Boosting Climate Finance in Indonesia: Homework for Everyone

The adverse impacts of climate change and its threat to the well being of current and future generations have never been any loudly and widely spoken. After withstanding long neglect and debate, the climate change issue finally sees a shed of panacea: one hundred ninety five out of one hundred ninety seven parties to the UNFCCC have come to agree on taking actions to globally combat the impacts of climate change. The convention is to keep the global temperature rise to 20C above the pre-industrial levels by 2050, and more strategically aim to keep it under 1.50C. But why is the 20C goal seem to be very important?

Putting the numbers into perspective would be easier by understanding the carbon budget system. According to the IPCC, the carbon budget is the estimated quantity of CO2 equivalent that we could emit before reaching the global temperature rise of 20C above pre-industrial levels. When this temperature rise limit is reached, major irreversible environmental catastrophes would take course including sea levels rise of nearly one meter by 2100, intensified and more frequent wildfires in forests area, heavy precipitation that might lead to significant flooding, as well as prolonged droughts in many regions. 

These indicates a lot of neighborhoods around the world on the coastal areas would be covered by the seawater, heavy smoke pollution and the loss of vast variety of forest ecosystem, food scarcity due to failed and delayed harvests, and of course extreme weather and seasonal changes.

Looking into these threats, it is obvious that reducing the amount of greenhouse gas (GHG) emissions we are putting to the atmosphere from our daily activities is not only of paramount importance but also the only way moving forward. The extent of how much reduction each person, each city, and each country could bring over the coming years determines what kind of future we would be looking to.

Now that we understand the underlying significance of climate actions, let's look at the actions promised by the Indonesian government. The Government of Indonesia (GOI) targets to reduce the GHG emissions by 29% from business as usual scenario by 2030, which is focused in 5 sectors: forestry and peat land (88%), waste management (6%), energy and transportation (5%), agriculture (1%), and industry (0.1%). Indonesian GHG emissions in 2013 were 2,160 MtCO2e with 65.6% originated from land-use change and forestry sectors, thus it is reasonable for the GOI to target the most GHG reduction from these sectors.

In order to realize these targets, one of the requisite aspects is financing to mobilize the resources for climate actions and projects. The source of climate financing in Indonesia is generally differentiated into two, the state budget and the funds from international development cooperation as can be seen in picture 1. The way the current government administers the climate fund is by allocating the international funds for land-based mitigation, energy, as well as resilience and adaptation efforts, then a mix of state fund and international funds for renewables development. 

The international climate funds is handled by a dedicated agency named Indonesia Climate Change Trust Fund (ICCTF), which is tasked to be the single channel for international climate funds flow and then assign it to climate actions and projects carried out by either ministries, agencies, local governments, community social organizations, or private sectors. 

This arrangement looks good and seems to cover the necessary sectors. However, there is one profound strength to fuel the climate endeavors that we might overlook, which is greening the current grey investment flows from private sector and the state budget. Let us look at an example in one of the most carbon intensive sectors in the country, the energy sector.The Indonesian energy mix in 2015 was still consisted by mostly, if not all, fossil resources. Coal covers 47% of the national mix while natural gas and oil each occupy 24% of the pie, leaving only 5% room for renewable energy resources. While the mitigation and adaptation efforts on land-use and forestry sectors are more on the regulation and damage prevention spectrum, efforts on the renewables sector on the other hand present plenty room for business potential. 

The energy sector represents 18% of the national GHG emission in 2013 as mentioned earlier or more than 50% of the non land-use change and forestry based emissions. Therefore there is a profound potential in changing our mindset of not seeing renewable energy as an additional capacity resource, but to divest strategically and completely from fossil energy to sustainable low carbon energy resources to reduce the national GHG emissions. This tactic surely covers excluding coal energy from the 35 GW electrification program which is sadly still charted on the plan right now.

Climate financing policy is one of the key factors in transformational renewable energy growth. Taking the wind energy leap in Uruguay as an example, all it takes to overhaul the energy sector in the country was the sustainability of the business scheme. The Government of Uruguay provided a long-time secured business environment to attract the investments in the country's wind power. 

As a result, investment for renewables surged to 15% of the country's annual GDP, the electricity generating costs were cut by more than 30%, and now Uruguay enjoys 94.5% of their power from renewables resources. One key learning from Uruguay is that renewables is merely an attractive financial business when there is a secure investment environment, since the maintenance and construction costs are low. Unfortunately, this potential has not been well utilized in Indonesia.