Given the long time required to change technologies once they have been adopted, Indonesia should begin to consider how it will reduce CO2 emissions from industry now.

But where and how might it start? One answer to this question comes from comparing energy use with China. At the beginning of China’s economic reform program in 1978, its energy intensity (kilograms of coal equivalent per real US dollars of GDP) was more than four times higher than in Indonesia, but by 1999 the energy intensity of GDP in China equalled that in Indonesia. Moreover, the CO2 intensity of cement production (which is notorious for its high levels of CO2 emissions) has been rising in Indonesia and falling in China; it is currently nearly 10 per cent higher in Indonesia. This is especially surprising since cement production in Indonesia is now dominated by the OECD cement multinationals, while in China it is dominated by local producers and state-owned enterprises.

What explains these differences? There are four answers to this question. First, China has encouraged energy users to economise on the use of energy by pricing virtually all types of energy at their scarcity values, while Indonesia encourages profligate use of energy by subsidising it. Second, China has mounted two highly successful energy-saving programs that required industrial users of energy to reduce the intensity of energy use (measured in kilograms of coal equivalent per physical unit of production) by 40 per cent between 1985 and 2010. Most industries, including cement, met these requirements. Third, the Chinese economy is more open to trade and investment than the Indonesian economy. Greater openness encourages competition between domestic and international enterprises and exposes local Chinese firms to new ideas and technologies. Finally, China has adopted an aggressive technological catch-up strategy across a very wide range of industries, while Indonesia has no clear technology policies.

This final difference is very clear in numerous industries, including cement, where China has forcefully closed old, inefficient cement plants, encouraged the adoption of large energy-efficient modern rotary kilns, fostered the emergence of large indigenous cement enterprises to compete with the OECD cement multinationals, and facilitated the development of an export-oriented engineering and capital-goods industry in cement. Nothing remotely like this kind of technological catch-up policy exists in Indonesia. In fact, in cement, the Indonesian state has historically acted as the enforcer of the Indonesian Cement Association’s (ASI) cartel that set prices and divided up the market. While the ASI’s cartel was broken up, there is unfortunately some evidence that the OECD cement multinationals may be acting like a regional cartel by setting prices and dividing up the Southeast Asian cement market.

Sceptics are likely to acknowledge these differences between China and Indonesia, but contend that the Indonesian state lacks the capabilities of the Chinese state, which enabled Chinese officials to successfully adopt and implement this package of policies. Many fear that when Indonesia gained democracy it lost effective government. But as it turns out, the Chinese state may not be any more capable than the Indonesian state. Both Indonesia and China are struggling with the aftermath of administrative decentralisation, which makes it more difficult for the central government to impose new policies on local governments. But unlike China, which decentralised at the provincial level, Indonesia retained stronger central control by decentralising to the local level of government.

In addition, international data on corruption published by Political Risk Services reveal China to be slightly more corrupt than Indonesia. And Political Risk Services data on the quality of both countries’ bureaucracy suggest that Indonesia’s bureaucracy is at least as capable as China’s. Moreover, World Bank data on ‘trading across borders’ reveals that Indonesia’s country ranking rose from 45th in 2009 to 39th in 2012, while China’s fell from 44th in 2009 to 60th in 2012. Put another way, it appears the Indonesian state possesses as much capability as the Chinese state.

What this means is that Indonesia can probably improve energy efficiency and reduce the CO2 intensity of industrial production by pricing energy at its scarcity value, adopting an aggressive energy-saving program for industry, opening the economy more to trade and investment, and adopting a technological catch-up strategy for industry.

Michael T. Rock is Gilbert F. White Fellow at Resources for the Future, Washington, DC, and the Samuel and Etta Wexler Professor of Economic History at Bryn Mawr College.