Environmental issues, for the first time, began to garner global attention at the Stockholm United Nations Conference on the Environment in Sweden in 1972. The conference, known as the Stockholm Conference, is the first international conference to discuss the environment as a major issue in response to various cases of environmental damage that are increasingly widespread and threatening the life of the world. Furthermore, in 1987, the World Commission on Environment and Development submitted its report titled “Our Common Future,” also known as the Brundtland report, which became a milestone for the concept of sustainable development (Borowy, 2014).

Since the publication, the concept of sustainable development has become a popular discourse. Attention at the world level toward sustainable development continues to increase, most recently with the UN Sustainable Development Summit in September 2015 in New York in the United States. At that conference, all the countries jointly adopted the new development agenda “Transforming Our World: the 2030 Agenda for Sustainable Development,” better known as sustainable development goals (SDGs), which include 17 goals with a total of 241 achievement indicators. Of the 17 goals, one of the SDGs is the 12th goal, namely, responsible consumption and production. Goal 12 implies that all parties should endeavor, for example, not to use hazardous materials in consumption and production activities. Goal 12 can provide an example of how the interests of all countries are represented in the SDGs. The existence of international regulations and bilateral agreements that prohibit using specific materials in export and import activities is one concrete example. Therefore, many development goals in the SDGs should be interpreted as a shared global vision that represents the interests of all parties, including Indonesia (Alisjahbana et al., 2018).

Wackernagel and Beyers (2019) group Indonesia into countries experiencing bio-deficit conditions, i.e., having an ecological footprint¹ exceeding its bio-capacity. As shown in Figure 1, Indonesia's bio-capacity decreases over time, and the ecological footprint tends to increase. Based on data for 2016 from the Global Footprint Network, the percentage of ecological footprint exceeding bio-capacity deficit reaches 32% or around 0.4 gha per capita. Today, Indonesia is one of the top 10 countries with the highest ecological footprint in the world along with China, India, the United States, Russia, Brazil, Japan, Germany, Mexico, and the United Kingdom (Pata et al., 2021).

Numerous studies analyze factors affecting environmental deterioration due to increasing human activities. Danish et al. (2020) indicate that trends in economic progress accelerate the consumption and extraction of natural resources while increasing the ecological footprint. Hassan et al. (2018) underline that economic growth increases the need for natural resource use, which leads to environmental degradation in Pakistan. Other studies (e.g., Galli et al., 2012; Bello et al., 2018; Zall'e, 2018; Hanif et al., 2019; Pata, 2020) indicate similar results that environmental degradation might increase due to economic expansion. However, if sustainable development management practices are applied, the rate of resource depletion decreases, and resources are allowed to regenerate (Pata et al., 2021).

One option to reduce pressure related to environmental degradation and resource use is adjusting consumption patterns and shifting production toward more environmentally friendly sectors and technologies. According to Wiedmann et al. (2007), Watson et al. (2013), Peters et al. (2016), Tukker and Vivanco (2018), and Wiedmann and Lenzen (2018), environmental impacts from the economic system can be viewed from two complementary perspectives: production and consumption. The production perspective considers the direct environmental pressures caused by economic activities in a country. The consumption perspective focuses on the indirect environmental pressures driven along value chains by a country's final demand.

In the past decades, various studies discuss the environmental impact of both perspectives of production and consumption; see for instance Haas et al. (2005), Tukker et al. (2006), Tukker and Jansen (2006), Weisz and Schandl (2008), United Nations Environment Programme (2010, 2015), Jungbluth et al. (2011), Kitzes et al. (2007), Akenji and Bengtsson (2014), Ivanova et al. (2016), and Castellani et al. (2019).

This paper aims to provide a comprehensive analysis of Indonesia's environmental costs. This paper also tries to identify key sectors where economic and environmental performance are considered. Specifically, this study aims to answer the following questions: (i) How much are the environmental costs for each final demand component? (ii) How much is the ratio of environmental costs to value added by the economic sector? (iii) Which sectors and emissions are most responsible for pressures driven by final demand? (iv) How much is the value of environmental costs embodied in import due to final demand? (v) What are the economic sectors that perform best when both economic performance and environmental costs are considered simultaneously?

In answering these questions, we use the input–output (IO) analysis approach. This approach can link, in a comprehensive way, how consumption via value chains drives production and, in turn, emissions, resource use, and related external environmental costs or so-called “external cost” (Miller and Blair, 2009; United Nations Environment Programme, 2010, 2015; Jungbluth et al., 2011; Akenji and Bengtsson, 2014).

The paper is structured as follows: section IO Tables and Environmental Cost Accounting for Indonesia reviews [environmentally extended (EE)] IO studies for Indonesia and related environmental cost accounts. Section Methodology describes in more detail the methodology used in this study to answer the research questions. Section Results provides the results. Section Conclusion and Recommendation ends with the conclusion and policy considerations.

Indonesia's Central Bureau of Statistics has published IO tables for various years between 1971 and 2010 (see Appendix Table 1). In this study, we use the latest published IO table, the Indonesian IO table 2010. We realize that this IO database seems to be outdated; we decided to use this database with the following considerations:

In analyzing the economic and environmental impacts from the production and consumption perspectives in detail, theory and empirical studies suggest using life cycle analysis or IO models.

Based on these considerations, we conclude that, even though the data is outdated, they are still relevant to current conditions in Indonesia and have practical significance for today's policymaking.

There are no publications from official sources in Indonesia that present detailed information on resource extraction, emissions, and related external cost data by economic sector. To our knowledge, Pirmana et al. (2021) provide the first detailed description of environmental costs for each economic sector. Information on extraction of non-renewable resources and forestry products, including their external cost, can be obtained from Indonesian sources. Emissions by sector are, however, not available from Indonesian sources. Pirmana et al. (2021), therefore, utilize emission estimates for each sector in Indonesia provided in the Global Multi-regional Environmentally Extended Input-Output (GMRIO) database EXIOBASE (Stadler et al., 2018). By creating a common classification of 86 sectors between the 163 sectors of EXIOBASE and the 185 sectors of the Indonesian IO table (IIOT) and some other conversions, emissions for 86 sectors in Indonesia can be estimated. Pirmana et al. (2021) also estimate the external costs of these emissions based on the concept of damage costs related to human health and the environment.

This approach resulted in an EE IOT for Indonesia including extensions (E) and external costs (P) by sector (Figure 2), which was placed on the n + 1 line of the aggregated 86-sector version of the IIOT as an extension (outside the system of the goods/services flow matrix, where n is the number of sectors).

This paper is an initial attempt to provide an overview of the environmental cost of emissions and the associated environmental cost of forest resources from a consumption perspective and Indonesia's priority sectors when economic and environmental performance is considered. These study results can be used as a guide for policymakers in formulating sustainable development policies, especially in sustainable consumption and production policies.

We found that the total environmental cost from emissions due to the final demand is around 7.3% of the GDP. The environmental cost of emissions mostly comes from domestically produced final consumption with household consumption as the largest contributor to total emissions environmental costs.

This study also found that, driven by final demand, the top five sectors account for nearly half of the environmental costs of emissions. These sectors are manufacturing basic iron and steel and iron alloys and their first products; electricity; sea and coastal water transportation; manufacture of rubber and plastic products; and coal mining, lignite, and peat extraction. Efforts to reduce Indonesia's emission environmental costs should focus on these sectors.

SO_x, NO_x, CO₂, and CH₄ are the main contributors to Indonesia's environmental costs based on pollutant sources. Strategies to reduce environmental costs from emissions can be focused on these four pollutant sources. The results further show that, for most emissions, there are no significant differences in how the types of final demand drive contribute to environmental costs.

Regarding the environmental costs to value added ratio, nine sectors have a higher environmental cost value than their value added with waste management and recycling being the sectors with the highest environmental cost to value added ratio. Meanwhile, the total environmental costs derived from forest resources are about 7.54% of the total environmental cost.

Finally, the results from linkage analysis pointed out that key sectors for Indonesia from a sustainability and economic point of view (encouraged sectors) are manufacture of textile; publishing, printing, and reproduction of recorded media; chemicals n.e.c.; manufacture of other non-metallic mineral products n.e.c.; construction; and other land transport.

Based on the study findings, to reduce environmental costs and shift to more sustainable consumption and production, the following policy options and instruments can be considered by policymakers:

▪ Change consumer behavior. There are three different ways to influence consumer behavior. First, raise consumer awareness via mandatory or voluntary labeling schemes, information campaigns, information websites, and eco-benchmarking tools. Second, make sustainable consumption easy by providing attractive offers to consumers and limit the range of non-sustainable products on the market. Third, green the market by improving products' environmental performance, prohibiting products with a harmful environmental performance, and increasing the market share of environmentally friendly products.

Last, from an economic point of view, sector development to increase value-added growth, besides focusing on key sectors with strong linkages to upstream and downstream sectors, can also be expanded to sectors that at least have a strong backward or forward linkage. The effective policy instruments to stimulate strong backward linkage sectors are demand-side policies. Otherwise, the supply side is expected to be more effective in targeting strong forward linkage sectors. Some examples of policy instruments that can be applied to stimulate targeted sectors include:

▪ Demand-side policies. Changing fiscal policies (via government expenditure or taxes) concerning specific consumer commodities, improvement of the attractiveness of specific areas (which includes the provision or improvements of industrial sites and public utilities)

The raw data supporting the conclusions of this article will be made available by the authors, without undue reservation.

VP: conceptualization, methodology, validation, formal analysis, investigation, data curation, writing—original draft, and review and editing. AA: supervision, conceptualization, methodology, and review and editing. AY: validation and review and editing. RH: supervision, review and editing, and validation. AT: supervision, conceptualization, methodology, validation, and review and editing. All authors contributed to the article and approved the submitted version.

This research was funded by the Lembaga Pengelola Dana Pendidikan (LPDP), Grant No. PRJ-1461/LPDP.3/2016, Ministry of Finance, Republic of Indonesia. It is part of the VP scholarship at the Institute of Environmental Sciences (CML), Faculty of Science, Leiden University, Netherlands.

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

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