climate change in national planning and budgeting

MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Climate Change in National Planning and Budgeting 3rd November 2020Center for Climate Finance and Multilateral PolicyFiscal Policy Agency

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1. OUR COMMITMENT ON CLIMATE CHANGE

2. CLIMATE BUDGET TAGGING MECHANISM IN STATE BUDGET

3. INNOVATIVE FINANCING RELATED TO CLIMATE CHANGE

4. TAKE AWAYS

Outline

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KEMENTERIAN KEUANGANREPUBLIK INDONESIA

KEMENTERIAN KEUANGAN REPUBLIK INDONESIA

OUR COMMITMENT ON CLIMATE CHANGE

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3

MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA 4

Climate change is indisputably apparent and studies indicate the occurrenceof global warming acceleration.Climate-related risks for natural and human systems are higher for globalwarming of 1.5°C than at present, but lower than at 2°C.The graph shows an increase of global temperature from the year 1960 -2000 which indicates the likeliness of temperature to spike if real-climate-related actions are not implemented.

WATER SECURITYThe increasing level of severe flood and drought willexacerbate the clean water scarcity.

LAND ECOSYSTEMIt is scientifically predicted that severe forest fires will highly occur. This could lead to the lost of ecosystem, biodiversity and a vicissitudes of Biome.

OCEANThe rise of sea level temperature leads to the extinction of corals, seaweeds, mangroves, several marine biodiversities and ecosystems.

HEALTHFloods could lead to the spread of vector-borne diseases and deaths related to drowning. The riseof temperature can cause death of heat strokes.

FOOD SECURITYThe changing of biome and ecosystem production couldlead to food scarcity for all beings.

RISKS ON INCREASED GLOBAL TEMPERATURE

1960 200025.2

26.6

26

1980(YEAR)

(Ann

ual M

ean

Tem

pera

ture

)(°C

)

Indonesia’s Vulnerability from Climate Change

Indonesia is the world’s largest archipelago comprising over 17,508 ISLANDS. Covering an area ofabout 790 million hectares with a total coastline length of 95.181 KM and a land territory of about 200 million hectares. Therefore, Indonesia is highly vulnerable to the adverse impacts ofclimate change.

Source: Cost of Climate Change, USAID, 2016

The monetary value of the economy loss annually due toclimate change in 2050 is amounted toUSD 14.8 BILLION(132 TRILLION RUPIAH)

Climate Change is believed to increase the risk for hydro-meteorological disasters, which make up to

80%of disaster occurrences in Indonesia.Source: NDC, 2016

Climate Change


Our Commitment to Tackle Climate Change

note: data is inMTonCO2e

INDUSTRIAL PROCESSES AND PRODUCT USE

FORESTRY ENERGY & TRANSPORTATION

WASTE AGRICULTURE

314

3.25

497

650 398

11

26

9

4

2.75

Emission Reduction Target Per Sectors

2 9 %

4 1 %

Indonesia actively participates in controlling climate change at global level through United Nations Framework Convention on Climate Change Conference of the Parties (UNFCCC COP). Government of Indonesia is committed to controlling climate change through various ratifications of international policies into national regulations and action plans. Our state budget also contributing to funds climate mitigation and adaptation actions.

Unconditional emissionreduction against BAUscenario

Source: Indonesia’s NDC

conditional emission reduction subject to international support

29%

up to

41%

By 2030, Indonesia is determined to reduce its Green House Gasses Emission by:

Indonesia’ First Nationally Determined Contribution (NDC), 2016

Ratification of Paris Agreement into National Law No. 16/2016

National Action Plan on GHG Emission Reduction(RAN-GRK), 2011

National Action Plan on Climate Change Adaptation (RAN-API), 2014

National Action Plan on Sustainable Development Goals, 2017

Climate Change Action Based on SDGs 13

Indonesia’s First Mitigation Fiscal Framework (2012)

National Mid-Term Development Plan 2020-2024

National Priority No.6Develop environment, improve disaster and climate resilience.

Priority Program: Low Carbon Development, Environment, Disaster, and Climate Resilence

Other National Policies and Frameworks Related to Climate Change

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Climate FinanceFINANCING NEEDS TO ACHIEVE NDC

Source: Second BUR (2018), Billion USD

Energy & Transportation,

236.2

FOLU, 5.6

Industrial Processes & Product Use,2,9

Waste, 2.17

Agriculture, 0.38

In billion USD

Based on the 2018 Second Biennial Update Report (BUR), Indonesia submitted an estimated financing needs to achieve the emission reduction target in 2030 reaching USD247,2 billion or around Rp3.461 trillion (Rp266,2 trillion/year).

SECTORS ACTION PLAN PROJECTED EMISSION REDUCTION

Forestry and Land Use

• Forest conservation and protection program• Forest fire prevention

655 million-ton CO2e

Energy and Transportation

• Development of renewable energy power plants• Clean technology investment

398 million-ton CO2e

Industrial Processes and Product Use (IPPU)

Majority for Cement and Iron Industry (80% private investment)

3,25 million-ton CO2e

Waste Treatment of Liquid and Solid Waste at Industrial and Household

26 million -ton CO2e

Agriculture

• Low emission varieties• Irrigation efficiency• Biogas utilization• Increasing the quality of livestock supplements

4 million-ton CO2e

STATE BUDGET

SUB-NATIONAL GOVERNMENT BUDGET

BPDLH

GREEN SUKUK (GLOBAL & RETAIL)

Domestic Public Sources

SOEs(PT. SMI)

Green Climate Fund

Regional and Bilateral Agency

Global Environment Facility

Adaptation Fund

International Public Sources

Multilateral Development Banks

SUSTAINABLE FINANCE (BANK

& OTHER FINANCIAL

INSTITUTIONS)

PHILANTHROPY DOMESTIC PRIVATE INVESTMENT

FOREIGN DIRECT INVESTMENT

PRIVATE GREEN BONDS

Private Sectors

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Fiscal Policies on Climate Change and Climate Finance

Fiscal Policies Related to Climate Change Actions:

Fiscal Support on Climate Change

• tax holiday for pioneering industry,

• tax allowance for renewable energy sector,

• VAT and Exemption on Import Duty for geothermal development activities.

• Regional Incentives Funds (Dana InsentifDaerah/DID), one of the performance category that related to environment and climate change is waste management performance category.

MoF’s Innovative Financing Related to Climate Change:

SDG Indonesia One is a blended finance platform managed by PT. Sarana Multi Infrastruktur (SMI) to facilitate philanthropic involvement. international donor agencies. aid allocation. green investors. commercial banks. Multilateral Development Banks (MDBs). etc.

Green Sukuk is an instrument to finance climate change actions and also achieve the SDGs target. Climate Budget Tagging data is used as reference / underlying asset for the issuance of Green Sukuk.

Badan Pengelola Dana Lingkungan Hidup(BPDLH) aims to support conservation and environmental management. biodiversity management. and addressing the impact of climate change

Climate Budget Tagging is a mechanism in our national planning and budgeting system to track and identify climate change related output and budget in central government.

Climate Budget Tagging

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KEMENTERIAN KEUANGAN REPUBLIK INDONESIA 8

CLIMATE BUDGET TAGGING MECHANISM IN STATE BUDGET

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Since 2012, the Ministry of Finance has actively carried out several policy studies in terms of public funding for climate change and was used as the basis for climate change budgeting activities.

As an effort to increase transparency of public funding for climate change in Indonesia, in 2016, the Government of Indonesia c.q. The Ministry of Finance initiate the climate change budgeting (Climate Budget Tagging) system in state budget.

Climate budget tagging is a process of marking, tracking and identify climate change outputs and budgets in planning and budgeting documents.

Implementation of Climate Mitigation Budget Tagging in

ADIK system

2016

Study of Mitigation Fiscal Framework

(MFF) by FPA

2012

Study of Low Emission Budget

Tagging and Scoring System (LESS) by

FPA

2013

• Collaboration between FPA & UNDP/UNEP in the Sustainable Development Finance Program.• Study of Green Planning &

Budgeting

2014

FPA Published Climate Change Mitigation Budget Report 2016-2017

2017201820192020

• FPA launch the Public Climate Finance Report FY 2016-2018

• Developing the Regional Climate Budget Tagging

• Implementing CBT Adaptation

• 1st Global Green Sukuk Issuance based on climate budget tagging data

2nd Global Green Sukuk Issuance and Green Sukuk Retail Issuance based on climate budget tagging data

Tagging in output level

RAN API

Government AnnualWork Plan

National Planning & Budgeting

NDC


Line Ministries Budget Work Plan

Implementation

MRV & Evaluation• MRV by Ministry of Environment and Forestry.• Planning & Budgeting Evaluation by MoF and

Bappenas

The implementation of mitigation and adaptation projects by Line Ministries

RPJMN


Central Government Spending on Climate Change

• Over the past 5 years, the average climate change budget allocation was IDR92,9 trillion per year, allocated 4,0% in state budget per year. The average of climate change spending (realization) since 2016 amounted IDR83,2 trillion per year.

• Since 2016, Government of Indonesia already spent IDR332,7 trillion in order to fund climate change actions through line ministries

• Since 2018, government spending on average contributing 24,5% of national financing needs to achieve NDC targets by 2030. Since then, Government of Indonesia needs to mobilize other climate finance sources outside the state budget to achieve the NDC target by 2030.

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Notes: * interim data** amount of budget allocation using data after budget reallocation and refocusing policy of COVID-19, and

still interim data.

2018 2019*

Government Spending Contribution in Climate Financing Needs based on 2nd BUR (Trillion Rupiah)

Realization Financing GAP (2018-2030)

2016 2017 2018 2019* 2020**

Climate Change Budget Allocation and Realization (Trillion Rupiah)

Budget Allocation Realization Climate Change Budget Allocation per National Spending

72,3 95,652,4 85,0 121 111,7 97,6 83,5 77,7

3,5%4,5%

5,5%

4,0%2,8%

111,7

154,5

83,5

182,7

266,2



In 5 years, climate change budget allocation was dominated by mitigation actions (74%). The significant gap between mitigation and adaptation budget tagging caused by the adaptation budget tagging mechanism just started in 2018, meanwhile mitigation budget tagging already started since 2016.

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111,7 83,5

182,7

74%

26%

Budget Allocation Based on Climate Change Actions

MITIGATIONADAPTATION

Sectors (based on NDC):Mitigation•FOLU (Forest and Peatland rehabilitation, forest conservation)•Energy & Transportation (Low emission and sustainable transportation, renewable

energy development and energy conservation)•Agriculture (Land optimization for low emission agriculture production, low emission

seeds)•IPPU (green industries and circular economy policy & development)•Waste (waste management and waste to energy)

Sectors (based on RAN-API):Adaptation•Life System Resilience (Health, Settlement and Infrastructure)•Ecosystem Resilience (Biodiversity, Forestry Ecosystem, and Coastal)•Economic Resilience (Food Security and Energy Sovereignty)•Special Territory Resilience (Cities, Coastal and Small Island)•Adequate Support System (Information, R&D, Planning & Budgeting, MRV, Capacity

Building)



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111,7

154,5

83,5

182,7

1. Ministry of Agriculture2. Ministry of Environment and Forestry3. Ministry of Public Works and Public Housing4. Ministry of Energy and Mineral Resources5. Ministry of Transportation6. Ministry of Industry7. Ministry of Maritime Affairs and Fisheries

MitigationTotal Spending since 2016

was IDR256,7 Trillion (average IDR51,3

Trillion/year)

1. Ministry of Agriculture2. Ministry of Environment and Forestry3. Ministry of Public Works and Public Housing4. Ministry of Maritime Affairs and Fisheries5. Ministry of Health6. Ministry of Social Affairs7. Ministry of Agrarian and Spatial Planning/National Land Agency8. Ministry of Home Affairs

AdaptationTotal Spending since 2018

was IDR75,9 Trillion (average IDR15

Trillion/year)

9. Agency for the Assessment and Application of Technology (BPPT)10. Central Bureau of Statistics (BPS)11. Meteorological, Climatological, and Geophysical Agency (BMKG)12. National Disaster Management Authority (BNPB)13. Geospatial Information Agency14. Indonesian Institute of Sciences15. National Institute of Aeronautics and Space

Line Ministries:

Line Ministries:



INNOVATIVE FINANCING RELATED TO CLIMATE BUDGET TAGGING

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1st Global Green SukukUSD1,25 billion

2nd Global Green SukukUSD750 million

1st Green Sukuk Retail (ST-006)Rp1,46 trilion

3rd Global Green SukukUSD750 million

March 2018

February 2019

November 2019

June 2020

5 years tenor

2,3% Coupon

• Lowest coupon rate for 5 years tenor• 7,37x Oversubscribed

Underlying Assets:

Ministry of Public Works and Housing

Ministry of Transportation

Ministry of Energy and Mineral Resources

Projected Emission Reduction from Global Green Sukuk Issuance

5,7 millions ton CO2e

First Issuance 2018

3,2 millions ton CO2e

Second Issuance 2019

8% 6%

17%

62%

7%5%

27%

11%

49%

9%

RenewableEnergy

Energy Efficiency ImprovingClimate

Resilience forVulnerable Areas

SustainableTransportation

WasteManagementand Waste to

Energy

2018 2019

Sovereign Green Sukuk Financing

Ministry of Finance has launched the Green Sukuk Allocation and Impact Report in March 2020. The report shows the govt. of Indonesia’s commitment on low carbon economy and climate resilience in the future.


Global Green Sukuk in COVID-19 Pandemic

2018• Yield 3,75% p.a.• Tenor 5-years• USD1,25 billion• Investor spread: 18%

USA, 15% Europe, 32% Middle East, and 35% Asia

2019• Yield 3,90% p.a.• Tenor 5,5-years• USD750 million• Investor spread: 23%

USA, 22% Europe, 29% Middle East, and 25% Asia

2020• Yield 2,30% p.a.• Tenor 5-years• USD750 million• Investor spread: 12%

USA, 11% Europe, 32% Middle East, 40% Asia, and 5% Indonesia.

1st 2nd 3rd

Reached 33,74% of Green Investor (an increase from 29%

on the previous year)

Resilience to Climate Change for Highly Vulnerable Areas and

Sectors/Disaster Risk Reduction

Waste to Energy and Waste Management

Sustainable Transport

2020 Sector Focus

Source: DJPPR-Kemenkeu (2020)

Green Sukuk is potential to be developed and used as climate funding in Indonesia even in the midst of COVID-19 pandemic

Sovereign Green Sukuk Financing



TAKE AWAYS

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• The Climate Budget Tagging is one of thematic tagging in Indonesia’s planning and budgeting. Themechanism aims to identify the amount of climate change budget allocation and budget realizationwhich used to fund mitigation and adaptation actions from line ministries.

• The Climate Budget Tagging used as reference to determine underlying asset of green sukuk since2018. Green sukuk was used for financing and refinancing line ministries projects that meet therequirements of Indonesia’s Green Bond/Sukuk Framework.

• On fiscal policy, MoF is currently developing Climate Change Fiscal Framework that will set out fiscal policy strategy to meet the NDC, SDG and Low Carbon Development Initiative. It will identiify the supply and demand of climate finance and thus the gap and how the policy and strategy would fill this financing gap. As well, it will set out how climate finance policy would respond to shocks such as current pandemic to maintain the commitment to climate action.

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Take Aways


THANK YOU

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INNOVATIVE FINANCING RELATED TO CLIMATE CHANGE

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GREEN CLIMATE FUND

What is

GCF?UNFCCC’s Financial

Mechanism Executing Agency

Established at the UNFCCC COP in

2010

The Biggest Climate Change Fund in the

World

It Began Operations in 2015 in Songdo

Balanced Mitigation-Adaptation Financing

Diversification of Financial Instrument

Committed

Mobilized

USD Billion

10.3

9,84,95,4

Potential Fund

Replenishment

Fund Proposal

Request of No-Objection

Letter (NOL)

No-Objection Letter

Fund

ing

No-Objection Letter

• Accredited Entities and NDA are the main components in accessing GCF funding

• The GCF works through AE to channel funding into projects or programs

• Developing countries need to have an NDA / focal point in order to access GCF funding

• The Fiscal Policy Agency representing the Minister of Finance was designated as the Indonesian NDA-GCF based on the Decree of the Minister of Finance Number 756 / KMK.10 / 2017

Funding Mechanism

Funding Area

Access and Energy Power Grid

Transportation

FOLU

Building, City, Industry and Equipment

Mitigation Adaptation

Health, Foods, and Water

Society and Community Livelihoods

Infrastructure and Environment

Ecosystem and Environment Services


Read

ines

s Fa

cilit

ies

Fund

ing

Prop

osal

s

GCF Readiness Program to strengthen NDA and AE institutional capacityPhase I and Phase II

1 Project Preparation Facility of Semarang’s Bus Rapid Transit

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Funding Scheme in million USD

Geothermal Resource Risk Mitigation Facility (GREM)

Funding facility program for the development of geothermal energy that specifically de-risk the development stage. Implementation will be with PT SMI as executing entity.

GCF Funding : USD 100 millionCo-financing : USD 310 million

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Grant : Phase I USD 850.000Phase II USD 998.000

Grant : USD 788.000

Climate Investor One (CIO)

GCF Funding : USD 100 millionCo-financing : USD 721,5 million

Blended finance facility with different funding scheme for each stages (development, construction, and implementation). Implemented in 11 countries, and Indonesia is expected to access minimum of USD 43,9 million out of the total project amount.

Funding Scheme in million USD4

GREEN CLIMATE FUND APPROVED PROJECTS IN INDONESIA


GCF REDD+ RBP Pilot Programme• The GCF RBP REDD+ facility is a pilot

program with a total allocation of USD 500 million starting in October 2017 until 2022.

• Based on the results of reducing emissions between the end of 2013 until the end of 2018.

• GCF would pay a maximum of 30 million-ton CO2eq per country during pilot program

• GCF REDD+ Proposal requirements:a. No Objection Letter from National Designated

Authority (Head of Fiscal Policy Agency, MoF)b. Approval from UNFCCC focal point in Indonesia

(Ministry of Environment and Forestry)

Indonesia is the first non-Latin America country to access this scheme, as well as being the largest recipient of grants over Brazil’s (USD 96,5 million)

Total FundingUSD 103.781.250

BPDLHImplementing AgencyEnvironment Fund Management Agency(Badan Pengelola Dana Lingkungan Hidup/BPDLH)

Emission Reduction20,25 million-tonCO2eq for results in 2014-2016

Duration4 years

Use of Funds• Strengthening the coordination and implementation of REDD+ and its

mechanism in Indonesia• Supporting the decentralization of forest governance at province level

through Forest Management Units (Kesatuan PengelolaanHutan/KPH) to encourage sustainable forest management which will be distributed through BPDLH.

Source: Indonesia’s RBP REDD+ Proposal

In the Midst of Pandemic:Green Climate Fund Approved Indonesia’s RBP REDD+ Proposal


SDG IndonesiaOne(PT. SMI)

FUNDING SCHEME

Sectors: Health, Education, Renewable Energy, and Urban Infrastructure (transportation, clean water & waste management)*

*potentially expandable

SDG Indonesia One will manage & utilize funds to facilitate 93 projects valued around USD18,2 billion.*

*from 26 development partners (per October, 2019)

SDG Indonesia One is an innovative financing instrument that support infrastructure development in achieving 16th of the 17th SDG goals.

SDG Indonesia One is a blended finance platform managed by PT. Sarana Multi Infrastruktur (SMI) to facilitate philanthropic involvement. international donor agencies. aid allocation. green investors. commercial banks. Multilateral Development Banks (MDBs). etc.

Inve

stor

Con

trib

utio

nPr

oduc

t

Donor (Philanthropy) and Impact/Climate Funds

Donor. Impact/Climate Funds and Development Banks

Commercial Banks and Institutional Investor Institutional Investor and

Developer

Equity. Equity-LinkedInvestment

Equity Financing

Grant (Project Preparation. Technical Assistance. Research)

SDG Development Facilities SDG De-Risking Facilities

Concessional Loan. First-Loss Facility. Interest Subsidy. Guarantee Premium

Subsidy. VGF etc.

Financing Facilities

Senior Loan. Subordinated Loan

SDG Indonesia One (Dikelola oleh PT SMI)

Contribution:Grant. Technical Assistance

Contribution :Pinjaman. hibah

Contribution :Loan. Bond. Sukuk

Contribution :Equity

SDG Projects

Objective:Support pre-construction project

development

Objective:Project de-risking (improving

bankability)

Objective:Construction / post-construction

finance

Objective:Investment in high impact / new

frontier SDG sector

*Source: PT. SMI

MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA*Source: PT. SMI

SDG INDONESIA ONE HIGHLIGHTPer June 2020

SDG IndonesiaOne(PT. SMI)


“We need to maintain and develop a strategy so that Indonesia able to grow higher, Namun, komitmen untuk dapat mengurangi emisikarbon tetap bisa dilakukan. Kami dari Kementerian Keuangan siapmendukung pelaksanaan BPDLH dengan tata kelola yang baik dan efisiensi yang maksimal. Karena manusia tanpa alam adalahkemuskilan.”

-Sri Mulyani, Menteri Keuangan RI-

EnvironmentFundManagementAgency

BPDLH aims to support environmental conservation and management, biodiversity management, and overcoming the impact of climate change

Business Process

*Source: BPDLH

Source of Funds:

• State Budget• Sub-national Budget• Grants and donation• Other source of funds

Capitalization:

• Banking instrument

• Capital market instrument

• Other instruments

Fund Channels:

• Carbon Trade• Loan and Grant• Incentives• Other Mechanism


• REDD+a. Funds for the results of GHG emission reduction in forestry sector. b. Source of Fund: Grant (Result Based Payment)c. Beneficiaries: Parties that contribute in reducing GHG emissionsd. Fund Channeling: Grante. Potential of RBP REDD+ in Indonesia:

• Reforestation & Environmental Investment:a. Allocation of reforestation funds for forestry development activitiesb. Source of Fund: State Budgetc. Beneficiaries: farmers group and forest industryd. Fund Channels: Loan/Development Financing

Initial Fund to be managed by the Agency

Donor Commitment Period

Pemerintah Norwegia USD 56 million 2020

Green Climate Fund USD 103,78 million 2020-2023

Forest Carbon Partnership Facility (Kalimatnan Timur Provincr)

USD 110 million 2023-2025

Bio Carbon Fund(Jambi Province)

USD 60 million 2023-2025

EnvironmentFundManagementAgency

*Source: BPDLH

climate change in national planning and budgeting

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