Along with the global expansion of artificial intelligence (AI) and cloud computing, data centers have emerged as critical infrastructures that support digital services, economic growth, and technological innovation. As demand for digital storage and computing capacity continues to increase, countries are competing to attract investment in data center development as part of broader efforts to strengthen their positions within the digital economy. The case in Indonesia is particularly interesting, as it is a strategic location to build data centers shaped by a combination of market size, growing digital demand, and the availability of physical space needed for large-scale digital infrastructure. First, Indonesia has a population of over 280 million people and Google, Temasek, and Bain have identified the country as the lead in the digital economy in Southeast Asia by Gross Merchandise Value (GMV) (2025). Second, Indonesia possesses substantial land availability and industrial zones capable of supporting hyperscale data center development, as evidenced by major facilities and planned expansions in Batam, Cikarang, and Karawang (Leni Wandira, 2025). While Singapore remains one of the region’s most technologically advanced economies, its temporary pause on new data center development since 2019 due to land and resource constraints has further increased Indonesia’s attractiveness as an alternative location for investment (Infocomm Media Development Authority, 2022).
However, greater integration into global digital value chains also means greater exposure to the standards, certification requirements, and regulatory expectations established by dominant market actors and advanced economies. At the same time, advanced economies and multinational technology firms are increasingly emphasizing sustainability requirements, including renewable energy sourcing, energy efficiency, and carbon reporting. While these standards are intended to address legitimate environmental concerns, they also raise an important question: are sustainability requirements becoming a new form of protectionism that limits opportunities for developing countries?
To further analyze this case, the new protectionism theory helps in pinpointing practices that become modern barriers to developing countries through regulations, environmental and technical standards, certification requirements, and ESG obligations rather than traditional protectionism with tariffs, quotas, and import restrictions (Baldwin, 1986). This argument is consistent with the book chapter written by Riza Noer Arfani and Poppy Sulistyaning Winanti (2014). on the concept of global value chain governance, highlighting how access to international markets is increasingly conditioned by standards, certification requirements, and regulatory frameworks rather than solely by traditional tariff barriers.
Sustainability requirements have become increasingly important because data centers are highly resource-intensive, requiring substantial electricity and water resources. As AI and cloud computing expand, concerns regarding the environmental footprint of digital infrastructure have attracted growing attention from governments and investors, making sustainability a central consideration in data center development (IMDA, 2022).
This trend can be observed in the commitments made by major technology companies. Singapore’s decision to temporarily pause the expansion of data centers and subsequently require stricter sustainability standards illustrates how environmental considerations have become integrated into digital infrastructure governance (IMDA & EDB, 2023). From this perspective, sustainability standards serve a legitimate purpose. They seek to reduce carbon emissions, improve energy efficiency, and ensure that economic growth generated by digitalization does not come at the expense of environmental sustainability.
Nevertheless, the implementation of these standards raises important challenges for developing countries. Compliance with sustainability requirements requires access to renewable energy, advanced technologies, certification mechanisms, and financial resources. While advanced economies generally possess these capabilities, many developing countries face structural constraints. As a result, sustainability requirements may increase the cost of participating in global digital value chains.
Through the lens of new protectionism, these developments raise questions regarding the distributional effects of sustainability standards. Baldwin (1986) argues that modern forms of protectionism increasingly operate through non-tariff measures rather than traditional tariffs and quotas. In this context, environmental and ESG-related requirements can potentially function as indirect barriers to market participation. While such measures are not necessarily designed to exclude developing countries, they nevertheless create competitive disadvantages for countries that lack the financial and technological capacities required for compliance. The issue therefore lies not only in the environmental objective of the standards themselves, but also in the unequal ability of countries to meet them.
Indonesia illustrates this dilemma. On the one hand, the country possesses significant advantages as a destination for data center investment, including a large digital market, land availability, and growing digital infrastructure. On the other hand, attracting investment increasingly requires demonstrating compliance with sustainability expectations established by global investors and technology firms. The challenge is therefore not whether sustainability should be pursued, it is on the way sustainability standards can be implemented without creating barriers that disproportionately affect developing economies. As the WTO has noted, environmental measures may create market-access difficulties for developing countries if they do not adequately take into account differing national capacities and developmental contexts (World Trade Organization, n.d.).
In conclusion, sustainability standards in the data center sector occupy a contested position between environmental governance and international economic competition. They are essential for ensuring that the growth of the digital economy contributes to climate and sustainability objectives. However, they also generate barriers for developing countries seeking to integrate into global digital value chains. Therefore, sustainability standards should be understood as governance mechanisms that advance environmental objectives while also affecting access to global digital value chains.
References
Arfani, R., & Winanti, P. (2014). Value chain governance in export commodities: the case of Indonesia. https://www.wto.org/english/res_e/booksp_e/cmark_chap2_e.pdf
Bain & Company. (2025, November 11). e-Conomy SEA 2025 report: ASEAN’s digital economy poised to surpass $300 billion in GMV by 2025, fueled by 7.4x GMV and 11.2x revenue growth in a decade. Bain & Company. https://www.bain.com/about/media-center/press-releases/sea/e-conomy-sea-2025/
Baldwin, R. E. (1986). The New Protectionism: A Response to Shifts in National Economic Power. NBER Working Papers; National Bureau of Economic Research, Inc. https://ideas.repec.org/p/nbr/nberwo/1823.html
Infocomm Media Development Authority. (2022, July 20). EDB and IMDA Launch Pilot Data Centre. Infocomm Media Development Authority. https://www.imda.gov.sg/resources/press-releases-factsheets-and-speeches/press-releases/2022/launch-of-pilot-data-centre—call-for-application-to-support-sustainable-growth-of-dcs
Infocomm Media Development Authority, & Singapore Economic Development Board. (2023, July 14). Four data centre proposals selected as part of pilot Data Centre Call for Application. Infocomm Media Development Authority. https://www.imda.gov.sg/resources/press-releases-factsheets-and-speeches/press-releases/2023/four-data-centre-proposals-selected-as-part-of-pilot-data-centre-call-for-applicatio
Leni Wandira. (2025, March 7). TLKM Tingkatkan Kapasitas Data Center di Cikarang dan Bangun HDC Baru di Batam. Kontan.co.id; Kontan. https://industri.kontan.co.id/news/tlkm-tingkatkan-kapasitas-data-center-di-cikarang-dan-bangun-hdc-baru-di-batam
World Trade Organization. (n.d.). Environmental requirements and market access: preventing “green protectionism.” Www.wto.org. https://www.wto.org/english/tratop_e/envir_e/envir_req_e.htm