Climate Solutions: Climate financing: The devil is in the details
Posted by admin on May 30th, 2010Fitrian Ardiansyah, The Jakarta Post
The President’s September 2009 announcement the country would cut its greenhouse gas (GHG) emissions has placed Indonesia in the limelight.
Many countries and multilateral organizations have been lining up to help Indonesia reach its objective.
Australia, Norway, the UK, the US, Germany, the Netherlands, Japan, France and Denmark have promised to help Indonesia address climate change, notably in the forestry and energy sectors, as well as in activities involving land use.
These countries, along with others, have also taken a growing interest in helping Indonesia, given it is home to the world’s third largest forest area and has substantially increased its energy demand.
Adequate, sufficient and sustainable financing from developed countries and multilateral platforms is required to significantly reduce GHG emissions in Indonesia.
Financial support from these entities is also necessary to signal, in particular to the private sector, the need to shift investment flows towards decoupling economic growth from increasing emissions, and towards a low carbon and climate resilient future.
Providing financial support is a critical factor to ensure a developing country like Indonesia succeeds in fulfilling its voluntary pledge.
However, crucial questions need to be addressed. Firstly, is the current and future financing promised — on top of the government’s own budget — sufficient to meet the costs required to mitigate climate change?
Secondly, how do we make sure this financial support addresses the real and strategic challenges identified to mitigate climate change?
Without a comprehensive assessment of the financial support coming from developed countries, important components might be overlooked and objectives to mitigate climate change may not be reached.
The devil is always in the details.
The UN Framework Convention on Climate Change (UNFCCC) in its National Economic, Environment and Development Study (NEEDS) for Climate Change estimates the average annual cost of the potential mitigation measures proposed until 2030 at ¤12.84 billion, equivalent to approximately 5.6 percent of Indonesia’s GDP in 2005.
From 2010 onwards, this annual cost of abatement is expected to account for 0.9 percent of the country’s projected GDP in 2030 as a result of Indonesia’s rapidly increasing GDP.
In Indonesia’s Second National Communication (SNC) under the UNFCCC, published by the ministry of the environment, the government committed to implement 54 climate change projects in the next five years, which would cost around US$897 million.
In fact, the government allocated $213 million from the state budget in 2009 toward addressing climate change.
So, combined with the ministry of environment’s budget and the funds allocated to environmental development, the total amounts to $991 million.
Although the figure may seem impressive, it only amounts to 0.013 percent of the central government’s budget expenditure, and only 0.008 percent of Indonesia’s total budget expenditure.
The budget the government allocated toward addressing climate change was also far from the annual costs required to implement potential mitigation measures.
As reported in NEEDS, overseas development assistance (ODA) and climate Multilateral and Bilateral Assistance are expected to contribute around $1.17 billion per year toward climate change mitigation.
These figures — both from the government’s budget and overseas’ support — are far from adequate and sufficient.
Indonesia must convince developed countries they need to increase their financial support — as promised in a number of international forums — to help implement climate change actions in developing countries.
This will prevent much higher costs resulting from inaction, and shift the estimated $1.5 trillion of global annual private sector investment needed to spur a clean energy economy.
Once the private sector has been convinced to throw its weight behind clean energy, there will likely be significant new and additional investments in renewable energy, energy efficiency, tackling deforestation and new climate-friendly technologies.
One must also carefully examine the objectives and types of interventions targeted by the financial
support.
Some financial assistance is directly targeted at specific sectors, investing in quick gains or low-hanging fruits.
There are sizeable interests in supporting projects on the ground (e.g. community forestry, REDD demonstration/pilots and micro-financing for rural electricity).
There are indications, however, that financial assistance is still shying away from supporting comprehensive work (i.e. cross-sectoral and multi-stakeholders’ approaches) that could ensure systemic and strategic changes in the country’s development policies, framework, governance and operations.
It is challenging for this country to implement long-term sustainable solutions without involving more sectors, layers of governments and stakeholders.
Trust built across sectors and between all stakeholders will foster synergies, which will prevent efforts from individuals and sectors from canceling each other out.
To reach positive outcomes from climate change actions in this country, it is imperative that any support provided is open, inclusive, transparent and performance-based.
Indonesia must also actively guide programs supported by international public funding to concretely safeguard the global climate, the country’s economy, people’s livelihoods, as well as the country’s ecosystems and biodiversity.
Clear rules and mechanisms are therefore required to show how and where the money will be spent, and how it will be monitored.
In the end, financial support must be sufficient and well allocated. Now, it is up to the country to ensure this happens.
The writer is program director of climate & energy at WWF-Indonesia, and adjunct lecturer at Paramadina Graduate School of Diplomacy. He can be reached at fardiansyah@wwf.or.id
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