate into carbon tariffs on Indonesia’s exports and higher risk premia in its capital markets.
Indonesia’s coal crossroads meets ICJ verdict
For the first time, the ICJ affirmed that legal duties to prevent climate damage extend beyond climate treaties, applying equally under human rights law, the law of the sea, and customary international law. Though the ruling increases pressure on industrialized countries to offer climate finance and reparations, it does not exempt any state, regardless of income or historical emissions, from exercising stringent due diligence.
All states are now expected to take science-informed, timely, and ambitious action to avoid contributing to climate harm. While the opinion is not legally binding, it carries powerful normative weight. Its implications are already rippling across trade, finance, and global risk assessments because markets tend to price legal momentum long before judges ever award damages.
Nowhere is that dynamic clearer than in Indonesia. The country set a fresh coal production record in 2024, mining about 836 million tonnes of coal, nearly one-fifth above the official target. Coal still delivers roughly two thirds of Indonesia’s electricity and anchors an export machine that supplies smelters from Gujarat to Guangdong.
In 2023, China and India accounted for roughly 65% of Indonesia’s coal exports, highlighting the country’s deep integration into Asian industrial supply chains. Yet those same exports face a tightening wall of carbon tariffs. The European Union’s Carbon Border Adjustment Mechanism (CBAM) is already in its reporting phase and will start collecting full charges in 2026. The United Kingdom will introduce a parallel levy on imports from 1 January 2027, and a number of US lawmakers are pushing for a similar carbon border fee.
In the wake of the ICJ opinion, the political case for such measures has become stronger, not weaker, because governments can now claim they are enforcing an emerging duty of care rather than engaging in disguised protectionism.
PLN’s debt trap and decarbonization dilemma
Indonesia’s electricity monopoly, PLN, sits at the heart of the dilemma. Coal and gas still account for about 91% of PLN’s installed capacity, and the company carries roughly USD 25 billion in debt. PLN also pays penalties for power it does not need under take-or-pay contracts with independent coal plants, effectively subsidizing excess capacity.
At COP29 last year in Baku, PLN’s finance director, Sinthya Roesly, spelled out the bind: global investors, she noted, appreciate PLN’s sovereign backing and long-dated bonds, yet many are barred by internal or OECD rules from financing utilities where coal accounts for more than half of generation.
“Indonesia cannot go from brown to green overnight,” she argued; investors have to accept a transition pathway, and new kinds of transition finance, if they want to stay in the game.
Her plea highlights an uncomfortable truth: as long as more than half of PLN’s power generation comes from coal, many global investors are effectively barred from financing it under their ESG mandates. That 50% threshold, used by pension funds, development banks, and export credit agencies alike, means PLN must decarbonize first to access the very capital it needs to do so.
Private miners feel the pinch
That tension is also clear upstream. Indika Energy still earned about 84% of its revenue from coal in 2024, but, as noted by the Energy Shift Institute, it directed more than 90% of its capital spending toward gold, renewables, electric motorbikes, and nature-based solutions.
Despite this shift, creditworthiness-rating providers Moody’s placed Indika on a negative outlook, while Fitch reported that coal will continue to account for 80–90% of its earnings through 2026. The company’s transition strategy is underway, but credit metrics are under pressure as coal revenues decline and diversification costs rise.
The ICJ decision subtly changes that calculus. A court that frames unchecked emissions as a wrongful act also legitimises robust domestic carbon policies, because such measures look less like trade barriers or fiscal grabs and more like compliance with a global duty.
If Jakarta can put a transparent, rising price on carbon and publish an irreversible retirement timetable for its coal fleet, investors and rating agencies gain a yardstick.
Financial models can treat carbon revenues and concessional transition loans as predictable cash flow rather than speculative hopes. Without that visibility, analysts fall back on worst-case assumptions: stranded assets, capped electricity tariffs, and political hesitation.
Indonesia’s carbon-pricing gap
Carbon pricing shifts the cost of climate damage onto emitters, typically via a fixed carbon tax or a cap-and-trade emissions-trading system (ETS). For the moment, Indonesia’s carbon pricing architecture remains timid. A carbon tax of IDR 30 per kg CO₂e (about USD 2 per ton CO₂) has been legislated but not yet collected, and an intensity- based emissions trading system (ETS) covers only the largest coal plants, with recent permit prices well below USD 5.
In 2023 the pilot power sector ETS saw an average carbon price of only IDR 12,000 (USD 0.76) per ton, while secondary market offset credits traded around IDR 58,800 (USD 3.66). The gulf between those figures and the EU ETS price (which has lately bounced around EUR 60–90 per ton) measures the bill that Indonesian exporters will soon pay at foreign borders. The ICJ finding raises the stakes by making that bill harder to contest diplomatically.
Transition plans need legal foundations
Jakarta’s 2025–2034 power procurement plan draft (RUPTL) tries to answer the critics. It proposes 69.5 GW of new generation capacity by 2034, 76% of it labeled renewable (including significant battery storage).
However, the same document leaves room for 16.6 GW of new coal and gas power plants in that timeframe. Achieving the renewable targets would require Indonesia to build green capacity five times faster in 2025–2029 and eleven times faster in 2030–2034 than it has ever managed before.
Credit rating agencies respond to numbers, not aspirations: an unfunded promise to close coal early registers as a liability, not a virtue. Without legally binding milestones, they load a risk premium onto PLN’s sovereign-backed bonds, raising the very cost of capital that PLN needs for new renewables and transmission lines.
The battle of optics on the road to Belém
This year’s COP 30 in Belém, Brazil (in November) will unfold in the long shadow of the ICJ opinion, and every delegation is already adjusting its tone.
Europe will arrive armed with ever-clearer justifications for border carbon measures; Australia is recasting itself as a renewable energy superpower; China and the wider BASIC group are sharpening a fairness message that challenges unilateral trade tools while accelerating their own renewables rollout.
The mid-year Bonn talks (SB 26, the June 2025 climate meetings) offered clues about what Belém’s corridors will really discuss. Negotiators there struggled to finalize guidance on Article 6 carbon trading, leaving the new “just transition” work program hungry for concrete country examples. And, after a fierce debate triggered by BASIC nations, they parked the question of climate-related trade measures for informal consultations.
In other words, the atmosphere in Brazil will reward hard evidence of domestic implementation (especially carbon price integrity, coal exit timetables and worker transition finance) while keeping a wary eye on how those efforts interact with emerging trade rules.
Crafting Indonesia’s pavilion narrative
Indonesia’s pavilion narrative will need to feel at home in that reality. It can still celebrate progress. The first carbon credit auctions in its power-sector ETS, the clean power export links to Singapore, early retraining schemes in coal-mining provinces, but those elements have to knit together into a single, believable arc: we are pricing carbon, retiring coal at pace, and asking the world to recognize that effort instead of taxing it twice.
What will resonate is a clear line of sight from Indonesia’s carbon ledger to its export invoices, and from its coal-town budgets to the “just transition” bullet points that the SB 62 co-chairs want fleshed out.
Indonesia’s pavilion should not just report progress. It should anchor its message in two clear priorities.
First, to unlock cheaper finance, Jakarta must offer investors a transition pathway they can underwrite: a published coal phase-out schedule embedded in PLN contracts, a carbon tax that rises automatically over time, and transparent monthly data on what’s being taxed, retired and built.
Second, Indonesia should use that credibility to press for recognition abroad. If exporters are paying a carbon price at home, that cost should be credited at the border, not paid again. Trade agreements like the CEPA with the EU, and future ASEAN climate alignments, should reward domestic climate action with reduced compliance costs and preferential access.
These are not side issues; they are the test of whether Indonesia’s climate policy can hold its own in the global trade arena Belém is helping to define.
Final words
Early coal retirement disrupts jobs, local budgets and long-standing subsidy structures. But the ICJ has changed the backdrop: climate inertia now reads not just as environmental neglect but as legal risk, and that risk is already finding its way into credit spreads, customs duties and the pavilion narratives that will fill Belém’s Blue and Green Zones.
Indonesia has a narrow window to flip the script, turning its vast renewable potential and improving carbon-pricing tools into something markets reward rather than punish. What’s decided between now and Belém won’t just shape the pavilion story. It will shape how Indonesia is treated in global markets for the rest of the decade.
Harry Wardana is an economist and postdoctoral research fellow at the Institute for International Trade, University of Adelaide. He is the university’s official delegate for COP 30 in Belém this November.
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Strong piece, Harry! The ICJ ruling shifts coal from a political debate to a legal liability. Indonesia’s credibility now rests on binding, transparent transition steps before Belém, especially with coal still supplying around 65% of exports to China and India and 91% of PLN’s generation mix. How quickly can we turn those numbers around into a bankable transition pathway that markets (and trade partners) will reward? It’s a steep climb, but definitely not an impossible one if policy, finance, and industry move in sync.