Enviro News Asia, Jakarta — Decarbonizing Indonesia’s industrial sector will require more than expanding renewable power generation. Energy efficiency, renewable energy, circular economy practices and low-carbon technologies will all play important roles in reducing emissions while maintaining industrial competitiveness.
The steel industry is particularly important in this transition because it supports infrastructure development, manufacturing and mineral downstreaming while consuming substantial amounts of energy. Indonesia’s national steel consumption reached 19.3 million tonnes in 2025, highlighting the sector’s importance to the domestic economy.
At the same time, conventional steelmaking remains heavily dependent on fossil fuels and generates significant greenhouse gas emissions. This makes the transformation of steel production increasingly important as Indonesia seeks to pursue economic growth while moving toward a low-carbon economy.
The Institute for Essential Services Reform (IESR) said green hydrogen could become one of the key technologies supporting the transformation of Indonesia’s steel industry.
Indonesia has set a target for the industrial sector to achieve net-zero emissions by 2050 or earlier. Meeting that target will require industries to reduce emissions without compromising productivity, competitiveness and their contribution to economic growth.
Changing How Steel Is Produced
Conventional steel production commonly relies on the Blast Furnace–Basic Oxygen Furnace (BF–BOF) route. Coal and coke serve not only as energy sources but also as reducing agents that remove oxygen from iron ore.
This makes carbon emissions closely embedded in the production process. The BF–BOF route can generate around 1.9–2.5 tonnes of CO2 for every tonne of steel produced, according to data cited by IESR.
Hydrogen Direct Reduced Iron–Electric Arc Furnace (Hydrogen DRI–EAF) offers an alternative pathway.
The technology uses hydrogen instead of carbon as the reducing agent in iron ore processing. When hydrogen reacts with oxygen in the ore, the primary by-product is water vapor rather than carbon dioxide.
The emissions reduction potential becomes greater when the hydrogen is produced using renewable energy and the electric arc furnace receives low-carbon electricity, particularly from renewable sources.
Global technology readiness for Hydrogen DRI–EAF has reached approximately Technology Readiness Level 8, placing the technology close to full commercial implementation.
Indonesia, however, remains at a much earlier stage, with the technology estimated at around TRL 3. This gap highlights the need to develop domestic technical capabilities, supporting infrastructure and a reliable renewable electricity supply before large-scale adoption.
Green Hydrogen Cost Remains a Challenge
The cost of green hydrogen remains one of the major barriers to industrial adoption. According to IESR, green hydrogen can cost two to five times more than hydrogen produced from fossil fuels.
Steel producers would also need to account for the operational and maintenance requirements of new facilities, competition for renewable electricity and potential competition for hydrogen supplies from other industrial sectors.
These challenges mean that Indonesia cannot simply import and install technologies developed in other markets. Successful deployment will also depend on domestic technological readiness, infrastructure, renewable energy availability and the economic competitiveness of green hydrogen.
Despite these challenges, Hydrogen DRI–EAF offers substantial decarbonization potential.
IESR estimates that the technology could reduce energy consumption by approximately 50–60% compared with the baseline technology. It could also avoid around 0.7 tonnes of CO2 per tonne of crude steel, with an estimated mitigation cost of approximately US$135 per tonne of CO2.
Building a Low-Carbon Steel Ecosystem
The potential of green hydrogen extends beyond replacing fossil fuels in individual production processes. Its deployment could contribute to the development of a broader low-carbon industrial ecosystem in Indonesia.
However, achieving this potential will require coordinated action among government, industry, technology providers, energy companies, financial institutions and research organizations.
Reducing the cost of green hydrogen, expanding renewable electricity capacity, strengthening domestic technological capabilities and establishing supporting infrastructure will be essential to making hydrogen-based steel production commercially viable.
For Indonesia, the transition also presents a strategic opportunity. A lower-carbon steel industry could help domestic producers respond to increasingly stringent international climate and trade requirements while maintaining access to global markets.
Green hydrogen is therefore emerging as an important option for Indonesia’s steel decarbonization strategy. Its success will depend not only on the technology itself but also on whether Indonesia can build the renewable energy, infrastructure, financing and policy ecosystem needed to support its large-scale deployment. (*)
