Posted on: Mar 06th, 2024

Financing Green Buildings in Indonesian Cities

Authors: Ira Yulianti Purnomo, Fatiha Nurfitriani, Jessie Press-Williams, and Alke Haesra

The building and construction sector plays a key role in Indonesia’s economic and sustainable development. However, it is also a key contributor of GHG emissions. The country’s buildings sector accounted for 23% of total energy consumption in 2021 and is expected to contribute 40% by 2030.

This is partly due to an annual construction growth rate of 5-6%, as well as urban population growth of 65% expected by 2050. Growth in the building sector will be concentrated in cities, especially those on the islands of Java and Sumatra, which are among the most populated in the Indonesian archipelago.

Indonesia’s tropical climate makes cooling an important aspect of green buildings. Between 2022 and 2060, an estimated 550 million air conditioning (AC) units will be sold in Indonesia. Efficient cooling will be critical to reducing electricity consumption, including through the use of efficient AC systems and building materials.

This report is the third of a three-part series by CCFLA to promote a better understanding of the financing barriers and solutions for implementing net zero carbon buildings. It assesses the current use of financial instruments that can promote the development of Indonesia’s green buildings sector. It also explores how national and subnational regulatory frameworks can address the identified barriers to private and public investment.

We used CCFLA’s recently developed taxonomy of 75 financial and policy instruments to help address the barriers to achieving green buildings (CCFLA 2023a). We have adapted this model to the Indonesian context, based on desk research and interviews with green buildings experts. Barriers to green buildings were assessed in terms of severity in Indonesia, and financial and policy instruments were evaluated for availability and potential to scale the Indonesian green buildings sector.

A deep dive was also conducted in the city of Semarang, which is one of only six subnational administrations in Indonesia to have adopted a local regulation on green buildings. The study analyzed energy consumption in apartment, office, commercial, and public buildings and estimated potential energy improvements from implementing existing green building regulations and the cost of investing in green buildings.

Key Findings

Financial barriers are perceived as the most severe challenge to implementing green buildings in Indonesia. Three other types of barriers were found to have moderate to low severity, based on research and expert interviews, as shown in Table ES1.

Table ES1. Barrier categories and their perceived severity

None of the fiscal instruments in CCFLA’s taxonomy have been implemented in Indonesia’s green buildings or renewable energy sector. These instruments – including capital cost subsidies, carbon credits, and property-assessed clean energy mechanisms – have helped to advance green buildings in other countries. Currently available financing instruments in Indonesia – including grants, debts, bonds, and public and private equity financing – tend to be traditional rather than innovative; more dedicated financing instruments are needed to scale investment in green buildings.

Indonesian green buildings regulations are improving but are still insufficient to achieve widespread implementation in cities. The national-level developments include a dedicated section on green buildings in the national government regulation (GR) on buildings released in February 2021 (GR 16/2021), followed a month later by a regulation requiring performance assessments for green buildings.

Existing regulations fall short of ambition in terms of achieving net zero carbon buildings and scale. The residential sector, which accounts for 83% of energy demand from buildings in Indonesia, is not mandated to follow green buildings standards. GR 16/2021 lays out a suite of green building standards but is only mandatory for very large buildings (those with a floor area of above 5,000 m2). This limits the drive to scale up green building development, thereby slowing the pace of emissions reduction for buildings.

In addition, the current regulations do not include sufficient detail to facilitate city-level implementation. GR 16/2021 does not include requirements on renewable energy, which are needed to achieve net zero carbon buildings. Some subnational governments had more ambitious standards in place – for example, Jakarta had mandated that solar systems be installed on rooftops of local government buildings and some apartments. However, this regulation was revoked in December 2023 to align with the national regulation.

Our case study of Semarang found that energy efficiency improvements for AC systems and building materials through retrofits can yield significant energy savings. Our simulation found that improved cooling systems and building materials can reduce energy use by between 32% and 44%, depending on the building type, resulting in energy cost savings of around USD 3.19 million (IDR 50.56 billion) a year.

Meeting Semarang’s green building mandates in the next ten years will require large investment.[1] The total investment needed to meet these is estimated to be USD 223.7 million. Even after accounting for the reduced energy costs of green buildings, more financing is needed for Semarang and comparable cities to reach these targets.


Our recommendations aim to help central and local governments as key actors in green building financing and implementation. Governments can help to create a better enabling environment for green buildings through the following actions:

  1. Supporting financial institutions and project developers through capacity building and exploring innovative financing instruments for the construction and retrofit of green buildings in Indonesia. This can include efforts to raise awareness among financial institutions of opportunities for energy-saving financial instruments.
  2. Developing fiscal instruments to enhance the attractiveness of investing in green buildings through energy and cost savings. Government incentives or credit enhancements provided to financial institutions can help spur innovation in this space. The government can also facilitate exchange between financial institutions, project developers, and building owners. Current national green building regulations need to be:
    • Made mandatory for residential buildings of over a certain floor area, given that residential buildings account for 83% of total energy demand from buildings in Indonesia.
    • Adopted and implemented at the local (city or province) level.
    • Expanded to include renewable energy requirements (either on-site, off-site, or purchasing of renewable energy certificates) to help Indonesia move towards net zero carbon buildings.

[1] Semarang City’s masterplan specifies the expected projected building construction, local Semarang regulations specify the unit cost of construction, and national building regulations specify the requirements for green buildings based on building type and floor area.