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Green budgeting - Kunta Nugraha, Indonesia

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This presentation was made by Kunta Nugraha, Indonesia, at the 14th OECD-Asian Senior Budget Officials Meeting held in Bangkok, Thailand, on 13-14 December 2018

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Green budgeting - Kunta Nugraha, Indonesia

  1. 1. 1 Government Support for Climate Change Financing in Indonesia 2018 Annual OECD-Asian Senior Budget Officials Meeting Bangkok, 13-14 December 2018 MINISTRY OF FINANCE REPUBLIC OF INDONESIA Kurnia Chairi, MSc. Deputi Director of Macroeonomy Analysis, DG Budget
  2. 2. 2 2 OUTLINE Overview of Climate Change Mitigation in Indonesia1 2 3 Budget Tagging of Climate Change Alternatives of Financing Future Challenges4
  3. 3. 3 Overview of Climate Change Mitigation in Indonesia 1
  4. 4. 4 Climate Change Has Serious Potential Impact To Indonesia The damage of 2007 floods in Jakarta was more than $900 million. (WORLD BANK GROUP, 2018) 7.5 million Indonesians facing acute food shortage in 1998, caused by severe drought – attributed to El Nino. (WORLD BANK GROUP, 2018) Those poorest hit the most by disasters : 11.3% of population living below the national income poverty line. (GFDRR, 2018) 2020-2050 +1⁰C 2070-2100 +2-3⁰C Projection of Increased Surface Temperature in Indonesia Impact to 3-5% increase of vector borne diseases and its distributions Rice : -4,6% Maize : -20% Soy : -65.2% Sugar : -17.1% Palm Oil : -21.4% Health Sector Agricultural Sector Climate Change ImpactKey Hazard in Indonesia (ICCSR, 2009)
  5. 5. 5 Historical Emission Emisi GRK 2000 2010 2030 GtonCO2e 29 % 41 % Target of Reducing Greenhouses Gas : •26% in 2020 and 29% in 2030 (Unconditional / own financing) •41% (conditional / support of international financing) Indonesia became a party to theUnited Nation Framework Convention on Climate Change (UNFCCC) in Rioin 1992,which was ratified in 1994 through Law no.6/1994 At the end of 2009, Indonesia announced its voluntary commitment to reduce Greenhouse Gas (GHG) emission until 26% from Business as Usual (BaU) emission by 2020 and further emissions reductions up to 41% are expected with international support. Applying green & low carbon development strategy will provide opportunities for the government to achieve High Income Country status by 2033, by planning and managing the environmental risks associated with climate change and the losses and degradation of the country’s natural resources. In Paris COP-21, Presiden Joko Widodo announced Indonesia’s INDC with new voluntary commitment to reduce Greenhouse Gas (GHG) emission to 29% from Business as Usual (BaU) emission by 2030. RAN-GRK (National Greenhouse Gas Action Plan) Indonesia Has High Commitment to Mitigating and Adapting Climate Change Risk
  6. 6. 6 Ministry of Finance’s Domain to Support Climate Change Mitigation Efforts and Financing Indirect Influences Technology Policy, StrategicIndustries Tech. Transfer R&D, Trade, dll Int’l Institutions& Mechanisms IFIPolicies, Global Funds, Carbon Mkts, Debt swaps Fiscal Policy Policy Tools Available For Influencing Climate Change Mitigation / Adaptation By managing • Investment climate • Pricing (fiscal) policies • Direct spending • Risk and financial mkts • Sectoral rules & law Can influence: • Incentives • Investments • Industry • Int’l $flows • Pro Poor Approaches Financial/Investment Policies • Invest Climate (attract capital) • Banking Sector • Non Bank Finance Inst’s • Municipal Finance Rules Taxes / Subsidies • Tax/Fees/Charges • Royalties/Rent Capture • Subsidies/Tax breaks Expenditure Policies • Strategic Budget Priorities • Direct Investment • Public Service Obligation • Green Procurement • Education –Awareness Direct Regulation • Enforcement / Incentives • Zoning and Land Use • AMDAL/ Env Audit • Building / Design Standards • Vehicle Emission Stds IFI : International Financial Institution
  7. 7. 7 The main strategy in implementing the commitment to tackle climate change Budget Tagging Green Bond Fiscal Incentives Encourage Local Gov’t Participation Develop Specific unit in managing climate change fund (BLU) • Tax Allowance, VAT exemption  encourage private participation • Plastic packaging arrangements are being prepared as goods subject to excise (2019 budget) • Identification (tagging) green program has started in 2015 • Marking budget for adaptation aspects starting at 2018 Indonesia is the first green sukuk publisher (in USD) issued by the government (March 2018) • Managing carbon trading • Raise funds from loans, grants etc. BLU : Public Service Agency • Targeted program funded by revenue sharing allocation fund • Funding opportunities from Green climate Fund (GCF)
  8. 8. 8 Budget Tagging of Climate Change2 ... a tool for the government to track how much we spend on climate change spending out of the national budget..
  9. 9. 9 “Budget Tagging” And Performance-based Budgeting For Sustainable Development Goals. 7 Scale up Identifying the budget expenditures on projects that deliver specified climate change benefits
  10. 10. 10 Benefit of Budget Tagging Mapping activities (output) related to climate change issues Become a data source for preparing periodic reports to the UNFCCC regarding the implementation of climate control activities in Indonesia Increase accountability and transparency Encouraging Ministries / Agencies in preparing planning activities and budgets related to climate change issues, including increasing the capacity of Ministry/Institution (MI) in managing budgets effectively and efficiently in the stages of planning, implementing and evaluating activities. Assist Government to Develop financing mechanisms / schemes for climate change
  11. 11. 11 Result from Recent Budget Tagging (1) Budget Allocation for mitigation of climate change reach IDR 72,2 trillion in 2018 Minstry of Industry Ministry of Agriculture Ministry of Environment and Forestry Minstry of Energy and Mineral Resources Ministry of Transportation Ministry of Public Works and People's Housing Total 2016 Revised Budget 53,8 4.265,5 1.619,7 2.173,7 21.004,3 43.234,8 72.351,8 2017 Revised Budget 40,3 5.381,3 1.132,1 2.844,1 34.233,5 51.950,6 95.581,9 2018 Budget 28,0 442,1 2.198,1 2.597,8 16.586,9 50.387,5 72.240,4 - 20.000,0 40.000,0 60.000,0 80.000,0 100.000,0 120.000,0 BillionRupiah 7,3 37,1 87,4 139,1 231,2 350,9 1.122,7 47.333,7 5 6 5 4 3 4 15 100 0 20 40 60 80 100 120 - 10.000,0 20.000,0 30.000,0 40.000,0 50.000,0 AgencyforGeospatial Information Agencyforthe Assessmentand Applicationof Technology MinistryofFisheries Affairs Agencyfor Meteorology, Climatology,and Geophysical MinistryofAgriculture MinstryofEnergyand MineralResources Ministryof Environmentand Forestry MinistryofPublic WorksandPeople's Housing TotalOutput BillionRupiah Budget Allocation Output The tagging result for the adaptation budget : more than IDR 40 trillion in 2018
  12. 12. 12 Berbasis Lahan Berbasis Energi Pengelolaan Limbah Minstry of Industry 0,0 28,0 0,0 Ministry of Transportation 0,0 16.587,0 0,0 Ministry of Energy & Mineral Resources 0,0 2.597,8 0,0 Ministry of Public Works & People's Housing 11.815,4 36.114,8 2.475,3 Ministry of Agriculture 442,1 0,0 1,8 Ministry of Environment and Forestry 1.961,2 0,0 142,8 0,0 10.000,0 20.000,0 30.000,0 40.000,0 50.000,0 60.000,0 BillionRupiah Based on sector division, it is known that the 2018 Budget for Mitigation are allocated to energy based sector (76%), land- based sector (20%), and waste management sector (4%) Indonesia's National Determinant Contribution (NDC) policy placed the land sector as the biggest contributor to the reduction in emissions of 17%, followed by the energy sector 11%. Result from Recent Budget Tagging (2) land-based sector (20%) Energy based sector (76%) Waste mgmnt sector (4%)
  13. 13. 13 Alternative of Financing3
  14. 14. 14 Sovereign Green Sukuk • In March 2018, the Government of Indonesia has issued Green Sukuk worth USD 1.25 Billion, with a 5 year tenor. • Obtained a review of Medium Green by CICERO Norway, and is the first Sovereign Green Sukuk in the world.  Based on reviews from CICERO, green projects in sukuk green publishing get the criteria of dark green and medium to dark green • Green Sukuk is one of the initiatives and strategies of the Indonesian government in developing financing instruments to support activities and implementation activities of efforts to control the impact of climate change. Innovative Financing Instruments (1) CICERO : Center for International climate and Enviromental Research - Oslo
  15. 15. 15 Innovative Financing Instruments (2) SDGs Indonesia One • In supporting efforts to achieve the goals of sustainable development / Sustainable Development Goals (SDGs), the Ministry of Finance through PT. Sarana Multi Infrastruktur (PT. SMI) on October 5, 2018 launched the SDGs Indonesia One. An integrated funding cooperation platform to support infrastructure development to reach 15 of the 17 SDGs targets. • Priority sectors in the Indonesia One SDGs are Health, Education, Renewable Energy, and Urban Infrastructure (transportation, water, and waste / waste management) *. (* can be developed for other sectors) • Products prepared by Grant, Loan and Equity, Technical Assistance, Capacity Building, Research to support 93 projects (Urban Transport, Ports, Special Economic Zones, Telecommunications, Renewable Energy, Roads, Railways, Health, Clean Water).
  16. 16. 16 Encourage Local Government Participation Through Green Climate Fund (GCF) The GCF is a financing mechanism for the United Nations framework Convention of Climate Change (UNFCCC) Formed to provide financial support to countries like Indonesia to achieve their emission reduction targets As of May 2018, the GCF has 76 projects in the world worth USD 12.6 billion with an estimated equivalent of 1.3 billion tons of CO2 reduced and increased resilience to 217 million people Estimating the potential funding that Indonesia can obtain from the GCF for climate change mitigation and adaptation of $ 2.8 billion / year. Mitigation • Energy sector: generation and distribution • Forestry and other land-based sectors • Transportation • Green, urban, and industrial and appliances buildings Adaptation • Health and food and water security • Livelihoods of Residents and Communities / Communities • Ecosystems and Environmental Services • Environmental infrastructure Financing Area Local governments have a large role in meeting country driven approaches, but knowledge of the GCF is still limited Why ? East Kalimantan province was chosen as the location of the kick off road show (end of November 2018) the other location will be determined later Kick Off
  17. 17. 17 Future Challenges4
  18. 18. 18 Future Challenges Budget Tagging Continuing budget marking (Climate Tagging) Mitigation & Adaptation to Climate Change with the support of related Ministries/Institution. Synergy Central and Region In mainstreaming climate change mitigation and adaptation issues in work programs in the regions.  This includes the development and implementation of climate change budget tagging mechanisms at the local (sub- national) level. Encourage Local Gov’t Develop the parameters related to the actions  to control climate and environmental changes to Transfer Funds to Regional facilities  such as Incentive Fund for Local Gov’t (DID), Specific Allocation Fund (DAK) – Physical and Non-Physical. Optimizing non-Budget funding By involving the role of the private sector, multilateral development banks (MDBs), and other financing schemes that can support development programs
  19. 19. 19 Thank You The first commercial wind power plant in indonesia (Sidrap, South Sulawesi) Website