Australia and Indonesia: A Strategic Partnership for Climate and Energy Resilience

Introduction

Climate change presents an existential challenge for the international community. Sea level rise and intensified storms stemming from climate change disproportionately affect coastal and archipelagic nations. Countries in the Association of Southeast Asian Nations (ASEAN) are on the frontlines of these impacts, at risk of suffering billions of dollars in damage, mass displacement, and loss of life. These countries seek to balance economic growth with addressing the ongoing climate crisis, which presents grave challenges to territorial integrity, economic stability, and public welfare.

With many countries in the region pursuing rapid industrialization, population and infrastructure needs have skyrocketed. Energy demand has surged, necessitating new investments in green energy as many Southeast Asian countries pursue ambitious zero-carbon goals by mid-century.

ASEAN nations’ climate risks and energy needs are growing rapidly. This is especially evident in Indonesia, the fourth-most-populous country in the world. For countries like Indonesia, finding reliable partners is essential to sustaining economic gains while managing climate risk. Given regional concerns about the reliability of the United States, especially after the demise of the U.S. Agency for International Development, new actors are needed to fill the gap. China, which maintains strong economic relationships with the region, is well-positioned to do so, but it nets low levels of public trust. Chinese economic coercion is top of mind for many in the region. China’s loose adherence to international rules and norms leaves many regional partners concerned about the downside risks of its growing role in regional development and trade.

To balance China’s growing role in regional development financing, more champions for the rules-based international order should emerge. Australia is a natural partner in a prime position to help fill the development gap left by the United States. Australia’s relationship with Indonesia—arguably its strongest in the region—offers an important case study for Canberra’s expanded role. There are key opportunities in climate change mitigation and labor mobility that could deepen bilateral cooperation and help meet Indonesia’s evolving needs, with significant implications for the region at large.

Background

Australia benefits from positive perceptions throughout the region and has significant capacity for infrastructure assistance. Australia was the first dialogue partner for ASEAN in 1974 and is one of the bloc’s key partners. Future partnerships in infrastructure development and migration coordination will become vital as climate change becomes more pressing.

Australia’s deepening engagement with Southeast Asia during the administration of Prime Minister Anthony Albanese has improved regional perceptions of its strategic importance. Indonesians, in particular, report growing trust and goodwill toward Australia—a 2021 Lowy Institute poll found that 55 percent of surveyed Indonesians trust Australia. The Albanese government made ASEAN centrality a core part of its foreign policy approach to the region, linking Australia’s national security objectives with its development finance initiatives. Recognizing the importance of a prosperous ASEAN to Australia’s own security and national objectives, the Albanese government appointed a special envoy for Southeast Asia, Nicholas Moore, to focus on improving trade and investment ties throughout the region.

Announced in November 2025 and signed in February 2026, Australia and Indonesia agreed to a treaty that would commit them to consult each other if either country is threatened. The agreement was shaped by the 1995 bilateral security agreement that was scrapped four years later due to an Australia-led United Nations peacekeeping mission in Timor-Leste. Additionally, new initiatives to deepen defense cooperation were announced, including developing joint training facilities in Indonesia, offering to create a position for a senior Indonesian officer to work within the Australian Defence Force, and expanding programs that foster connections among emerging military leaders.

Australia leverages foreign aid as a critical tool of its engagement with partners in the region, yet it is not spreading its weight evenly. From 2008 to 2023, Australia spent $8 billion out of the $8.1 billion it committed to Southeast Asia. In contrast, it spent $21.1 billion out of the committed $23.1 billion on the Pacific Islands. Despite Australia’s tight budget due to inflation, Australia should consider incrementally increasing development aid for Southeast Asia, including Indonesia, to bring its official development assistance (ODA) in the region more in line with that budgeted for the Pacific Islands.

Indonesia is Australia’s closest partner in the region, making it an easily transposable case study for the region at large. Currently, Australia allocates a mere $225 million to Indonesia out of a total ODA budget of $1.8 billion. Southeast Asia overall is set to receive $596 million compared to the Pacific Islands’ $1.1 billion in Australia’s 2026 ODA budget.

Indonesia’s Climate Challenges Today

Indonesia is experiencing significant impacts from climate change. The country has a population of about 287 million and has more than 17,500 islands. Much of the population lives in coastal cities susceptible to sea level rise and extreme weather events. Indonesia faced over 6,800 climate-related disasters from 2023 to 2024, affecting more than 13 million people. Jakarta, the nation’s capital, was designated the most vulnerable city to environmental threats in the world. A series of disasters in late 2025, including floods, landslides, and a cyclone on the island of Sumatra, claimed more than 1,100 lives.

Microeconomic Outlook

Approximately 23.9 million Indonesians, or 8.5 percent of the population, live in poverty. In rural areas, the poverty rate hovers at 11.0 percent compared to 6.7 percent in urban areas. Remittances play an important role in the Indonesian economy, steadily increasing since the 1980s. Total remittances reached $16.0 billion in 2024, a significant increase from $9.4 billion in 2021. Currently, Indonesia and Australia facilitate six-month worker exchanges, and Australia allows up to 200 Indonesians to participate in six-month work training programs. The number of holiday and work visas available to Indonesians traveling to Australia will increase to 5,000 over the next six years, up from the current 1,000. With more Indonesians working abroad, the amount of remittances will only increase, stimulating local economies.

Macroeconomic Outlook

Indonesia receives major foreign aid contributions from its partners. Between 2015 and 2023, 85 development partners implemented 20,456 aid and development projects in Indonesia, equaling $100 billion in official development finance (ODA). During that same timespan, Australia committed and spent $4 billion on 1,300 projects in Indonesia. Australia’s embassy in Indonesia outlines three objectives for its foreign aid: (1) “effective economic institutions and infrastructure,” (2) “human development for a productive and healthy society,” and (3) “an inclusive society through effective governance.” Specific Australian initiatives have included a $300 million Eastern Indonesia National Road Improvement project, a $128 million Australia-Indonesia Partnership for HIV project, and a $60 million Empowering Indonesian Women for Poverty Reduction project.

Recommendations

Australia is already a key development partner for Indonesia, and there are ample opportunities to expand this partnership. About 75 cents of every dollar Australia spends on development assistance goes toward the government’s Indo-Pacific initiatives. Australia could play a vital role in mitigating climate-related risk throughout Southeast Asia, boosting its regionwide reputation for reliability. It could contribute development assistance to a broad gamut of climate risk mitigation initiatives, such as extensive mangrove planting programs and energy grid upgrade assistance. The climate crisis has the potential to displace hundreds of thousands throughout Southeast Asia. Mass calamity and urban flight could overwhelm Australia’s immigration system without adequate preparation. As such, assisting Southeast Asia with its climate initiatives should be of paramount importance to Australia. Three key opportunities could help expand the partnership between Australia and Indonesia, serving as a blueprint for assistance to the wider region:

Climate and Energy Resilience Aid

1. Australian development finance schemes should support and expand upon existing mangrove planting programs in Indonesia. Mangrove planting in Indonesia has already proven to be highly productive, improving fish and farm yields, while protecting coastal areas from intensifying storms wrought by climate change. The World Bank’s Mangroves for Coastal Resilience project aims to rehabilitate 600,000 hectares of mangrove forests throughout Indonesia. Australian finance schemes could serve to build upon this model within Indonesia, where mangrove forest loss has exacerbated climate-related extreme weather events and flooding.
2. Australia should expand upon its existing commitment to ASEAN’s energy transition by directly supporting grid upgrades and clean energy projects. The Australian government has already affirmed its commitment to the ASEAN Strategy for Carbon Neutrality and the ASEAN Plan of Action for Energy Cooperation (APAEC) 2016–2025. It has also established new government-to-government programs aimed at improving regional capacity and expertise. The Australia-Indonesia Climate and Infrastructure Partnership (KINETIK) earmarks A$200 million from 2022 to 2027 to encourage investment in Indonesia’s clean energy projects, unlocking finance for small and medium-sized climate enterprises within the country through the Private Infrastructure Development Group. These investments, though prudent and timely, are not sufficient to help Indonesia meet its 2060 net-zero goals. Increased investment in these sectors would help reduce the frequency of power outages across the country. Australia has an opportunity to lead the way in encouraging international development finance and investment to Indonesia and its neighbors. A gradual increase in Australian development assistance for Southeast Asia to approach parity with Australia’s efforts in the Pacific Islands could go a long way in bolstering critical infrastructure and energy assistance projects.

Labor Mobility

3. Australia should add Indonesia to its Pacific Australia Labour Mobility (PALM) scheme. Under PALM, Australian companies can hire workers from nine Pacific Island countries and Timor-Leste for short-term roles of up to nine months and longer-term roles of up to four years. In January 2026, 31,970 PALM scheme workers were employed by 533 employers, with 56 percent in agriculture, 36 percent in meat processing, and the remainder in other industries. With this addition, Australian companies would be allowed to hire Indonesians as well. The addition of Indonesia, a Southeast Asian country, would not be unprecedented, as Timor-Leste also sends workers to Australia under this scheme. Given Indonesia’s large population, beginning with 6,000 PALM workers going to Australia is an appropriate starting point. This initiative would allow Indonesians to not only develop their skills but also send remittances back to their families, increasing the quality of life for recipients as well as decreasing the number of job vacancies in Australia. Given that Indonesia’s President Prabowo Subianto stated his top priority while in office is the quality of life of Indonesians, the addition of Indonesia to the PALM scheme would likely be welcomed.
    

Conclusion and Regional Implications

Climate resilience needs vary significantly across Southeast Asian countries. The 11 countries of ASEAN all face different developmental challenges owing to geography, culture, and domestic politics. Southeast Asia is not a monolith, and Australian success in Indonesia does not guarantee that its approach can be easily grafted to other countries. But, incrementally increasing its economic and development aid outreach throughout Southeast Asia would paint an important picture for a region wary of abandonment—that Australia, and the rules-based international order it continues to represent, is here to stay.

John Augé is the program manager for the Australia Chair at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Japhet Quitzon is an associate fellow with the Southeast Asia Program at CSIS.