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Abstract

The current pace of climate change has impacts that range from rising sea levels to extreme weather patterns, forcing governments around the world to grapple with two distinct types of risk: The physical risks of climate change include the potential destruction of land and infrastructure, lost productivity in the agriculture sector and the health impacts of heat stress and natural disasters. Minimising future impacts through decarbonisation, however, creates a set of transition risks as the economy adjusts to new regulations, energy systems and consumer sentiment. Managing these risks will entail mitigation measures that tackle the root causes of climate change – chiefly by reducing carbon emissions – and adaptation measures that build resilience to the impacts that can’t be avoided, such as investments in protective infrastructure. These climate impacts, risks and actions do not exist in separate spheres – they affect one another. Mitigation can diminish impacts, and diminished impacts preserve more resources for pursuing emissions reductions. Successes and failures in this nexus also affect geopolitical, geoeconomic and security risks, not least due to their capacity to shape socioeconomic fortunes. This profile focuses on Indonesia as a country that faces high transition and physical risks simultaneously. Modelling has been used to understand a possible “double cost crunch” – a development-phase macroeconomic squeeze in which physical climate impacts reduce growth, productivity, fiscal space and domestic investment capacity, while a low-carbon transition requires large up-front capital mobilisation, infrastructure build-out and institutional reform. In Indonesia, these pressures all interact – climate damages raise adaptation needs and can weaken revenues, while transition needs increase financing requirements precisely when capital remains expensive and public resources are under pressure. The result is a compression of near-term policy space at a critical stage of structural transformation. This profile highlights the geopolitical, geoeconomic and security dimensions of this challenge and offers recommendations.