investing in a more sustainable indonesia - the world...
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INVESTING IN A MORESUSTAINABLE INDONESIA
COUNTRY ENVIRONMENTAL ANALYSIS
2009
Report No. 50762 - ID
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INVESTING IN A MORESUSTAINABLE INDONESIA
COUNTRY ENVIRONMENTAL ANALYSIS
2009
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© 2009 The World Bank Group
October 2009
Printed in Jakarta, Indonesia
All rights reserved
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This study was prepared by the Indonesia Sustainable Development Unit of the Sustainable Development Department, East Asia Pacifi c Region of the World Bank.
This publication is available online at http://www.worldbank.org/
Suggested citation:
Josef Leitmann et al. 2009. Investing in a More Sustainable Indonesia: Country Environmental Analysis. CEA Series, East Asia and Pacifi c Region. Washington, DC: World Bank.
This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The fi ndings, interpretations and conclusions expressed herein are those of the authors and do not necessarily refl ect the views of the Executive Directors of The World Bank or the governments they represent.
The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.
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Abbreviations
ADB = Asian Development Bank
ADIPURA = Clean City Program
ADO = Automotive Diesel Oil
APHI = Asosiasi Pengusaha Hutan Indonesia (Association of Indonesian Forestry Businessmen)
API = Air Pollution Index
APROBI = Asosiasi Produsen Biofuels Indonesia (Indonesian Biofuel Producers Association)
ARI = Acute Respiratory Infection
AusAID = Australian Agency for International Development
BAPPEDA = Badan Perencanaan Pembangunan Daerah (Regional Planning and Development Boards)
BAPPENAS = Badan Perencanaan dan Pembangunan Nasional (National Development Planning Agency)
BKSP = Badan Kerjasama Pembangunan (Greater Jakarta Coordination Board)
BLU = Badan Layanan Umum (Public Services Agency Unit)
BPPT = Badan Pengkajian dan Penerapan Teknologi (The Agency for the Assessment and Application of Technology)
CAIT = Climate Analysis Indicators Tool
CCGT = Combined Cycle Gas Turbine
CDM = Clean Development Mechanism
CEA = Country Environmental Analysis
CED = Carbon Emissions Decomposition
CI = Conservation International
CIESIN = Center for International Earth Science Information Network
CNG = Compressed Natural Gas
CO2 = Carbon Dioxide
COPD = Chronic Obstructive Pulmonary Disease
COREMAP = Coral Reef Rehabilitation and Management Program
COW = Contract of Works
CPS = Country Partnership Strategy
CSO = Civil Society Organization
CVO = Civil Voluntary Organizations
DAK = Dana Alokasi Khusus (Special Allocation Fund)
DANIDA = Danish International Development Agency
DALYs = Disability-Adjusted Life Years
DFID = Department for International Development
DHS = Demographic and Health Survey
DKP = Departemen Kelautan dan Perikanan (Ministry of Maritime and Fisheries)
DNPI = Dewan Nasional Perubahan Iklim (The National Council for Climate Change)
DPL = Development Policy Loan
DPR = Dewan Perwakilan Rakyat (House of Representative)
DR = Dana Reboisasi (Reforestation Fund)
DSM = Demand Side Management
EAP = East Asia Pacifi c Region
EIA = Environmental Impact Assessment
ENRM = Environment and Natural Resources Management
FAO = Food and Agriculture Organization
FCPF = Forest Carbon Partnership Facility
GDP = Gross Domestic Product
GEF = Global Environment Facility
GEG = Good Environmental Governance
GFDRR = Global Facility for Disaster Reduction and Recovery
GHG = Green House Gas
GIS = Geographic Information System
GNI = Gross National Income
GNKL = Gerakan Nasional Kehutanan dan Lingkungan (National Movement for Forestry and the Environment)
GOI = Government of Indonesia
GTZ = Gesellschaft für Technische Zusammenarbeit.
HPH = Hak Pengusahaan Hutan (Natural Forest Concessions)
HTI = Hutan Tanaman Industri (Industrial Forest Area)
IAP = Indoor Air Pollution
IBSAP = Indonesia Biodiversity Strategy and Action Plan
ICCTF = Indonesia Climate Change Trust Fund
ICEL = International Center for Environmental Law
IDR = Indonesian Currency
IDPL = Infrastructure Development Policy Loan
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IEA = International Energy Agency
IFC = International Finance Corporation (a member of the World Bank Group)
IFCA = Indonesia Forest Climate Alliance
IFES = International Foundation for Election System
IHPH = Iuran Hak Pengusahaan Hutan ( Fee paid for the right to harvest timber )
IHH = Iuran Hasil Hutan (Forest Royalty Fee)
IHHT = Iuran Hasil Hutan Tambahan (Additional Forest Royalty Fee)
IIED = International Institute for Environment and Development
IIEE = Indonesian Institute for Energy Economics
ILGR = Initiatives for Local Governance Reform
ILGRIP = Initiatives for Local Governance Reform Project
INFORM = Indonesia Forest and Media Campaign Monitoring and Evaluation
IPCC = Intergovernmental Panel on Climate Change
JICA = Japan International Cooperation Agency
KAP = Knowledge, Attitudes and Practices
KDP = Kecamatan Development Program
KGRIP = Kabupaten Governance Reform and Initiatives Program
Kl = Kilo Liter
KLH = Kementerian Lingkungan Hidup (State Ministry of Environment)
KWh = Kilo Watt per Hour
LPG = Liquefi ed Petroleum Gas
MDF = Myotonic Dystrophy Foundation
MDG = Millennium Development Goals
MFP = Multi stakeholder Forestry Programme
MIH = Menuju Indonesia Hijau (Towards a Green Indonesia, a program of the Ministry of Environment)
MSY = Maximum Sustainable Yields
MtCO2 = Million ton of Carbon Dioxide
MW = Mega Watt
MOFr = Ministry of Forestry
NEEDS = National Economic and Environmental Development Study
NGO = Non Government Organization
NOx = Nitrogen Oxide
NRM = Natural Resource Management
OECD = Organization for Economic Co-operation and Development
PCN = Personnel certifi cation in non-destructive testing
PEACE = Pelangi Energi Abadi Citra Enviro, PT
PLN = Perusahaan Listrik Negara (State-owned Electricity Company)
PM10 = Particulate Matter 10 μm
PNPM = Program Nasional Pemberdayaan Masyarakat (Community Driven Development Programme)
PROKASIH = Program Kali Bersih (Clean River Programme)
PROPER = Program Penilaian Peringkat Kinerja Perusahaan Dalam Pengelolaan Lingkungan (Industrial Performance Rating Program)
PSO = Public Service Obligation
REDD = Reducing Emissions from Deforestation and Forest Degradation in Developing Countries
REDDI = Reducing Emissions from Deforestation and Forest Degradation in Developing Countries Initiative
RPJM = Rencana Pembangunan Jangka Menengah (Government’s Medium Term Development Plan)
SO2 = Sulfur Dioxide
TA = Technical Assistance
UN = United Nation
UNDP = United Nation Development Program
UNFCCC = United Nations Framework Convention on Climate Change
UPP = Urban Poverty Program
USAID = United States Agency for International Development
USD = United States Dollar
USDRP = Urban Sector Development Reform Project
VSL = Value of Statistical Life
WACLIMAD = Water Management for Climate Change Mitigation and Adaptive Development in the Lowlands
WALHI = Wahana Lingkungan Hidup Indonesia (Friends Of Earth Indonesia)
WB = World Bank
WDR = World Development Report
WHO = World Health Organization
WRI = World Resources Institute
WWF = World Wide Fund for Nature
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TABLE OF CONTENTS
Executive Summary xi
SECTION 1: Priorities for Sustainable Development 1
Chapter 1: The Context for Analyzing Indonesia’s Environment 3
1.1 Key Characteristics of Indonesia’s Environmental Challenges 4
1.2 A Tool for Investing in Indonesia’s Institutions for Sustainability 4
1.3 Underlying Environmental Challenges 6
Chapter 2: The Economics of Environmental Degradation 7
2.1 The Importance of Natural Capital for Indonesia’s Wealth 8
2.2 The Signifi cance and Costs of Environmental Degradation 9
2.3 Summary of Degradation Costs 13
2.4 Distributional Consequences of Environmental Degradation 14
2.5 Selecting a Focus for the Country Environmental Analysis 14
SECTION 2: Challenges of Environmental Governance 17
Chapter 3: Institutional Setting: Decentralized Environmental Management 19
3.1 Environmental Law and Policy Framework 20
3.2 Institutional Framework for Environmental Management 22
3.3 Decentralization and the Environment 23
3.4 Advances in Environmental Management at the Local Level 24
3.5 Obstacles to Decentralized Environmental Management 26
Chapter 4: Enabling Policies for Sustainable Development 29
4.1 Main Revenue and Expenditure Trends 30
4.2. Key Fiscal Policies Aff ecting Environmental Sustainability 31
Chapter 5: Constituency, Awareness and Critical Partnerships 37
5.1 Public Perceptions of the Environment 38
5.2 Compatibility of Public Perception with Government Priorities 40
5.3 Assessing the Quality of Public Access in Environmental Governance 41
5.4 Key Partners for Communications and Awareness 42
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SECTION 3: Sectoral Challenges in a Changing Climate 45
Chapter 6: Adapting to a Changing Climate 47
6.1 Impacts of Climate Change in Indonesia 48
6.2 The Socio-economic Costs and Benefi ts of Adaptation 52
Chapter 7: Land Use and Climate Change 53
7.1 Deforestation and Land Degradation 54
7.2 Land Use and Carbon Emissions 58
7.3 Forest Management Issues 60
Chapter 8: Energy and Climate Change 61
8.1 Energy in the Country Economic and Development Context 63
8.2 Environmental Concerns 65
8.3 Energy and Climate Change Issues 68
SECTION 4: The Way Forward 75
Chapter 9: Towards a More Sustainable Indonesia 77
9.1 Options for Better Environmental Governance 78
9.2 Options for a Changing Climate 80
9.3 A Role for the World Bank 84
ANNEX: Business Plan Scenarios for Increased World Bank Involvement 88
bibliography 90
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List of Tables
Table 1 Indonesia 2009 Environmental Data Table xv
Table 2.1 Wealth estimates for Indonesia 8
Table 2.2 Measures of Saving in Indonesia (percent of GNI, 2006) 10
Table 2.3 Summary of Economic Costs from Environmental Degradation 13
Table 2.4 Poverty Impacts of Climate Change by MDG Goal 14
Table 2.5 A Preliminary Ranking of Environmental Challenges 15
Table 5.1 Public Perception Surveys with Environmental Information 39
Table 7.1 Forest and Land Use Emission Estimates (MtCO2e) 59
Table 8.1 Primary Energy Reserves and Production in Indonesia 64
Table 8.2 Energy Subsidies: Economic and Environmental Issues 65
Table 8.3 Potential for Energy Savings from DSM Programs 66
Table 8.4 Wind, Solar, Biomass Potential 2007, Min Env, State of Environment Report 68
Table 8.5 Indonesia: Fossil Fuel Emmisions (MtCO2 in 2004) 71
Table 9.1 Adaptation Options 81
Table 9.2 Engagement Areas and Activities 87
List of Figures
Figure 2.1 Natural Wealth Composition in Indonesia (percent, 2000) 9
Figure 2.2 Land and Forest Classifi cations 12
Figure 4.1 Environmental Revenues and Expenditures (billion IDR, constant, 2001 = 100) 30
Figure 4.2 Environmental Expenditures 2001 – 2008 31
Figure 4.3 Key Policy Distortions Impede Potential for Low Carbon in Energy Sector 32
Figure 4.4 Annual Growth Rates of GDP, Energy Use and Emission per Capita 33
Figure 4.5 Incidence of Fuel Subsidies 34
Figure 4.6 Ministry of Forestry Revenue by Source 34
Figure 6.1 Multiple Climate hazard map of Southeast Asia 48
Figure 6.2 The Average Change of Precipitation Pattern 1900-2000 September-November (in mm/100 years) 49
Figure 6.3 Impacts of Sea Level Rise Caused by Global Warming: Jakarta in 2050 49
Figure 6.4 Population Densities Within and Outside of a Low Elevation Coastal Zone (CIESIN 2007) 50
Figure 6.5 Vulnerability Map of South Asia 51
Figure 7.1 Indonesia: Deforestation and Degradation Deforestation 54
Figure 7.2 Decrease of Forest Cover in Indonesia 2000-2005 : Forest Cover Change Areas 55
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Figure 7.3 Forest Loss by land Use Type, 2000 – 2005 56
Figure 7.4 Forest Loss on State Forest Land (Percent) 56
Figure 7.5 Forest Loss by Type and Province (Top 10), 2000-05 57
Figure 7.6 Forest Loss during 2000-2005 by Province 2000-05 57
Figure 7.7 Forest and Land Used Sector :
Upstream Policies and Distortion Impede Progress and Impose Coston Society 59
Figure 8.1 Indonesia Fuel Consumption by Fuel Type and Sector 62
Figure 8.2 Domestic Productions and Refi ning Capacity 63
Figure 8.3 Indonesia Power Demand Projections 63
Figure 8.4 Indonesia Fuel Based Emissions 65
Figure 8.5 Top 25 CO2 Emitters in 2004 68
Figure 8.6 Fossil Fuel CO2 Emissions per Capita and Their Growth Rates 69
Figure 8.7 Annual Growth Rates of GDP, Energy Use and Emission per Capita 69
Figure 8.8 Average Annual Growth Rates 1994 – 2004 69
Figure 8.9 Emissions Intensity: Ave. Annual Growth Rates 1994 – 2004 70
Figure 8.10 CO2 Emissions Decomposition 70
Figure 8.11 Emissions by Sectoral Sources (Shares) 70
Figure 8.12 Emissions by Type of Fossil Fuel Combustion 71
Figure 8.13 Emissions by Sectoral Sources (Shares) 71
Figure 8.14 Emissions by Energy Use: Electricity Use 72
Figure 8.15 Emissions by Fossil Fuel and Using Sector 72
Figure 8.16 Estimates of Future Emissions from Electricity Sector 73
Figure 8.17 Estimates of Future Emissions from All Fossil Fuels 73
Figure 9.1 Phasing Adaption : Example for Agriculture Sector 82
List of Boxes
Box 3.1 More Sustainable Spatial Planning in Papua Province 25
Box 3.2 Decentralization and Chaotic Forest Management 28
Box 4.1 Barriers to Geothermal Energy Supply 33
Box 5.1 Public Access to Environmental Governance 40
Box 7.1 Forestry Sector Management Issues 58
Box 9.1 Options for Expanding Access to Environmental Governance 80
Box 9.2 Prioritizing Adaptation Options 82
Box 9.3 Indonesia and Reduced Emissions from Deforestation and Degradation (REDD) 84
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ACKNOWLEDGEMENTS
Preparation of this report was managed by Josef Leitmann, Environment Coordinator, Indonesia Sustainable Development Unit (EASIS). Analysis presented in this paper draws on inputs prepared by Timothy Brown and Kurnya Roesad (EASIS), Jan Bojo (EASOP), Kim DeRidder (Consultant, EASIS), and the consulting fi rm of PT Qipra Galang Kualita. Giovanna Dore (EASRE) assisted with management of the task during the fi rst phase of CEA preparation. Background studies were commissioned as building blocks for the CEA and were prepared by Isna Marifa and Maria Ratnaningsih.
We are indebted to Kulsum Ahmed, Gerhard Dieterle, Diji Chandrasekharan, and Tuukka Castren of the World Bank as well as Alfred Nakatsuma (USAID) and Budy Resosudarmo (Australian National University) for peer reviewing the report. Additional inputs were received from Asmeen Khan, Chris Hoban, Jan Bojo, Michael Warlters, Sudipto Sarkar, and Vijay Jaganatthan. Work was done under the general guidance of Sonia Hammam, Sustainable Development Sector Manager (EASIS) and Joachim von Amsberg, Country Director for Indonesia (EACIF).
The team is grateful for the fi nancial support of the CEA Trust Fund managed by Poonam Pillai (ENV) and for World Bank budget support from the EASIS work program.
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Rice fi elds (World Bank Collection) Photo: Curt Carnemark
Executive Summary
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The objective of this Country Environmental Analysis (CEA) 1. is to highlight the underlying challenges and opportunities for Indonesia’s environment and management of its natural resources in order to guide World Bank support to Indonesian institutions for more sustainable development. Thus, it is important to clarify at the outset that the CEA is not a “State of the Environment” Report – this type of environmental stocktaking is a regular publication of the Ministry of Environment and can be found at www.menlh.go.id. Rather, the CEA sets the broader context (Chapter 1) and economic costs of environmental degradation (Chapter 2) in order to identify underlying challenges and opportunities. These are divided into two sets of priorities – those related to environmental governance and those that are more sectoral in nature. Environmental governance encompasses the decentralized framework for environmental management (Chapter 3), enabling policies for greater environment and resource sustainability (Chapter 4) and building environmental constituencies (Chapter 5). The sectoral challenges that are most important for Indonesian development are vulnerability to climate change (Chapter 6), land use and climate change (Chapter 7) and energy and climate change (Chapter 8). The report concludes with options for a more sustainable Indonesia, including recommendations for how the World Bank can more eff ectively invest in light of the CEA fi ndings (Chapter 9).
2. Why bother about environmental sustainability? “The Economics of Environmental Degradation” (Chapter 2) indicates that natural capital constitutes about one quarter of Indonesia’s total wealth but this capital is being rapidly depleted while not being off set by commensurate investments in human or produced capital. The economic consequences of climate change represent the highest potential cost to Indonesia’s economy in the long term, amounting to annual losses of between 2.5 and 7.0 percent of GDP by the end of the century. Inadequate water and sanitation constitute the largest short-term cost to the Indonesian economy, estimated at more than $6 billion in 2005 or more than 2 percent of GDP. The health impacts of outdoor and indoor air pollution have been estimated at $4.6 billion per year or about 1.6 percent of GNI. Signifi cant economic losses are also caused by other types of environmental degradation, especially deforestation, soil depletion, and coastal/marine degradation. In total, environmental degradation costs are likely to grow in the future and are currently on par with the average annual growth rate. This is even more relevant when one considers that environmental costs disproportionately impact the poor. In short, management of the environment matters to Indonesia’s economic and social development.
Environmental Institutions, Policies and
Governance Matter
3. A challenging institutional setting of decentralization (Chapter 3). Indonesian laws, policies and institutions
have evolved to embrace democracy and decentralization. Similarly, there is an impressive set of laws, policies, programs, and national as well as local institutions that are responsible for environmental and natural resource management. Over the past decade, many aspects of environmental management and natural resource management have been decentralized to the local level. Greater local control has had positive aspects through reputational programs, greater political will, inter-agency collaboration, community empowerment, and integration of environment in spatial planning. At the same time, decentralization has resulted in obstacles to good environmental management, including: inadequate standards and enforcement; problems with incentives, empowerment and insuffi cient capacity; and specifi c issues with forestry, fi sheries and environmental impact assessment. Options for improvement exist, including geography-based environmental management, improved governance, fi nancial management and incentives, and clarifi cation of central-local roles on environmental issues.
4. Enabling policies for sustainable development (Chapter 4). Indonesia’s spending for environmental purposes has been relatively low for most of the decade, environmental revenue collection has been low and natural resources have been underpriced. Fuel and electricity subsidies enhance overconsumption, burden the budget and benefi t higher income groups, while making it diffi cult for renewables to compete. Legal and fi nancial incentive structures have not been eff ective in curbing illegal logging and slowing down deforestation as well as degradation. Policy distortions in fi shing and mining have contributed to unsustainable harvesting patterns and illegal mining activities. In all sectors, policy distortions arise from confl icting sector-based regulations and national laws, especially those involving decentralization. These policy distortions could be overcome through an environmental fi scal policy reform that uses taxation and pricing instruments to raise revenues but also to provide incentives for more sustainable behavior.
5. Building constituency, awareness and critical
partnerships (Chapter 5). The environment is on the radar screen of the Indonesian population, especially issues concerning water (pollution, fl oods, droughts), cities (cleanliness, solid waste, air quality) and forests (degradation, illegal logging, fi res). The GOI has policies, investments and programs for these public priorities, but their persistence as public concerns is one indicator that they have not been adequately addressed. The GOI is also pursuing areas that are not yet public priorities, e.g. climate change, coastal and marine resources, biodiversity, clean energy, and hazardous wastes, indicating a low level of public awareness. Partnerships are needed with four key actors who can bridge environmental communications between the government and the public: the mass media, civil society organizations, the legislature, and religious organizations. Promoting public participation and
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increasing awareness are essential for any development partnership that seeks to build eff ective demand for environmental sustainability.
Climate Change is a New National Priority
6. Adaptation is a priority because of Indonesia’s
vulnerability to climate change (Chapter 6). Specifi c areas of Indonesia are highly vulnerable to multiple climate change hazards (drought, fl oods, landslides, sea-level rise). While temperature may only increase modestly, more intense rainfall and sea-level rise will negatively aff ect food security, water resources, coastal areas, farming and coastal livelihoods, forests, marine biodiversity, and health. People and ecosystems are especially vulnerable to climate risks on Java, Bali, parts of Sumatra, and a large area of Papua. Climate change will have the most impact on the poorest Indonesians who are more likely to be: living in marginal areas that are susceptible to drought, fl ooding and/or landslides; dependent on climate-sensitive agriculture or fi sheries for their livelihoods; and have fewer assets to cope with the impacts of a changing climate. The annual benefi t of avoided damage from climate change is likely to exceed the annual cost by 2050 and, by 2100, the benefi t could reach 1.6 percent of GDP, compared to the cost at 0.12 percent of GDP. Many adaptation options exist to help reduce Indonesia’s vulnerability to climate change which will need to be phased and prioritized according to the magnitude of costs, benefi ts and risks.
7. Land use and climate change constitute a recognized
sectoral challenge (Chapter 7). High rates of deforestation, illegal logging, forest fi res, and peatland degradation constitute the single largest source of Indonesia’s greenhouse gas emissions and have made it one of the world’s principal emitters. 10 provinces account for 78 percent of dry forest loss and 96 percent of swamp forest loss as well as related emissions, with just Riau, Central Kalimantan and South Sumatra accounting for over half of all losses and emissions. Although there is uncertainty about the magnitude of such emissions, there is consensus that forestry and land use are key priorities for mitigation. The policy and institutional issues, driving forces, impacts, and development costs of forest and land degradation have been well-known for many years in Indonesia. “No regrets” options exist that should be pursued regardless of climate benefi ts, i.e. improved forest law enforcement, management and governance; realigned incentives for timber harvesting and processing fi rms to improve sustainability; restructuring and revitalization of forest sector industries, forest and land fi re control, greater equity and transparency in forest/land use decisions, and independent monitoring of legal compliance. Forest climate fi nance such as REDD can provide an important incentive for implantation of these “no regrets” options.
8. Energy and climate change is an emerging challenge
(Chapter 8). In the future, fossil fuel emissions will be a greater concern than forest and land use emissions. With current energy subsidies, it will be more diffi cult to promote effi ciency, cleaner technology or innovation for environmental and climate benefi ts. Indonesia uses fuel and electricity ineffi ciently and in excess. On the other hand, the country has the world’s largest potential for developing geothermal power, sustainable biofuels and other renewables (hydropower, wind, solar, and biomass). While fossil fuel GHG emissions per capita and emissions intensity are low, they are increasing rapidly. Industry is currently the largest source of carbon emissions, the transport sector is the largest user of liquid fuels and petroleum is currently the main contributor to CO2 emissions. Even assuming a decrease in energy intensity, emissions from energy consumption will triple by 2030 from 2005 levels. Mitigating these emissions will require more realistic energy pricing, a more enabling environment to develop renewable energy resources, and greater effi ciency in the industrial, power, manufacturing and transport sectors.
9. Options for investing in a more sustainable Indonesia
(Chapter 9). A more sustainable Indonesia is one where:
The costs of environmental degradation and climate • change are lowered so that less wealth is diverted from growth
Good environmental management contributes to • poverty alleviation by reducing impacts on the poor and better sharing of benefi ts
Renewable resources are used sustainably while non-• renewable ones are wisely developed for investment in human and physical capital
Citizens are aware of and participating in • environmental issues directly or through their representatives and other organizations.
Options for moving toward this vision exist in both the areas of environmental governance and climate change. These are summarized in the table below and key actors are identifi ed to move the agenda forward. The World Bank has a long history of partnership with Indonesia on environmental and natural resource management issues. The ongoing engagement has centered on forestry management and biodiversity conservation as well as coastal and marine resources. Given the fi ndings of the CEA, there are opportunities for increased partnerships in the areas of environmental governance and climate change that are presented in the report’s annex.
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Options for a More Sustainable Indonesia Potential Partners
Environmental Governance
• Strengthen decentralized environmental governance through geography-based environmental management, local-level fi nancial management and incentives, and a clarifi cation of roles
• Introduce more enabling policies by harmonizing laws and regulations, and undertaking an environmental fi scal reform agenda
• Build constituencies by expanding awareness as well as access to environmental information, participation in policy and decision-making and justice
Ministry of Env., DPR, local govts.
DPR, Ministry of FinanceGoI, NGOs, DPR, media, religious orgs., Min. of Env.
Adaptation to Climate Change
• Undertake reactive and proactive adaptation measures in the key areas of water resources, agriculture, forestry, coastal/marine, and health, including and in addi-tion to what is currently contemplated
• Prioritize adaptation options by emphasizing “no regrets” actions that provide benefi ts even without climate change, buying safety margins for new invest-ments, and favoring reversible and fl exible options
• Implement a phased strategy to mainstream adaptation, including complemen-tary eff orts to raise public awareness, undertake research, coordinate, strengthen local capacity, and increase the resilience of vulnerable groups
Relevant line ministries, Bappenas
Bappenas, line ministries, Ministry of FinanceBappenas, Ministry of Finance, line minis-tries, local governments
Land Use and Climate Change
• Implement “no regrets” options for forest law enforcement, management and governance, realigned incentives for timber harvesting, revitalization of forest sector industries on a more sustainable basis, control of forest fi res, and greater accountability, equity and transparency in forest/land use decisions
• Pursue new sources of forest carbon fi nancing in order to support and accelerate the “no regrets” options
Ministries of Forestry, Env., Agriculture, local govts., private sector
Ministry of Forestry, DNPI, private sector
Energy and Climate Change
• Be guided by high-level planning and coordination for a lower carbon develop-ment scenario to reduce the emissions intensity of growth
• Go beyond existing plans to introduce more effi cient energy pricing, encourage investment to develop renewable energy resources, accelerate energy effi ciency in key emitting sectors, and take advantage of international fi nancing mecha-nisms to off set the costs of some of these options
Ministry of Finance, DNPIMinistry of Energy & Mineral Resources, PLN, Pertamina, private sector
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Table 1. Indonesia 2009 Environmental Data Table
LAND, POPULATION & ECONOMY Country Data Lower middle-income group
Land area (sq km) 1,811,600
Population 226 million
Overall density (people/sq km) 121.77
Urban population (% of total) 50 42
Urban population growth (ave. annual %, 1990 – 2006) 4.3 2.9
Population growth (ave. annual %, 1990 – 2006) 1.4 1.3
GDP $432.8 billion
GNI per capita $1650 1905
LAND, FORESTS & BIODIVERSITY
Agricultural land (of total land) 26% 47%
Population density, rural (people/sq km arable land) 498 511
Forest area (of total land) 48.8 25
Deforestation (ave. annual %, 1990 – 2005) 1.8 0.1
Protected areas (% of total land) 11.2 11.0
EMISSIONS (energy-based only)
CO2 emissions per unit of GDP (kg/2005 PPP $) 0.6 0.8
CO2 emissions per capita (metric tons) 1.9 2.8
CO2 emissions growth (%, 1990-2005) 181.0 93.5
Particulate matter (urb wtd ave, ug/m3) 83 67
WATER & SANITATION
Internal freshwater resources per capita (cu. m) 12,578 4117
Freshwater withdrawal
Agriculture (% of total freshwater withdrawal) 91 80
Access to improved water source (% total population) 80 88
Rural (% of rural population) 71 82
Urban (% of urban population) 89 96
Access to improved sanitation (% of total population) 52 55
Rural (% of rural population) 37 43
Urban (% of urban population) 67 71
ENVIRONMENTAL HEALTH
Diarrhea prevalence (% of children under age 5) 10.4 NA
Under-fi ve mortality rate (per 1,000 live births) 34 50
NATIONAL ACCOUNTING & WEALTH
Gross savings (% of GNI) 27.2 41.7
Energy depletion (% of GNI) 6.9 6.6
Mineral depletion (% of GNI) 2.0 1.2
Net forest depletion (% of GNI) 0.0 0.2
CO2 damage (% of GNI) 0.8 1.2
MARINE & COASTAL
Marine area (million km2) 5.8
Coastline (km), reef area (million ha) 81,000; 2.6
Fisheries potency (million tons/year) 6.4
Total allowable catch (million tons/year) 5.1
Fish production (millions tons/year) 4.7
Source: The Little Green Book 2009, World Bank
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SECTION 1:
Prioritiesfor Sustainable Development
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SECTION 1: Priorities for Sustainable Development
Chapter 1:
The Context for Analyzing Indonesia’s Environment
Fishermen (World Bank Collection) Photo: Curt Carnemark
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1.1 Key Characteristics of Indonesia’s
Environmental Challenges
Inadequate environmental management is a challenge
for Indonesia that hurts the poor and the economy. For example, total economic losses attributable to limited access to safe water and sanitation are conservatively estimated at 2 percent of GDP annually while the consequences of climate change could cost the Indonesian economy between 2.5 and 7 percent of GDP by the end of the century. The total cost of environmental degradation, including climate change, is over 5 percent of GDP per year and likely to increase. These costs are typically disproportionately borne by the lowest income groups because they are more likely to be exposed to pollution and less likely to be able to aff ord mitigation measures.
Natural resource challenges have persisted and become
more complicated in the context of decentralization. As an example, the forest sector has long played a pivotal role in supporting economic development, the livelihoods of rural people and the provision of environmental services. However, these resources have not been managed in a sustainable or equitable manner. Turning this situation around will require a new vision, led by the Government, of what a viable and environmentally sound forestry sector might look like.
The country’s administrative and regulatory framework
cannot yet meet the demands of sustainable development. This is in spite of a long history of support for policy and capacity development both from within the government and with international donor support. Indonesia’s ministries concerned with environment and natural resources management have benefi ted from good national level leadership, and also from an active network of civil society organizations throughout the country that are focused on environmental issues, with signifi cant advocacy experience. Yet, improving Indonesia’s approach to environment and natural resources management is diffi cult.
Implementation of policies and programs can mitigate
progress towards more sustainable development. First, despite the substantial investment in environment and natural resources policy and staff development, actual implementation of rules and procedures has been poor and slow due to weak commitment by sectoral agencies, low awareness in local departments and offi cials, and capacity challenges at all levels. Also, awareness about the expected negative environmental impacts of sustained economic growth and the mechanisms for stakeholders to hold government agencies accountable for their performance are weak. Second, there is little integration of environmental considerations at the planning and programmatic levels, especially in the public investment planning process and in regional plans for land and resource use.
1.2 A Tool for Investing in Indonesia’s
Institutions for Sustainability
The new Country Partnership Strategy provides a window
of opportunity. The ongoing policy dialogue and operational engagement suggest that the World Bank could play a fundamental role in advancing the environment and natural resources agenda in Indonesia by sustaining its eff orts to shift from a project-based approach to a programmatic one, with a stronger focus on environment and natural resources management in the context of GoI decentralization, poverty reduction and economic development programs. Therefore, the current phase of Bank engagement is intended to better defi ne the Country Partnership Strategy (CPS) core engagement area on environmental sustainability, particularly in the context of a new GoI medium-term development plan and political administration.
1.2.1 Objectives
The initial objective of the CEA exercise was to infl uence
the CPS by mainstreaming environmental and NRM
concerns. As key messages from the CEA were included in the CPS during preparation of this report, the CEA can now serve as an instrument for further developing the core engagement area on environmental sustainability by embodying the CPS philosophy of investing in Indonesia’s institutions. In light of this context and the approaching of signifi cant milestones in the GoI business cycle, the CEA should strengthen and deepen the Bank’s current understanding of environment and natural resources management challenges, institutional and regulatory issues that bear directly on the sustainability of economic growth, their appropriateness and eff ectiveness in the context of GoI policies priorities, and propose specifi c recommendations with short-to-medium term focus on how to achieve more eff ective results on the ground. Thus, the revised objectives of the CEA are to support Indonesian policies and institutions for more sustainable management of the environment and natural resources. Two immediate opportunities are to contribute to the formulation of the new medium-term development plan (2010-2014) and the policies of the new administration that will take offi ce in the fourth quarter of 2009.
1.2.2 Phased Approach and Building Blocks
The CEA is being carried out in three phases: scoping,
analysis and dissemination. The fi rst phase of scoping the CEA was carried out between May and September 2007, and followed the preparation and review of the concept note which took place between February and April 2007. Phase I was essentially a structured process for determining the priority issues based on technical, economic, and societal rapid assessments. Also, it was meant to lay the foundation for more detailed stakeholder engagement and gap fi lling analysis to be undertaken in Phase II. The second phase, undertaken in 2008, involved consultation and the preparation of various building blocks that are described below.
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Consultative Process
A series of consultative discussions with on environmental
issues and challenges in Indonesia were held between June
and September 2007. These included meetings with key counterparts in Government, NGOs, and the donor community working on environment and natural resources management in Indonesia. The consultations involved a combination of presentations and discussions particularly with civil society and local and international NGOs, focused meetings with the Ministry of Environment, Ministry of Forestry, Ministry of Home Aff airs, Ministry of Finance, Bappenas, and/or bilateral donors.
The results of the ongoing consultation process signaled
strong interest issues related to environmental sustainability
in general. In particular, there was a focus on climate change and its relevance for Indonesia, decentralized environmental management in terms of sharpening the defi nition of roles and responsibilities across tiers of government at national and local levels, and strengthening transparency and accountability for the implementation of laws and regulations pertaining to environment and natural resources management. It also emerged that there is concern and interest for better public participation and a stronger voice for civil society in environment and natural resources management.
In addition, the consultation process allowed for renewing and deepening existing partnerships, and in the case of Ministry of Finance, and Bappenas, they are serving as the basis for strengthening the dialogue on governance in the environment and natural resources management sectors. In addition, the ongoing consultative process is also serving the purpose of supporting and informing capacity building eff orts that GoI is currently carrying out in collaboration with local governments, civil society and NGOs.
Building Blocks
Following the consultative process, a number of building
blocks were prepared or incorporated in order to construct
the overall analysis. Key building blocks included:
Water and sanitation• – following guidance from management, the CEA team incorporated results from The Economic Impacts of Sanitation in Southeast Asia which was prepared by the EAP Water and Sanitation Program.
Climate• change – the team was able to use intermediate analyses being developed by the Ministry of Finance, the National Climate Change Council and the World Bank as part of the Indonesia Low Carbon Options Study.
Donor • activities – a special report was commissioned to review and assess donor activities related to the environment and natural resources management, and to compare their support with GoI budgetary priorities.
Environmental• degradation costs – a rapid assessment of the economic costs of environmental degradation was locally commissioned and upgraded with analysis by World Bank staff .
Public• awareness and perceptions – local consultants conducted a review of existing survey data to assess public perceptions of environmental problems and priorities vis a vis GoI development priorities and strategies.
Decentralized• environmental management – a review and analysis was prepared by an international consultant to assess the context and consequences of Indonesia’s increasingly decentralized management of the environment.
Partnership and Dissemination
The CEA involves a partnership with many stakeholders. The Ministry of Environment, Ministry of Forestry, Ministry of Home Aff airs, Ministry of Finance, Bappenas, and select local governments are among the lead counterparts for the preparation the CEA. For some of these counterparts (e.g. Ministry of Environment, Ministry of Forestry, Ministry of Home Aff airs and local governments) the CEA will allow for renewing and deepening existing partnerships. For others (e.g. Ministry of Finance, Bappenas), the CEA serves as the basis for strengthening the dialogue on governance in the environment and natural resources management sectors. This would support and inform the capacity building eff orts that GoI is currently carrying out in collaboration with local governments, civil society and NGOs.
The concept/work plan was discussed at a stakeholder workshop to receive feedback as will be the draft report before fi nalization and offi cial release. In addition, the Indonesia CEA exercise builds on the results and fi ndings of ongoing programs of bilateral donors, particularly the work of DANIDA and AusAID, to help strengthen the collaboration with other donors active in Indonesia. A fi nal consultation was held with GoI agency representatives in June 2009 to discuss the report’s analysis and fi ndings.
The third phase of the CEA will focus on dissemination of
deliverables. This will include (but will not be limited to) a dissemination workshop targeted on preparation of the new medium-term development plan and a public awareness workshop to disseminate information to a broader set of stakeholders. This document is being published in Indonesian and English. A series of policy notes are being prepared, based on CEA fi ndings, to share with the incoming government later in 2009. A general brochure on the overall results of the CEA is also being published to summarize its main messages for a broader audience. These documents will also be disseminated through other channels, including the Internet and the national as well as local media to broaden accessibility of its analysis and conclusions. An eff ort is also being made to synchronize CEA preparation with the Asian Development Bank, with the opportunity for producing a joint CEA document in late 2009.
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1.3 Underlying Environmental Challenges
The country’s administrative and regulatory framework
cannot yet meet the demands of sustainable development. This is in spite of a long history of support for policy and capacity development both from within the government and with international donor support. Indonesia’s ministries concerned with environment and natural resources management have benefi ted from good national level leadership, and also from an active network of civil society organizations throughout the country that are focused on environmental issues, with signifi cant advocacy experience. Yet, improving Indonesia’s approach to environment and natural resources management is diffi cult. To date, issues that most seriously threaten progress towards sustainable development in Indonesia include:
Gaps between policy and practice in decentralized • environmental management that could slow signifi cant improvement in environmental quality. Under decentralization, the extent to which sub-national governments feel bound by national guidelines in more than a vague way is being put to the test; the civil service is no longer part of a unifi ed chain of command, regulatory bodies in many provinces and districts now fall directly under the command of the governor or district head, who is often also the proponent of the projects or activities that must be regulated. Despite the substantial investment in environmental policy and staff development, actual implementation of rules and procedures has been poor. These problems are unlikely to get better under decentralization unless a more eff ective approach to regulation can be developed. Many provinces and districts are making new interpretations of existing rules, or else inventing entirely new regulatory procedures. While some of these innovations strengthen environmental controls, many relax them or bypass national standards entirely. These challenges are further developed in Chapter 3.
Perverse incentives that hinder the environmental • sustainability. Natural resources are an important contributor to Indonesia’s GDP and GOI budget. Agriculture, forestry, and mining contribute about 25 percent of Indonesia’s GDP and about 30 percent of overall GOI budget revenue. Yet, Indonesia’s economic policies appear to favor resource depletion over sustainable use as they reward district governments on resource revenue and not performance or stewardship, subsidize fuel and electricity, and under-tax forestry and fi sheries (relative to other natural resources). These fi scal and policy issues are assessed in Chapter 4.
Public perception of environmental issues and • the Government’s development priorities. Public awareness is an essential part of the eff ort to address
Indonesia’s environmental problems, from disaster risks to biodiversity conservation. Informed and aware citizens can take individual action to address environmental issues, and can form constituencies for improved eff orts at the political and local government level. At a broader level, however, environmental values are not deeply embedded in societal values and attitudes, leading to undervaluation of natural resources and environmental services. Participation and voice in decision making is an essential element of good governance. Recent environmental disasters (fl oods, mud, fi res, erosion) have stimulated greater environmental concern among the public at large, but further analysis of knowledge, attitudes and practices would be needed to determine how far or deep this understanding goes outside of urban centers and what tools can best be used to build on this basic awareness. The importance of constituency, public awareness and critical partnerships is elaborated in Chapter 5.
Benefi ts, risks and costs (social, environmental and • economic) of alternative development paths in a changing climate. Energy policy, forest sector practices and climate change issues are intricately linked in Indonesia. Fossil fuels dominate energy consumption in Indonesia both in rural and urban areas and Indonesia is gradually increasing the proportion of energy produced from coal (approximately 40 percent in 2002). Indonesia is also the second largest greenhouse gas emitter among developing countries in the region; it generates nearly one-tenth of the world’s greenhouse gases, mostly from logging and forest/peat swamp fi res. National energy policies propose to increase reliance on renewable energy sources, including biomass, geothermal, and hydropower. At the same time, the GOI plans a large scale up in the use of coal to reduce Indonesia’s dependence on oil imports. Increased coal use would lead to signifi cant negative environmental impacts associated with high sulfur content and potential impacts on forests from land clearing. Alternative energy solutions are necessary for more remote areas that are appropriately priced and supported by the public sector. The relationship between development and climate change is further explored in Chapter 6 (adaptation to climate change), Chapter 7 (land use and climate change) and Chapter 8 (energy and climate change).
To respond to these challenges, options for contributing to a more sustainable Indonesia through improving environmental governance and responding to climate change are identifi ed in Chapter 9, along with possible World Bank support.
Chapter 2:
The Economics of Environmental Degradation
Palm Oil Factory, Jambi Photo: Bayu Rizky
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This chapter starts with an overview of the portfolio of wealth, including natural wealth, available to Indonesia. It goes on to analyze the economic costs of environmental degradation, to the extent that available data allows. In several cases, such data are not available and a more qualitative judgment about the signifi cance of environmental degradation will have to be made. A short section discusses the distributional consequences of environmental degradation, and in particular the impacts of climate change. The chapter concludes with a ranking of environmental priorities from the perspective of the World Bank.
2.1 The Importance of Natural Capital for
Indonesia’s Wealth
This section provides an overview of the wealth of Indonesia, using the methodological approach of World Bank (2006c)
Where is the Wealth of Nations? The approach is one of calculating the asset value across a portfolio, including the major natural assets1.
The average Indonesian has a total wealth per capita of slightly below $14,000 (table 2.1). This measure includes natural wealth in the form of land, forests and subsoil assets, and intangible capital—such as human capital and institutional capital—in addition to produced assets such as buildings and machinery. Natural capital constitutes a share of 25 percent of total wealth, being even higher than the share of produced capital. This makes Indonesia diff erent from the averages of its regional and income group categories.
A breakdown of the diff erent types of natural capital – including cropland and pastureland, timber and non-timber forest resources, and protected areas – shows the critical importance
Table 2.1. Wealth Estimates for Indonesia
Asset type Indonesia East Asia & Pacifi c
Lower middle income
$ p.c. (2000) (%) (%) (%)
Subsoil assets 1549 45 28 44
Timber resources 346 10 6 4
Non-timber forest resources 115 3 2 4
Protected areas 167 5 3 4
Crop land 1245 36 56 35
Pasture land 50 1 5 9
Natural capital 3472 25 21 19
Produced capital + Urban land 2382 17 27 21
Intangible capital 8015 58 52 60
Total wealth 13869 100 100 100
Source: World Bank, 2006c, and World Bank staff calculations based on its methodology.
MAIN MESSAGES
Natural capital constitutes about one quarter of Indonesia’s total wealth but this capital is being rapidly depleted • while not being off set by commensurate investments in human or produced capital.
The economic consequences of climate change represent the highest potential cost to Indonesia’s economy in • the long term, amounting to between 2.5 percent and 7.0 percent of GDP by the end of the century.
Inadequate water and sanitation constitute the largest short-term cost to the Indonesian economy, estimated • at about $7.6 billion in 2007 or more almost 2 percent of GDP.
The health impacts of outdoor and indoor air pollution have been estimated at $5.5 billion per year or about • 1.3 percent of GDP.
Signifi cant economic losses are also caused by other types of environmental degradation, especially • deforestation, soil depletion, and coastal/marine degradation. These have not been quantifi ed due to lack of data.
1 This section is an abridged and edited version of an unpublished note provided by Giovanni Ruta.
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of subsoil assets and crop land for Indonesia (Figure 2.1): 45 percent of natural wealth are subsoil assets while crop land accounts for 36 percent of natural wealth.
Natural wealth constitutes a potentially large pool of resources where renewable resources can be managed to supply sustainable rents, and non-renewable resources can be channeled to create produced and human capital. The way natural capital is transformed into other forms of capital is therefore essential for Indonesia’s development strategy.
In order to develop policies for sustainable development, one must not only look at the composition of wealth but also measure changes in its value. Broader measures of saving, which take into account capital accumulation as well as the depletion of natural resources, are useful in providing a clearer measure of a country’s sustainability.
As shown in table 2.2, Indonesia’s saving rate for 2006 declines by more than 90 percent (from 27.6 percent to 1.7 percent), once depreciation of produced capital, the depletion of natural resources and damage from global and local air pollutants are taken into account. There is reason to believe that even this is an underestimate, as the fi gure for net forest depletion does not coincide with more credible estimates given elsewhere (see the more detailed discussion in Chapter 7). The driving forces behind this low adjusted net saving rate are high energy depletion and, to a lesser extent, mineral depletion that are not off set by higher savings in human capital or produced capital. Education expenditures are at 0.9 percent of GNI, which is very low compared to the relative income and regional group averages. The policy message is that the current economic growth to a large extent is fueled by liquidating non-renewable resources, but investing little in human capital, while infl icting sizable environmental costs.
Indonesia depends heavily on agricultural land resources, but fi gures reported here do not include soil depletion, for which suffi cient information is not available. It should also be noted
that fi sheries are not included in the wealth estimates due to lack of data.
Health damages from particulate matter emissions—a major indicator of overall air pollution—(in urban areas) amount to about 1.7 percent of GNI. While this is between the regional and income group average levels, the problem is likely to become even more acute in the next few years as urban population and traffi c increases. Economic growth, sectoral shifts in production, and technology changes will all impact the ultimate result in air pollution.
2.2 The Signifi cance and Costs of
Environmental Degradation
This section briefl y discusses the available information about the magnitude of important environmental problems. Whenever possible, data on the costs of environmental degradation have been included.
2.2.1 Climate Change
As a tropical archipelago with a signifi cant dependence on agriculture and natural resources, Indonesia is highly vulnerable to the eff ects of climate change. The expected impacts of climate change on Indonesia are many, and diffi cult to quantify at this stage (PEACE (2007) and ADB (2009)):
Modest temperature increase: an increase in the • annual mean of 0.30C has been observed since 1990. The annual mean temperature in the SE Asia region is expected to rise by 4.80C by 2100 from the 1990 level;
More rainfall: an increase of about 2-3 percent is • expected, and coupled with a shorter rainy season, the risk for fl ooding will increase;
Crop production: soil fertility is expected to be • reduced over time. Starting in 2020, rice yields are expected to begin declining and could be 34 percent lower in 2100 as compared to 1990 levels. Other estimates (Cline, 2007) are less drastic, but point to possible declines in agricultural productivity in the order of 6-18 percent by 2080;
Sea level rise: global mean sea level is projected to rise • by 28-43 cm (Nicholls et al in, 2007, in IPCC) or even 70 cm (ADB, 2009) by the end of this century relative to the 1980-1999 and 1990 levels respectively. This rise and storm surges coupled with land subsidence is expected to increase damage to coastal areas;
Warming of the ocean will aff ect marine biodiversity: • the 50,000 km2 of coral reefs represent almost one fi fth of the global total, but only six percent are classifi ed as “excellent” and further decline is expected;
Figure 2.1. Natural Wealth Composition in Indonesia
(percent, 2000)
Source: World Bank (2006c) and World Bank staff calculations.
Pasture land 1%
Crop land 36%
PA 5%NTFR 3%
Timber resources 10%
Subsoil assets 45%
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Public health: water-and vector-borne diseases are • expected to spread further and intensify. Meanwhile, public health management can be expected to become more effi cient in line with economic development.
The Asian Development Bank has recently estimated the economy-wide cost of climate change in Indonesia as well as three other SE Asian countries (ADB 2009). The results for Indonesia indicate that, without global mitigation eff orts, the costs are relatively low in the medium term but rise signifi cantly in the longer run. By the end of this century, the annual economic cost for Indonesia could reach 2.5 percent of GDP if only market impacts are considered; 6.0 percent of GDP if non-market impact is included; and 7.0 percent of GDP when catastrophic risks are taken into account. These fi gures are much higher than the global averages due to the fact that the country has relatively long coastlines, a high concentration of people living along in coastal areas, a high dependence on agriculture and natural resources, a relatively low adaptive capacity, and a tropical climate.
2.2.2 Water, Sanitation and Hygiene2
Improved sanitation coverage is improving along with the economic development, and has reached about 57 percent in Indonesia in 2005. Focusing on human excreta management and hygiene, a recent World Bank report (World Bank, 2007a) has estimated the major health, water, tourism and other welfare costs associated with poor sanitation. The annual economic
impacts amount to about $7.6 billion in 2007, or almost 2
percent of GDP the same year. 3 Slightly more than half of the economic impacts are assigned to rural areas. Expressed in per capita losses, the fi gure is about $29 per annum.
More than half of the total cost estimate above refers to impacts on health, which includes estimated of sanitation-related diseases (primarily diarrhea) converted into Disability-Adjusted-Life-Years (DALYs) and treatment costs. Impacts on water constitute about one quarter of the total cost, and includes household time spent treating drinking water, impacts on fi sh production, costs of fl ooding due to poor drainage, impacts of the use of polluted water for irritation, and so forth. The World Bank (2007a) study also includes estimates of time less in search of sanitation sites, impacts on land values, loss of tourist income and foreign direct investment.
While some of these estimates must be characterized as preliminary, it is clear that the magnitude of economic losses due to poor sanitation is quite signifi cant. In a second phase, the Economics of Sanitation Initiative intends to analyze the costs and benefi ts of particular interventions. However, at this stage, such data are not available specifi cally for Indonesia.
2.2.3 Outdoor Air Pollution4
Available data on sources of outdoor air pollution are somewhat dated, but the situation in 1998 showed a strong dominance of small particulate matter (PM10)5 and nitrogen oxide (NOx) emissions from vehicles, with some 70 percent in both categories. Industry was responsible for about a quarter of emission of these two pollutants. For sulfur dioxide (SO2), the situation was quite diff erent, with industry responsible for more than 70 percent, and vehicles emitting about one fi fth of the total.
Air pollution monitoring is carried out in 10 cities in Indonesia. This system provides information by way of an Air Pollution Index (API) and ambient air concentrations. The development of the API is mixed across the nine cities for which data are
Table 2.2. Measures of Saving in Indonesia (% of GNI, 2006)
National accounting aggregates, 2006 Indonesia East Asia & Pacifi c Lower middle income
Gross saving 27.6 47.2 41.4
Consumption of fi xed capital 10.4 10.3 10.4
Net saving 17.2 36.9 31.0
Education expenditures 0.9 2.1 2.5
Energy depletion 11.4 7.1 11.1
Mineral depletion 3.1 0.9 1.1
Net forest depletion 0.0 0.0 0.0
CO2 damage 0.7 1.2 1.2
Particulate emission damage 1.2 1.3 1.1
Adjusted net saving 1.7 28.5 18.9
Source: World Bank (2006c) and World Bank staff calculations.
2345
This section draws on World Bank (2007a)This is recalculated from the source estimate of some $6 billion in 2005 using the infl ation rates and GDP data from WDI (2009). This section draws on ADB (2006), unless other sources are noted.Particulate matter with a diameter of less than 10 m.
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available, but fi ve showed worsening air pollution in the early part of this decade. The concentration of PM10 in Jakarta shows levels of two to three times the WHO 2005 Air Quality Guideline, but no clear trend from 2001 to 2005. Surabaya shows a strongly increasing trend from 2000 and onwards, reaching about fi ve times the WHO Guideline level for PM10. On a more positive note, the removal of lead in gasoline beginning in 2006 is expected to strongly improve the situation with respect to this pollutant.
Outdoor air pollution, and particularly particulate matter, is strongly associated with several respiratory illnesses, resulting in increased morbidly as well as some premature mortality. For the entire country, the Indonesia Environment Monitor 2003 quotes an estimate of $400 million per year, but this fi gure is not substantiated (World Bank, 2003)6.
An estimate of the cost of particulate emissions has been done using the methodology of estimation of adjusted net savings (World Bank 2006c). Further detail on the derivation is given in WHO (2004) and in a forthcoming paper by Pandey et al. In brief, a regression model is used that predicts the city-level concentration of PM10 based on information on population, income level, economic activity, use of diff erent types of energy sources, climate and geomorphology. The model is developed from actual annual average PM10 and Total Suspended Particulates (TSP) measurements from population-oriented monitoring stations in over three thousand cities worldwide for the period 1985 to 1999. Estimates of the burden of disease from urban outdoor particulate matter pollution are based on the contributions of three pollution-related diseases: mortality and morbidity from cardio-pulmonary causes in adults, from lung cancer, and from acute respiratory infections in children under 5 years old. Attributable numbers of deaths and years-of-life lost for adults and children have been estimated using risk coeffi cients from a large US cohort study of adults and a meta-analytic summary of fi ve time-series studies of mortality in children.
The burden of disease, calculated in DALYs is converted into dollars using a Value of Statistical Life (VSL) measure. This is not a value of anyone’s particular life, but an expression of the value of marginal risk reduction. The derived fi gure is 0.9 percent of
GDP, 2007. This amounts to about $3.9 billion per annum in
environmental health damage.
2.2.4 Indoor Air Pollution
Although outdoor sources often dominate air pollution emissions, indoor sources frequently dominate air pollution exposures. Exposure is a function of both the pollutant concentration in an environment, and the person-time spent in the environment. The household combustion of biomass (such as dung, charcoal, wood or crop residues), or coal is the main
factor behind of indoor air pollution (IAP) (Desai et. al. 2004). In Indonesia, approximately 44 percent of the households utilize fi rewood/straw for cooking (DHS, 2002/03). This percentage varies signifi cantly between the rural (69 percent) and the urban areas (16 percent). Similar percentage of households use kerosene (44 percent), but the rural-urban gap is inverted.
The most important health outcomes that have a strong association with the use of solid fuels for cooking are acute respiratory infection (ARI) in children under 5 years of age and chronic obstructive pulmonary disease (COPD) in adults. The impacts will depend very much on the cooking environment, about which little is documented. Hence, Bojö and Nuñez (2008) use several diff erent scenarios in their calculations of health impacts.
The cost of morbidity is estimated using a cost of illness approach (COI). This is composed of medical costs and the value of time losses due to disease, but with no provision for human suff ering. The cost of premature mortality is estimated using two diff erent methods. One is based on the present value of future income lost. The other is the VSL approach introduced in the previous section. Combining all these scenarios the result is an estimated total cost (2007) for IAP of some $1.6 billion
with a lower bound of $0.5 billion and an upper bound of $2.7 billion. The central estimate is equivalent to about 0.4 percent of Indonesia GDP in 2007.
2.2.5 Forests7
Forests in Indonesia are classifi ed in four main groups:
Production forest which is earmarked to be selectively • harvested, but to retain a forest cover through long periods of re-growth. However, by the turn of the century about one third of this category was deforested.
Conversion forest, i.e. areas slated for clearing of • forests for other purposes. About half of this was deforested by the year 2000.
Protection forest: to maintain hydrological and soil • retention functions
Conservation forest: for biodiversity protection. The • latter two categories maintained about an 80 percent forest cover by 2000.
The distribution of these forests types, as well as other land covering a total of some 186 million ha is shown in the fi gure 2.2.
6
7
The Monitor refers to a US Embassy website document, but this is no longer accessible. The Monitor also refers to an ADB study from 2002, but this source is not identifi ed in any note, and the Monitor lacks a list of references.This section draws strongly on World Bank (2006b)
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Indonesia has the third largest area of tropical forest in the world. Much of its impressive biodiversity is contained in those forests. It is also an economically signifi cant sector, as forestry—defi ned here as including wood manufacturing and paper & printing industry— accounts for 3-4 percent of GDP.
Between 1990 and 2000, some 21 million ha of forest cover were lost, but some 12 million ha was added because or re-growth and planting. The net loss in area – not value – amounts to about 10 percent of the 2006 forest categories reported above, after adjustment for deforestation.
The dynamics of forest areas are driven by a number of factors:
Transmigration from the 1970’s to the 1990’s moved • some 2.5 million people to sparsely populated areas where they often cleared forests to provide a homestead and a couple of hectares of agricultural land for each family. However, this program is now discontinued.
Roads provide better access to forested areas, and • can have important knock-on eff ects on habitation and forest harvesting. New roads require an EIA, but upgrading old roads do not.
Mining is sometimes taking place inside protection • forests. According to a Presidential decree (no. 41 of 2004) 13 mining companies are allowed to continue such activities. Eff orts to diminish oil dependence by relying more on coal may also induce extensive strip mining.
Forest fi res are sometimes quite widespread, and in • 1997-98 some 10 million hectares burned. Controlled burning is regularly used for land clearing. Fuelwood collection is not seen as a major driver behind deforestation as it often uses waste from tree clearing and harvest, or wood from private lots designed for
fuel supply. However, sharply increasing costs of oil and its derivatives will increase the pressure on biomass a fuel.
2.2.6 Crop Production and Land
Degradation
Indonesian agriculture has maintained high levels of productivity in the main categories of crops production, i.e. lowland and upland rice, and maize. Rice is grown under intensive cropping with irrigation systems (lowland rice) and rainfed or upland conditions (upland rice). Under dependable irrigation two crops per year are commonly grown by farmers, and occasionally up to fi ve crops can be planted in a 2-year period. The production of lowland rice is highly concentrated on Java, followed by Sumatera and Sulawesi. The share of harvested area and production of rice in Java from 1998 to 2002 has been nearly constant at around 50 percent. The average yield of brown rice grain was higher on Java (5 tons/ha) than in the other regions (4 tons/ha). The total annual harvested area of lowland rice did not change much during the fi ve-year period; it is about 11 million ha.
There does not appear to be any comprehensive and recent study on the impact of land degradation in the country. Magrath and Arens (1989) conducted an analysis of the on-site costs of soil erosion for mainly upland rainfed cropping systems on Java, using the change in productivity approach. As net profi t falls for one crop, there will be adjustments. To account for this, farm budgets for a variety of representative dryland cropping systems across Java were constructed, and used to estimate the eff ects the yield losses from erosion on net farm incomes. This was done comprehensively for a single year (1985). Assuming that the one-year loss in net income recurs over each successive year, Magrath and Arens obtain a total present value of current and future losses. The latter fi gure is their estimate of the on-site costs of soil erosion on Java. For Java as a whole, this on-site cost of soil erosion in 1985 was estimated to be approximately $ 327 million in 1985 or $562 million in 2007 dollars). This amounted to around 4 percent of the total value of dryland crops on Java in 1985.
An important limitation of this type of calculations is that it omits any off -site impacts from downstream siltation. They could be strongly negative for hydropower plants and irrigation systems downstream. But enriched siltation also contributes as natural fertilizer to downstream cultivation, so the impact is mixed.
A later analysis by Lindert (2000) fi nds no evidence that chemical land degradation of agricultural land in Indonesia has been a signifi cant problem. Reviewing the period 1940 to 1990, his overall estimate is that the average soil chemical quality declined by 4 to nearly 6 percent. This decline was due primarily to bringing new lands into cultivation in the outlying islands—the soil quality index for the established agricultural areas in Java and Madura may have increased by as much as 10 percent. The area under cultivation more than doubled
Figure 2.2. Land and Forest Classifi cations
Source: Adapted from World Bank (2006a)
Production Forest
Conversion Forest
Protection Forest
Conservation Forest
Other Land
17%
12%
33%
30%
8%
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between 1940 and 1990. Lindert concludes that overall there has been a strong increase in the soil quality index during the time period studied.
2.2.7 Coastal & Marine Environment8
The Indonesian Archipelago consists of about 17,500 islands and has a coastline of about 81.000 km. Of its population of about 225 million, 60 percent live within 60 km of the sea. Indonesia has at least 50,000 km2 of coral reefs. This is roughly 18 percent of the world’s coral reefs. The Indonesian coastal and marine sector, and in particular the small-scale fi sheries supported by coral reef ecosystems, is a signifi cant productive asset for the country and the millions of poor., Healthy coral reef ecosystems can annually produce marine products worth on average US$15,000 per square kilometer, and are an important source of food and livelihoods for about 10 thousand coastal villages across the country.
Pervasive poverty in coastal communities is coupled with extensive degradation of coastal resources. In the past 50 years, the proportion of degraded coral reefs in Indonesia has increased from 10 to 50 percent. As a result, many of the small-scale coral reef fi sheries in Indonesia have reached a level of exploitation where the only way to increase future production and local incomes is to protect critical coral reef habitats and reduce destructive fi shing eff orts. Capacity at the district level to assist coastal fi shing communities to sustainably manage this important resource is limited.
Indonesia’s coral reefs are currently undergoing rapid destruction from human activities including: poison fi shing; blast fi shing; coral mining; sedimentation; pollution and overfi shing. In a paper by Cesar et al (1997), these destructive activities are described and the private gains from these activities are compared with the costs to society. It is shown that the social costs by far outweigh the short-term private gains. However, private incentives for short-term profi t remain strong.
Pet-Soede et al (1999) undertook a cost-benefi t analysis of blast fi shing showing a signifi cant net loss over 20 years. The main quantifi able costs are through loss of the coastal protection function, foregone benefi ts of tourism, and foregone benefi ts of non-destructive fi sheries. The economic costs to society are four times higher than the total net private benefi ts from blast fi shing in areas with high potential value of tourism and coastal protection. Mous et al (2000) reviewed the damage from cyanide fi shing, and concluded that this may not be as threatening to Indonesia’s coral reefs as blast fi shing or coral bleaching caused by global climate change.
2.3 Summary of Degradation Costs
Natural capital constitutes about one quarter of total wealth in Indonesia—an even higher share than produced capital. This underlines the importance of sustainable management of natural resources as well as the need to off set depletion of natural capital with increased savings of human and produced capital.
Climate change will result in a number of negative impacts on Indonesia, including reduced crop production, sea-level rise, greater risks of fl ooding, coral reef bleaching, and further spread of vector-borne diseases. The economic costs of these impacts are projected to reach 2.5-7.0 percent of GDP by 2100.
The major health, water, tourism and other welfare costs associated with poor sanitation have been estimated more than $6 billion in 2005, or more than 2 percent of GDP that year.
The health impacts of outdoor and indoor air pollution have been estimated to about $5.5 billion per annum or about fi gure is 1.3 percent of GDP (2007).
With respect to forestry, the rate of deforestation from 1990 to 2000 has been estimated to about 21 million ha, but with some 12 million ha as a balance by way of re-growth and plantations. Natural growth in standing forests contributes further to an increase in volume.
Table 2.3. Summary of Economic Costs from Environmental Degradation
SOURCE OF DEGRADATION ECONOMIC COST ($ bn 2007) ANNUAL GDP LOSS (%)
Climate change Increasing over time 2.5–7.0 (by 2100)
Water, sanitation and hygiene 7.7 2+
Outdoor air pollution 3.9 1.2
Indoor air pollution 1.6 0.4
Forest degradation N/a N/a
Soil degradation $562 million (Java, 1985) 0.13*
Coastal and marine environment N/a N/a
* Updated from 1985 estimate using GDP defl ator of 172 (1985 = 100)
8 This section draws on World Bank (2004) and http://www.zmt-bremen.de/fi les/Downlods/SPICE_Flyer.pdf.
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Estimates of the cost of land degradation—particularly water-induced erosion in uplands and salinization and waterlogging of irrigated areas— are not easily available, and the wealth estimates quoted above do not include them. A partial estimate for Java is included below for comparison.
Coastal zone and marine degradation is a major concern in Indonesia, with it rich marine biodiversity. Some economic data are available with respect to coral reef degradation, showing signifi cant losses per km2. However, further work is needed to assess how these localized estimates can be scaled up to a national perspective.
2.4 Distributional Consequences of
Environmental Degradation
It is widely known that the poor suff er the greatest consequences from environmental degradation for a variety of reasons:
Livelihoods of many rural poor are directly tied to the • quality and productivity of natural resources (water, soil, forests, fi sheries)
Poor families have the lowest rate of access to • environmental services and benefi ts such as drinking water, sanitation and clean energy
Low-income households are more vulnerable to • natural and anthropogenic disasters because they are often located in higher-risk areas
Poor people cannot aff ord to cope with environmental • degradation as eff ectively as can wealthier segments of society.
For example, the livelihoods of 10 million of Indonesia’s 36 million poor are linked to the country’s forests; forest loss undermines these livelihoods, ecosystem services and the ability to meet poverty alleviation goals (World Bank, 2006a). As another example, the eff ects of climate change will be felt most by the poorest Indonesians who are more likely to be: living in marginal areas that are susceptible to drought, fl ooding and/or landslides; dependent on climate-sensitive agriculture or fi sheries for their livelihoods; and have fewer assets to cope with the impacts of a changing climate (UNDP, 2007). Some of the poverty impacts of climate change in Indonesia, viewed through the lens of the Millennium Development Goals, are presented in Table 2.4.
2.5 Selecting a Focus for the Country
Environmental Analysis
Chapter 5 reviews donors activities in the environment and natural resource management sector in the last 3-5 years, and
Table 2.4. Poverty Impacts of Climate Change by MDG Goal
MDG Goal Potential Poverty Impact
Eradicate extreme 1. poverty and hunger
Degradation of forests, fi sheries, pastures, and cropland that many poor families depend on • for their food and livelihoodsDamage to poor people’s homes, water supply and health, which will undermine their ability • to earn a livingIncreased social tensions over resource use which can lead to confl ict, destabilized livelihoods • and migration
2. Achieve universal primary education
More children likely to be taken out of school to help fetch water, care for ill relatives or help • earn an incomeMalnourishment and illness among children could reduce their school attendance and impair • their learning while in classFloods and storms destroy buildings•
3. Promote gender equity and empower women
Greater vulnerability of women who are more dependent on the natural environment for • their livelihoodsWomen and girls will face a greater workload fetching water, fodder, fi rewood, and producing • food during climate stressFemale-headed households with few assets will be particularly vulnerable to climate-related • disasters
4. Reduce child mortality Climate change could lead to higher mortality from heat waves, fl oods, droughts, and • hurricanes.
5. Improve maternal health Pregnant women are vulnerable to diseases spread by mosquitoes (malaria and dengue) or • those spread by water (cholera and dysentery) which may become more prevalent
6. Combat major diseases Same as 5 above• Quality and quantity of drinking water could be reduced, exacerbating malnutrition among • children
7. Ensure environmental sustainability
Deterioration in quality and productivity of natural resources and ecosystems upon which • the poor depend
Source: adapted from Oxfam, 2007
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compares them with the Government of Indonesia’s priorities in the same sectors. The main fi nding is that the top three categories in the donor list and the GOI list are identical, namely (i) pollution and urban environment; (ii) forest, biodiversity, land and water; and (iii) coastal and marine. The top category alone covers about 40 percent of the funding from both donors and GOI. Conversely, the bottom three—of six—categories in terms of revealed priorities are also identical in ranking, namely (iv) transportation, energy & mining; (v) global environment; and (vi) national cross-cutting issues. The background report for the chapter concludes that “…there is no signifi cant discrepancy in the prioritization of ENRM resources” (Ibid, p.15). But what should be the priorities for the CEA’s focus?
This chapter provides one basis for prioritization – the magnitude of the economic cost of degradation. This should be of overriding concern from an Indonesian perspective. From the viewpoint of a development partner like the World Bank, other selection criteria would include: the World Bank’s comparative advantage to work on a particular problem, whether the problem is already being adequately addressed by one or development partners, the potential for achieving signifi cant impact, and opportunities for mobilizing fi nancial resources for change. Table 2.5 represents an attempt at applying these criteria to the environmental challenges that have been discussed in this chapter.
From this cursory analysis, the two highest-priority environmental challenges would be climate change and water/sanitation. Climate change constitutes the biggest long-term environmental threat to the Indonesian economy. It is also an area where the World Bank has a comparative advantage in working, it has only recently drawn the attention of the GOI and development partners in Indonesia, there is signifi cant potential for both mitigation and adaptation, and there are
increasing donor and market resources available to tackle the climate challenge. Similarly, water, sanitation and hygiene represent the highest short-term economic costs, the World Bank has a long history of involvement in the sector, especially sanitation has not been adequately addressed in Indonesia, the potential health and economic impacts of addressing the problem are tremendous, and relatively signifi cant fi nancial resources are available to address the problem. However, water and sanitation have been the focus of many separate analyses that do not have to be repeated here and are already incorporated in the work of the World Bank in Indonesia through its infrastructure program as well as its Regional Water and Sanitation Program.
The other environmental challenges are still very important for Indonesia’s sustainable development. However, for various reasons, they do not merit the same attention for a Country Environmental Analysis, e.g. economic costs are an order of magnitude lower, the World Bank does not have a comparative advantage to work on the issue, the problem is already being adequately addressed, the potential for achieving an impact in the short-term is constrained, and/or fi nancial resources to address the problem are not readily available. It should also be noted that an upcoming CEA to be prepared by the Asian Development Bank will nicely complement the World Bank’s analysis by focusing on water resource management and coastal/marine issues. Indoor and outdoor air pollution issues have also been a focus of the ADB and the World Bank does not have a comparative advantage in lending to local governments where this pollution needs to be better managed. Soil depletion has been a focus of previous World Bank and other donor initiatives, as has forestry (EC, 2005; World Bank, 2006). Thus, this report chooses to focus on the emerging challenge of climate change as related to adaptation (Chapter 6), land use (Chapter 7) and energy (Chapter 8).
Table 2.5. A Preliminary Ranking of Environmental Challenges
Problem Economic Cost Comparative Advantage
Already Addressed Impact Potential Financial Resources
Climate change +++ ++ + +++ +++
Water, sanitation and hygiene
+++ ++ + +++ ++
Outdoor air pollution ++ ++ ++ ++ +
Indoor air pollution ++ + + ++ +
Forest degradation + ++ ++ ++ ++
Soil degradation + ++ + ++ +
Coastal and marine + ++ ++ ++ ++
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SECTION 2:
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Chapter 3:
Institutional Setting: Decentralized Environmental Management
Prambanan Temple, Central JavaPhoto: Winarko Hadi
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3.1 Environmental Law and Policy
Framework
Indonesia made a commitment to sustainable development in its National Concord for Sustainable Development on 2 January 2004, as part of a Sustainable Development Action Plan containing the country’s Millennium Development Goals. Therein Indonesia’s development philosophy refl ected a combination of economic, social, and environmental components to achieve sustainable development. This commitment is refl ected in a set of laws and policies.
3.1.1 Relevant Legislation
Although Indonesian legislation related to environment and natural resources management is both detailed and extensive, it lacks common vision or coherency, with the legislative framework often overlapping and contradictory. These problems have been exacerbated by the independent and often spurious interpretations and subsequent implementations of decentralized authorities, where provinces and districts often issue regulations which at times directly contradict central national legislation or nationally-issued regulations. Key legislation includes:
Constitution, 1945 - in 2002, Indonesia’s Constitution • of 1945 was amended to emphasize balanced development through environmental sustainability
Law on the Environment (No. 23/1997) - authorizes the • Minister of Environment to issue national standards and other minimum requirements over a wide range of areas that legally fall under other ministries’ jurisdictions, but nonetheless aff ect the environment.
Basic Forestry Law (No 41/1999) - Indonesia’s legal • framework for Forest management is based on
three broad goals of promoting economic growth, providing widespread an equitable benefi ts to society (livelihoods and poverty reduction), and sustaining environmental services/benefi ts
Law on Marine & Coastal Resources 2007 – this law • creates the right to formally commercialize coastal water zones.
Law on Energy (No 30/2007) – creates a body to • oversee energy policies and contribute to achieving development objectives. Does not solve the problem of an uncoordinated legal and policy framework in the energy sector.
Law on Mining 2009 – sets clear rules on mining • permits, fi nancial responsibilities of mine operators, while also requiring mine investors to commit to downstream mineral processing.
Law on Fisheries (No. 31/2004) – provides a • broad framework for governing the industry, with comprehensive permitting and harmonized regulations, but does not resolve confl icts between local and central authorities for management.
Law on Management of Water Resources - focuses • on decentralized resource management, control of pollution, exploitation, conservation, and disaster control.
Law on Toxic Wastes 1997 – lifecycle control of toxics • and prohibition of the transboundary transfer of hazardous and toxic waste.
International Agreements – Indonesia has ratifi ed the • Convention on Biological Biodiversity; Convention
MAIN MESSAGES
Indonesian laws, policies and institutions have evolved to embrace democracy and decentralization.•
Similarly, there is an impressive set of laws, policies, programs, and national as well as local institutions that are • responsible for environmental and natural resource management.
Over the past decade, many aspects of environmental management and natural resource management have • been decentralized to the local level.
Greater local control has had positive aspects through reputational programs, greater political will, inter-agency • collaboration, community empowerment, and integration of environment in spatial planning.
At the same time, decentralization has resulted in obstacles to good environmental management, including: • inadequate standards and enforcement; problems with incentives, empowerment and insuffi cient capacity; and specifi c issues with forestry, fi sheries and environmental impact assessment.
Options for improvement exist, including geography-based environmental management, improved governance, • fi nancial management and incentives, and clarifi cation of central-local roles.
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on International Trade in Endangered Species; International Tropical Timber Agreement; Ramsar Convention on Wetlands; Climate Change Convention and the Kyoto Protocol; Vienna Convention for the Protection of the Ozone Layer; Convention to Combat Desertifi cation; Basel Convention; Nuclear Test Ban Treaty; Convention on the Law of the Sea; and International Convention for the Prevention of Pollution from Ships.
3.1.2 Sectoral Policies & Programs
Many sectors engage in environmental management. The key sectoral policies and programs are as follows:
Forestry• – the Ministry of Forestry’s current strategy consists of fi ve priorities, including fi ghting illegal logging, controlling forest fi res, rehabilitation and conservation of forest resources, and both restructuring as well as decentralization of the forestry sector.9 However, eff ective action on these priorities is limited by lack of coordination and cooperation between those national departments responsible as well as between levels of government. It has happened that even local governments have rejected central government environmental policies and decrees when they are too deemed unsound or unwise.
Biodiversity• - Over 11 percent of the Republic’s land area (about 21.5 million hectares) has been declared protected areas, either in the form of nature reserves, wildlife reserves, national parks, nature recreational parks, grand forest parks and game reserves, which are managed by the Ministry of Forestry. Moreover, Indonesia boasts an additional 6.3 million hectares of marine parks.10 Additional biodiversity management eff orts are also undertaken in botanical gardens, zoological gardens, safari parks, breeding and cultivation centers and arboretums. The Forestry Ministry has also established a “genetic bank” for food crops, while the Department of Agriculture maintains a cell and plasma collection for cattle and agricultural plants. The Ministry of Environment has formulated the Indonesia Biodiversity Strategy and Action Plan (IBSAP) to guide implementation of the national biodiversity program up through 2020. IBSAP includes fi ve goals, four of which concern creating greater public awareness, developing conservation-oriented attitudes, and engaging the nation’s citizenry in governance issues. At the same time, IBSAP is not a legally binding document, and consequently the Ministry of Environment cannot enforce the Action Plan.
Agriculture• - Priority in agrarian policies and development plans is to increase production of several crops, especially of rice, in hopes of regaining self suffi ciency, but these eff orts are hindered by the very small size of agricultural holdings and conversion of especially wetland rice to non-agricultural land uses. New rice varieties, and the application of new agrochemicals, have been introduced, but with mixed results. Moreover, the use of agrochemicals remains uncontrolled, and there is ongoing excessive use of both legal and illegal chemicals at the local level, resulting in pollution and soil fertility problems.
Fisheries• - The Ministry of Maritime and Fisheries (DKP) current development plan identifi es areas requiring urgent action in order to manage the resources sustainably, with recommendations directed at the management of Indonesian fi sheries including: fi sh catch management strategies, fi sh cultivation management strategies; improved fi shery resource supervision and research; and improved internal management, internal control and administration. They have recognized the need for better planning and integration with other ministries and organizations, and in this vein have made substantive collaborative agreements with the Ministries of Public Works, Communications, Labor, and Transmigration, as well as the Navy, and the Police.
Transport• and Energy - The current transport and energy policies include a high level of fuel subsidy which consumes a signifi cant part of the national budget, and removal of these subsidies is the object of intense debate. Indonesia’s national energy policy (2003-2020) calls for: conserving crude oil reserves and natural gas reserves to maximize their lifespan; use of CNG and LPG in the transport sector; promoting coal by small and medium sized industries; expanding exploration for coal resources; developing coal household use; exploring coal gasifi cation, coal bed methane energy sources, small scale hydro-electricity schemes, solar energy power plants; increasing geo-thermal energy sources in small scale power plants, as well as hydro-electricity; and utilizing nuclear energy in a manner that is economical, environmentally friendly, reliable and safe.
Education - • While Indonesia’s schools are free to
allocate time for fi eld trips, specifi c courses and educational material related to the environment, the national curriculum for primary and secondary education does not specifi cally include environmental studies, as they are considered to be already included in other subjects such as biology, physics,
9
10
Country Environmental Profi le: Indonesia; Final Report, July 2005. Framework Contract AMS/451 Lot N°6, Request for Services N°2005/102581. A project funded by the European Union and implemented by A project implemented by MWH. Pp 29-30. Mr. Agus Dermawan, Director for Conservation and Marine National Parks, Ministry of Marine Aff airs and Fisheries, Indonesia. April 2009
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and so forth. Currently several Indonesian NGOs are advocating for an improved national curriculum that incorporates a greater emphasis and depth in environmental studies. Universities off er B.Sc. level degrees in agriculture, biology, forestry, and other traditional sectors educations. Some universities are developing master’s level courses, while master degree programs in environmental management are increasingly popular.
3.2 Institutional Framework for
Environmental Management
In Indonesia, the government plays a central role in environmental management processes, with interventions taking the form of either regulation or funding for environmental quality management activities, or the application of environment-friendly technologies or methods. Since 1983, GOI has fi nanced environment-related programs through the state budget targeting a) inventory and evaluation of natural resources in the environment; b) preservation of forests, land, and water; c) oversight of natural resources and environment, and d) development of meteorology and geophysics. 11
3.2.1 Role of Central Institutions
The central government institutions with perhaps the most visible role for environment concerns include the National Development Planning Agency (BAPPENAS), the Ministry of Environment, the Ministry of Forestry, and to some extent, the Ministry of Home Aff airs:
National Development Planning Agency •
(BAPPENAS) is responsible for developing long-range plans and associated budgets and increasingly seeks to augment mechanisms for greater integration between the work and eff orts of the government agencies in order to mainstream environmental management policy and practice. The current National Medium-Term Development Plan 2004-2009 stresses the improvement of natural resources management and redirection of environmental conservation to give greater economic benefi t, environmental services and preservation. 12
The • Ministry of Environment is a coordinating ministry, which means that it has no responsibility for implementation. The Ministry sets standards, establishes policies, regulates the environmental impact assessment (AMDAL) process, operates environmental ranking programs, and collects environmental data. However, it has no direct control over the provincial or district agencies, and consequently these local institutions are not compelled to implement the Ministry’s standards and policies.
The • Ministry of Forestry manages a forest estate that technically encompasses nearly 70 percent of Indonesia’s land mass, though a third of this area is no longer forested. It is responsible for forest production, conservation, watershed and riverbank protection, conversion to non-forest use, and development of the forest industry as well as forest-based communities. The Ministry of Forestry’s regional offi ces were dissolved with the decentralization, and staff mostly absorbed into the local governments’ provincial and district forestry agencies.
The • Ministry of Home Aff airs facilitates and monitors the development policies of local governments. The Ministry has a directorate specifi cally for providing support and facilitation for spatial planning and environment in the context of regional development. It is also responsible for improving the eff ectiveness of local government organizations responsible for environmental management.
Clearly, many other ministries have a direct impact on the management and quality of Indonesia’s environment, including Finance, Trade, Maritime and Fisheries, Energy and Mines, Agriculture, Industry, and Transport
3.2.2 Role of Local Governments
The empowerment of local governments has been one of Indonesia’s most remarkable achievements in the past 10 years. As a result, Indonesia has almost 500 subnational governments that have become crucial players in the country’s development and, specifi cally for environmental management. Provinces and districts/cities are now headed by offi cials directly accountable to their electorates. Relevant local institutions for the environment include:
Provincial• government – the role of the province under regional autonomy is a fairly minor one. It essentially coordinates across local governments in carry out the functions that involve more than one local government, such as managing environmental externalities. In practice though, provinces have to be invited to do so. Provinces are also fi nancially constrained due to the decline in central government resources in favor of transfers to district and city governments.
Regional Planning and Development Boards •
(BAPPEDA) – BAPPEDA is responsible for regional development planning, including integration of development programs across diff erent local government agencies..This includes integration of the environment in regional spatial plans, budgeting for environmental management and montioring environmental quality.
1112
Indonesia Country Natural Resource Environment Analysis. BAPPENAS. 2007. Pg 27. The State of the Environment Report in Indonesia 2007. The State Ministry of Environment. 2008. Pg 11.
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Local• environmental bodies - The environmental management structures created by each district or city may take the form of either an Environmental Service Agency (Dinas Lingkungan Hidup) or Environmental Offi ce (Kantor Lingkungan Hidup). Environmental service agencies develop technical and operational policies in the fi eld of environment including prevention, conservation and rehabilitation of natural resources, pollution control, and environmental and mining laws and regulations. Environmental offi ces assist the head of the local government to manage environmental impact analysis.
3.3 Decentralization and the Environment
Indonesia introduced its decentralization law in 1999 which for the fi rst time empowered local government to have signifi cant decision-making authority and jurisdiction over their local governance processes, and to a signifi cant extent, local natural resources. Five years later the country revised these laws in an attempt to correct some of the weaknesses. However even with these revisions, local environmental management remained weak, so subsequent laws were passed in 2007 specifi cally targeting strengthening local environmental management institutions. These laws have been augmented by other policies that provide fi nancial incentives to local government to more closely follow central government policies.
3.3.1 Recent Laws to Strengthen Local
Environmental Management
After refi nement of the decentralization law in 2004, it became apparent that there were still important gaps in the operation of environmental management agencies at the provincial and district level. Consequently in 2007, the central government stipulated policy on the delegation of authority to both provincial and regency/municipality governments for the purpose of environmental development implementation through Law 38, regarding the distribution of government aff airs, and Law 41, regarding regional apparatus organizations. As stated jointly by the Minister of Home Aff airs and the State Minister of Environment, these new laws help to mainstream environmental development, providing basic principles for establishing environmental institutions, clarifying their tasks and functions, and providing guidelines for internal structure, staffi ng, and inter-regional cooperation13.
Specifi c functions of local government environmental institutions now include:
Policy development, planning, control, and • monitoring for environmental impacts (including biodiversity conservation); this includes eff ecting spatial plans to coordination improvement of integrated planning, control, and evaluation of environmental management, particularly in the
context of environmental carrying capacities .
Monitoring and controlling for all types of pollution • and environmental degradation (water, air, hazardous wastes, climate change)
Development and implementation of law • enforcement strategies, including coordination with other government to eff ect law enforcement
Performing environmental impact assessments (EIAs) • to eff ect environmental impact control in the context of national standards
Achieve national standards of environmental services • by strengthening capacity of local environmental institutions, including observance of national personnel and laboratory competency standards
Develop economic instruments to support • environmental conservation; apply environmental management systems (e.g., eco-labeling, environmentally-friendly technologies; economic tools); develop and apply incentive/disincentive schemes, such as Adupura, Towards Green Indonesia, and PROPER.
Increase environmental governance by promoting • community participation and engaging NGOs and the private sector
Undertake additional activities including • implementation of both de-concentration and special allocation funds,
In short, local environmental agencies have received a comprehensive mandate to dramatically upgrade the scope and quality of their services and performance.
In support of this goal, the new Law 41 sets out basic principles for establishing environmental institutions, distinguishing between the function of Boards and Offi ces based on workload, and providing guidelines for internal structure to boards and offi ces, as well as formalizes terminology so that local environmental institutions either bear the title of Environmental Board (Badan Lingkungan Hidup) or Environmental Offi ce (Kantor Lingkungan Hidup). The law spells out specifi c qualifi cations and educational levels for staff of environment agencies, with heads of environmental management board required to have a minimum of a graduate degree in a relevant fi eld, basic environmental training, and at least fi ve years of relevant experience. The law also emphasizes the importance of interregional cooperation, citing that environmental issues often cross administrative boundaries and therefore require an ecosystem approach to address them, urging cooperation between and among local government entities to address
13 Joint Circular Letter Between Minister of Home Aff airs and State Minister of Environment concerning Reorganization of Local Government Governmental Institutions. Number 061/163/SJ/2008 and SE-01/MENLH/2008. Departemen Dalam Negeri. 2008
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transboundary issues, and mandating the intervention of the local governor, through the Provincial Environmental Board, when environmental issues involve two or more districts or cities.
3.3.2 Deconcentration & Special Allocation
Funds
Other mechanisms for encouraging local governments to comply with national environmental policies are the introduction of fund allocations through environmental deconcentration funds provided to 33 provinces, and special allocation funds in the environment sector to 468 regencies/municipalities14.
Deconcentration funds create incentives for district and provincial governments to incorporate national policies into local practice, proving resources which strengthen provincial and district level environmental management capacity to represent central government policies. Regulation 14 issued in 2007 by the State Minister of Environment lays out the guidelines for the use of deconcentration funds, including for improving capacity for planning at the regional level for managing regency/municipality environmental issues; coordinating implementation and monitoring of Special Allocation Funds; monitoring and reporting on river water quality for at least one river; capacity building in hazardous waste management: developing EIA systems; improving law enforcement to managing disputes and complaints related to environmental issues.
The Government’s Special Allocation Fund enable regency/municipality governments to upgrade their roles and responsibilities in environmental management by developing better physical facilities and infrastructure for these purposes, especially in the area of water quality improvement. The fund is especially targeted towards regions with below average fi nancial capacity in order to help bring them up to minimum standards of service in the environmental sector. It is also helps local governments accelerate their handling of local regional environmental problems, as well as generally to strengthen institutional capacity in environmental management. The fund has special emphasis on facilities and infrastructure for water quality improvement, particularly in areas of water quality monitoring, pollution control, and water resource protection.
3.4 Advances in Environmental
Management at the Local Level
This section covers some important developments and characteristics that aff ect decentralized environmental management in Indonesia including:
Reputational programs•
Political will •
Inter-agency collaboration •
Green community empowerment program•
Spatial planning•
3.4.1 Reputational Programs
The Ministry of Environment, has demonstrated considerable creativity inf fi nding ways to encourage participation of local actors in environmental management programs through voluntary programs that reward compliance with national standards and goals. Some examples of these programs include:
Industrial Performance Rating Program (PROPER) •
- PROPER is a national-level public environmental reporting initiative with an objective of to promoting industrial compliance with pollution control regulations, to facilitate and enforce the adoption of practices contributing to “clean technology,” and to ensure a better environmental management system. The program is built on the idea that the mechanisms of public disclosure and accountability, transparency in operations, and community participation will empower local communities to achieve eff ective and sustained pollution control practices.
Clean• River Programs - Program Kali Bersih (PROKASIH) or “Clean River Program” is a voluntary program for (1) identifying specifi c fi rms in highly polluting industries; (2) getting those fi rms to sign voluntary letters of commitment to reduce pollution loads by 50 percent within an agreed timeframe; (3) monitoring subsequent results; and (4) applying pressure on those industries who do not comply with their own commitments. The implementation of PROKASIH is carried out by provincial authorities with the support of central agencies as needed, and with media, NGOs and community groups encouraged to participate.15 A similar program is the Superkasih Program (Clean River Statement Letter), which acknowledges industries and businesses for their eff orts to comply with environmental management considering technical and administrative factors.
Clean• Cities Program (Adipura) – This program is an annual voluntary evaluation and ranking of the environmental performance. It has attracted the participation of over 300 local governments who compete for recognition in categories according to population size. Awards are given to local government leaders by the President in a highly-publicized annual ceremony.
1415
State of the Environment Report in Indonesia. Pg12Indonesia Environment Monitor 2003, World Bank, http://wbln0018.worldbank.org/eap/eap.nsf/Attachments/062403-EnvMonitor2003/$File/indo+monitor.pdf
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3.4.2 Political Will at the Local Level
In Indonesia, local governments may not conform to national environmental laws and regulations without fi nancial incentives or the threat of enforcement. However, some governors, bupatis, mayors, and local parliamentarians have demonstrated considerable responsibility and political will to support good practices in environmental management. Whether because of inherent wisdom, or in response to an enlightened constituency, some local leaders have placed environmental management concerns at the top of their priorities, integrating related concerns into planning and implementation of local inititiaves.
Some examples of political will at the provincial level that benefi ts the environment are: the “Green Vision”, logging moratorium and forest sector restructuring being undertaken by the Governor of Aceh; the plans and programs of the Governor of Central Kalimantan to rehabilitate degraded peatlands and reduce carbon emissions; and the eff orts of the Governor of Papua to improve forest management for sustainable local benefi ts.
At the district level, Jimbrana, in West Bali has a district head with a strong commitment to the environment. He makes regular and active use of environmental impact assessments, usually
conducted by an independent local academic institution. The district is not particularly wealthy, but it demonstrates a high commitment to the environment. Yet, when the district’s leadership changes, all the progressive environmental management could evaporate with the departure of the existing district head. At the same time, it was the recent advent of local elections that has allowed these leaders to come to power.
3.4.3 Towards Inter-Agency Collaboration
Most environmental issues transcend the administrative jurisdictions of any government agency, whether at the national, regional, or local level. However, there are few formal structures to ensure close collaboration between jurisdictional entities. Nonetheless, as Indonesia’s environmental problems increase in number and magnitude, there is a growing trend towards inter-agency collaboration.
Perhaps predictably, inter-agency collaboration has emerged more frequently around environmental issues that cross geographic boundaries, typically forcing the need for both inter-governmental and inter-agency and collaboration. It is still not a common practice, and for the most part transboundary issues still lack the benefi t of coordinated collaboration between relevant stakeholder agencies. By law, transboundary issues are supposed to be referred up to the next level of administration,
Box 3.1. More Sustainable Spatial Planning in Papua Province
In 2007, the Papua provincial government requested assistance from the World Bank for spatial planning. The response came in the form of an economic, social and environmental assessment of diff erent development scenarios. Options were developed for key sectors (transport, mining and forestry) as well the critical Mamberamo basin which is the largest unroaded forest in the Asia-Pacifi c region. Results were discussed at several stakeholder meetings and are being used to prepare revised spatial planning legislation with support from USAID’s Environmental Services Program. The initiative also involved capacity building for Bappeda with training in GIS and scenario building.
While the business-as-usual scenario is a continuation of existing development policies, the sustainable development option was built around:Expanding and improving air, river and sea transport options that had less adverse impact on the environment;• Minimizing environmental and social impacts of several large-scale mines;• Scaling back large-scale logging and replacing it with community-based forestry; and• Developing culturally appropriate growth in the Mamberamo region that does not threaten forests•
Each scenario was the evaluated in terms of its contribution to economic development, consequences for social groups and environmental impact.
The analysis indicated that the business-as-usual scenario would result in unequal economic development, a range of social problems (marginalization of indigenous people and lost access to forests and their resources), and environmental harm from large-scale deforestation and mining. This is because the option focused on promoting economic development through extensive exploitation of Papua’s natural resources and major road development that supported forestry and the mining industry while diverting funds away from basic development investments.
The sustainable development scenario provided a greater opportunity for the people of Papua to potentially benefi t from: appropriate transport services that provide poor, isolated people with access to health and education; the value of carbon stored in forests as well as other forest goods and services; well-managed mines that generate substantial revenue, health and education, and other infrastructure for local communities and governments; and protection of a globally-recognized lowland forest that conserves biodiversity, stores carbon and attracts eco-tourists. The signifi cant diff erence in economic benefi ts is due to the fact that the sustainable scenario preserves forests that provide important benefi ts to society (clean water, carbon sinks, biodiversity) and because of the lower overall cost of the scenario.
SOURCE: World Bank, 2008
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such that transboundary issues between two districts are to be addressed by the provincial administration where the districts reside. However, provincial agencies lack the authority to insert themselves into inter-district disputes, and typically must wait until they are invited into the dialogue by the districts.
Eff ective water management is a frequent motivator for collaboration, with examples including the Brantas River Basin Management initiative in East Java, the Balikpapan Bay Management Authority, and the Ciliwung River Basin Plan in and around Jakarta. In other areas, there is now a National Climate Change Council, a National Disaster Management Agency, a National Energy Council, and a National Forestry Council, all of which allow for discussion and response to environmental issues across government agencies and with a wide range of stakeholders. At the local level, solid waste management agencies have been planned for metropolitan Jakarta and Bandung while a Greater Jakarta Coordination Board (BKSP) has been set up as an intergovernmental forum to address transboundary issues.
3.4.4 Green Community Empowerment
Program
Indonesia’s community-driven development program (PNPM) has a green component in rural areas to raise environmental awareness, build local capacity and fi nance block grants for environmental management. The rural program, which has nearly USD70 million in donor grant fi nancing, is operated by the Ministry of Home Aff airs in 27 sub-districts in Sulawesi and is now expanding to Sumatra and Papua islands. It has a special emphasis on fi nancing development of microhydro power systems but also supports natural resource management activities. A similar program for urban neighborhoods is now being developed for the PNPM activities that are managed by the Ministry of Public Works.
3.4.5 Spatial Planning
Indonesia is increasingly using the spatial planning process to address environmental issues. WWF, 10 governors, the Ministry of Environment, and many other stakeholders committed themselves to undertake island-wide spatial planning in Sumatra to conserve forests and protect biodiversity. The Aceh Forest and Environment Project has supported the integration of environmental management in district-level spatial plans in Aceh province. The planning agency (Bappeda) in Papua has undertaken a comparison of business-as-usual and more sustainable spatial planning options, and is now in the process of translating the results into legislation (see Box 3.1).
3.5 Obstacles to Decentralized
Environmental Management
One of the principal benefi ts of decentralization should be more effi cient service delivery that includes environmental services, such as pollution control and environmental impact assessment. Centralized systems in a country the size of
Indonesia must by defi nition lack effi ciency because they cannot possibly hope to cope with the variation in social and environmental conditions that exist between regions.
The challenges of reforming environmental management under regional autonomy are germane to all areas of public administration. The obstacles include continuing lack of clarity over the functions of local government, lack of capacity that exist within local governments to administer new functions, and ensuring that proposed reforms have the eff ect of contributing to and deepening local level transparency and accountability. These more generalized issues are exaggerated by deeper concerns relating to the environment’s often weak position relative to other political and economic interests, and to the prospect of regions increasingly detaching themselves from the central government through their interpretation of existing rules.
Despite the progress in developing laws and regulations for the environment, not only does there continue to be confl icts and overlaps between laws, but by and large there are still few mechanisms to eff ect enforcement. Moreover, the decentralization policies have created disconnects with line ministries so that many district leaders remain unresponsive to laws and policies. Since districts are now more signifi cantly left to their own devices for fund raising, and given their control over managing local natural resources, district heads frequently make use of these resources for generating income for the districts through concessions and other transactions. Indeed, environmental management at the local level overall remains very inconsistent, and tends to be eff ective primarily if and when the central government has created suffi cient incentive to encourage conformity with national policies, such as through deconcentration- or special allocation funds, or when the local district leader is conscientious about sound environmental management practices. In the meantime, eff orts to eff ect national environment goals often fail to reach down to the local level because of the disruption in the line of authority and accountability between central and local government.
3.5.1 Systemic Obstacles
Most commentaries on Indonesian decentralization focus on the need for greater clarity in the assignment of functions between levels of government. The main culprits include weaknesses in decentralization laws that fail to provide a positive defi nition of local government functions in the slow pace of harmonization of sectoral and decentralization laws. The central government is now responsible for making adjustments to sectoral laws and for setting minimum standards of service for the 11 obligatory local government functions. In the environment sector there is a clear recognition of the need for adjustment to the Environmental Management Act (23/1997) and its implementing regulations.
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National: Standards & Enforcement
One of the greatest obstacles to eff ective environmental management in Indonesia is that there are no formal standards for local government performance in environmental management. BAPPENAS, the central planning board, has examined the prospect of establishing environmental performance indicators, but to date this as has yet to be formalized into policy. The Adipura program mentioned above establishes indicators for cities based on standards of cleanliness and good management but these are voluntary If national environmental management is to improve, ideally indicators could not only be based on performance standards, but also measure rates of change towards or away from performance measures. Without established performance standards or monitoring, local governments must simply improvise.
Another problem with the current government confi guration is that none of the central government agencies, and especially the Ministry of Environment, are empowered to enforce standards of environmental protection. For example, the Ministry of Environment has pollution monitoring stations on several major rivers to document effl uents from upstream polluters. But the Ministry of Environment has no enforcement capacity so even if there is a violation of performance standards, it has no basis for enforcement. All they can do is observed and monitor. The monitoring has no way to link to improvements in the practices of the businesses that are dumping effl uents into the river.
In Indonesia, the legal instruments are generally deemed to be suffi ciently adequate for sustainable environmental management, yet there remains a serious weakness in enforcement of the laws. Government agencies and departments generally are responsible for basic law enforcement and prosecution, but the inherited tradition of on-the-spot settlement of off ences has given government agencies the reputation for being involved in corruption and extortion. This is exacerbated by the observation that the authority to issue permits and licenses creates the opportunity to receive gratuities in exchange for a waiver of environmental obligations.
Moreover, although laws are eff ective in establishing what is and is not legal, both legislation and tradition generally requires substantial amounts of actual physical evidence be brought before the court, a logistical complication which often causes prosecutions to fail. Also the police, under the jurisdiction of the Ministry of Home Aff airs, have a reputation for siding with those who can make fi nancial contributions to causes that are in their interest. Also, since the police report to a central government ministry, provincial and district authorities can only request police to investigate specifi c cases: local authorities have no power to require police action or support, whether for raids, road blocks or other means of law enforcement.
Indonesia’s judiciary also has a reputation for failing to uphold the law in such cases, a fact that has increasing come under
international focus. With perpetrators often in a position to swing justice their way with unoffi cial contributions, foreign investors are wary, while environmental values remain unprotected.
The Indonesian Center for Environmental Law (ICEL), a local NGO, conducts training courses for members of the Indonesian judiciary in environmental law, class action processes and other relevant issues. The head of Indonesia’s Supreme Court has since indicated to the High Court that he recommends only judges with this ICEL training be appointed to hear environmental cases.
Another problem cited with the judicial system is that neither the courts, nor the Ministry of the Environment are authorized to cancel an operational license, even for a company convicted of breaking environmental regulations. The courts may mete out traditional punishments such as fi nes or jail, but it is only the ministry responsible for issuing the license in question that can withdraw concession rights.
Local: Incentives, Empowerment & Capacity
One of the biggest issues is that district governments have few incentives for sustainable environmental management, what with inadequate enforcement from the center and inadequate fi nancing to achieve environmental objectives at the local level. Rather, they have an incentive to issue concession licenses (with limited capacity to monitor and enforce good behavior) and stimulate short-term economic activity to generate fees and taxes. There is a general perception that with decentralization, bribery and corruption has shifted from being centralized in Jakarta to being decentralized to the provinces and districts.
Without strong enforcement from the central government, or strong incentives driving local leadership to take a proactive role in conforming to national environmental legislation and regulation, success in environmental management at the local level depends largely on the level of commitment or political will of the individual leadership. Local leadership without a commitment to sound environmental management will inevitably lead to a situation where economic opportunism rules most decisions, while local environmental management agencies lack authority, capacity, or both to do their jobs eff ectively. In the district of Bogor, for example, the local government recently allocated only Rp 100 million for environmental management activities, while simultaneously allocating 20 times that amount (Rp 2 billion) to support sports related activities in that same year.
There are other factors, in addition to political will, that aff ect capacity and empowerment of environmental management at the local level. Uncertainty about mandates and funding in the decentralization process has limited capacity building of local governmental institutions. Government capacity is partly limited by the fact that government salaries are very low relative to the private sector, making it very diffi cult to attract the highest-performing people available in the workforce.
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Also, government employee training is managed centrally, while local institutions generally do not have budgets or even mandates to take responsibility for staff improvement. Another problem for environmental management at the local level is that environmental management organizations lack the authority to do any real environmental development planning. Instead, planning entirely falls within the domain of BAPPENAS, and their provincial counterparts, the BAPPEDA. BAPPEDA is seen to be eff ective for planning development, but lack necessary experience and understanding of environmental issues for environmental planning.
3.5.2 Specifi c Obstacles
Forestry issues remain among the most publicized environment-related issues facing Indonesia, as forest rapidly disappear because of unsustainable management practices. Increasingly, Indonesia’s national government is responding to this issue, introducing such measures as using independent consultants to conduct compulsory screening of concessions for sustainable practices, supporting certifi cation schemes introduced by NGOs, and attempting to make the level of forest harvests more sustainable. Unfortunately these eff orts are constrained by rigid legislation, weak enforcement, unwieldy planning and management procedures, and a general lack of ethics among key actors.
Another continuing threat to the development of rural communities is limited access to land and natural resources. With cadastral records not centralized, and with concurrent lack of coordination between government agencies, it is not uncommon for unrelated government authorities to issue overlapping licenses. With no clear boundaries around forestry or mining concessions, traditional land use patterns are often interrupted by competition and confl ict with concessionaires, usually with the traditional users losing their livelihoods in the process. The government has generally ignored the
confl icts caused by these licenses, leaving concessionaires to solve them as they may. Some concessionaires revert to making either payment to the aff ected communities, though increasingly, concessionaires are making arrangements for joint management in the areas of confl icting claims. Box 3.2 presents a picture of the current chaotic situation.
Likewise, Indonesia’s fi shery sector is increasingly a subject of public debate with national and regional NGOs raising concerns with the unsustainable fi shing practices and concern for specifi c regional and fi sh species. Current threats to freshwater and reef fi sheries include both degradation of the environment by pollution and siltation, as well as destructive fi shing practices such as bombing or poisoning.
With regard to environmental impact assessments, national guidelines and standards for have been established by the Ministry of Environment, yet the implementation of environmental impact assessments are under the jurisdiction of the regional agencies (provincial and district) for environmental impact assessments. As noted previously, these local agencies are directly responsible to the governors and district heads, respectively, and not to any of the ministries of the central government. Even though the law and accompanying regulations include a list of prescribed activities where environmental impact assessments are required, assessments are still not consistently conducted.
Currently environmental impact assessments are generally conducted by external consultants who have completed a course taught through the Ministry of Environment, with assessments presented to a review commission for approval. The Ministry of Environment is sometimes a member or an observer at these reviews. The overall process continues to be viewed as ineff ective, and to date several bi- and multi-lateral development agencies have provided support in attempts to revitalize the system.
Box 3.2. Decentralization and Chaotic Forest Management
Forest industries. The Association of Indonesian Forestry Businessmen (APHI) says that widespread revision of land zoning rules threatens the continuity of forestry-based industries. Many provinces and districts have made proposals to change the use of millions of hectares of industrial forest areas (HTI) and natural forest concessions (HPH) for other purposes. East Kalimantan has proposed to exclude 2 million ha from forest areas, 1.9 million ha in Central Kalimantan and 1.3 million ha in North Sumatra. A total of eight provinces are seeking to wrest control over millions of hectares of forests. Euphoria over regional autonomy and the emergence of new districts and provinces triggered revised spatial planning and zoning in their regions. In addition, the Ministries of Forestry, Agriculture, Defense, and Public Works as well as the National Land Agency have their own separate planning procedures for forest areas. Lack of clarity about forest land management is potentially harming investment in the sector and has caused complicated overlapping regulations.
Park management. Control over the country’s 50 national parks has grown murky in the past decade as authority has shifted from central government to the provinces as part of decentralization. Local governments, emphasizing development over conservation, have seen parks bursting with natural resources as a way to fi ll their coff ers. For example, Kutai National Park has been losing trees to illegal loggers, mining companies are pushing to explore inside the coal-rich park, and 27,000 people now live within the park, partly because “local governments simply ignore national laws.” As a result, up to half of the park’s 200,000 ha have been damaged because of development and illegal logging.
Summarized from “Forestry fi rms hit new snags,” The Jakarta Post, May 15, 2009 and “Human invaders endanger park wildlife,” The Jakarta Post, June 15, 2009
Chapter 4:
Enabling Policies for Sustainable Development
Protected Forest Wain River Photo: Ruth Walujan
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4.1 Main Revenue and Expenditure Trends
Indonesia’s spending for environmental purposes has been relatively low for most of the decade. Two reasons account for this trend. First, traditionally the government prioritizes other sectors under its national development plans. Second, the low level of environmental spending points to inadequate environmental revenue collection and underpricing of environmental resources.
While government spending priorities are a matter of the national development planning framework, this chapter argues that it is the existing sub-optimal fi scal structure which diminishes the capacity of the government to invest in better environmental infrastructure, services and utilization of natural resources.
A distorted fi scal policy regime does not provide the right incentives for effi cient natural resource management. In the energy sector, fuel and electricity subsidies constitute the biggest distortions, as both policies enhance over-consumption, burden the budget and benefi t the higher income groups. On the forestry side, existing legal and incentive structures have not been eff ective to curb illegal logging and to slow down deforestation. In other sectors - notably fi shing and mining – policy distortions have contributed to unsustainable harvesting patterns and illegal mining activities. In all sectors, policy distortions arise from confl icting sector – based regulations and national laws – notably decentralization laws. This reduces the eff ectiveness of institutions to apply environmentally sustainable policies.
Overcoming these policy distortions requires a comprehensive environmental fi scal policy reform, which uses taxation and
pricing instruments to raise revenues, but also provides incentives to change behavior.
4.1.1 Revenue & Expenditure Trends
Revenues from total natural resource based or
environmental revenues exceeded total expenditures
between 2001 and 200816 , but have narrowed and possibly
reversed the trend in the past two years. Based on an annual average, environmental revenues have exceeded expenditures by an average 2.3 trillion IDR (constant 2001 prices) per year. However, preliminary and projected fi gures for the 2007-2008 budgets indicate that expenditures might have increased
MAIN MESSAGES
Indonesia’s spending for environmental purposes has been relatively low for most of the decade, environmental • revenue collection has been low and natural resources have been underpriced.
Fuel and electricity subsidies enhance overconsumption, burden the budget and benefi t higher income groups, • while making it diffi cult for renewable energy to compete and energy to be conserved.
Legal and fi nancial incentive structures have not been eff ective in curbing illegal logging and slowing down • deforestation as well as degradation.
Policy distortions in fi shing and mining have contributed to unsustainable harvesting patterns and illegal • mining activities.
In all sectors, policy distortions arise from confl icting sector-based regulations and national laws, especially • those involving decentralization.
These policy distortions could be overcome through an environmental fi scal policy reform that uses taxation • and pricing instruments to raise revenues but also to provide incentives for more sustainable behavior.
Figure 4.1. Environmental Revenues and Expenditures
(billion IDR, constant prices, 2001=100)
16 2001 was chosen, because of the start of decentralization reforms
2001 2002 2003* 2004 2005 2006 2007 2008**
8,000 180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
6,000
4,000
2,000
020 0 00 0 0 0 0 0001 20 2002 220 203* 20004 20005 2006 20 2007 220
8
6
4
2
008**
Total environmental expenditures (LHS)
Total environmental revenues (LHS)
Total environmental revenues incl oil/gas (RHS)
Total environmental expenditures incl. fuel subsidies (RHS)
To
ToTo
otoTo
otootoToToTo
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signifi cantly, possibly reversing that trend. If one includes fuel subsidies on the expenditures side and oil/gas on the revenue side, then revenues continue to be larger. But here, too, revenue patterns fl uctuate signifi cantly, peaking in 2005 and declining since then, while expenditures are moving in parallel with revenue trends. Annual revenues averaged around 107 trillion IDR per year, while expenditures averaged at 55 trillion, leaving a positive gap of around 52 trillion annually in 2001-2008.
Revenue streams from natural resources use fl uctuated
considerably in 2001 – 2008 raising doubts on the validity
of some of the data. On average, total natural resource-based revenues amounted to 107 billion IDR annually during this period. Oil and gas revenues constitute the biggest chunk, contributing 94 percent to total natural resource revenues. In relation to overall central government revenues, natural resource based revenues make up an average 24 percent per year in 2001-2008. The high share of oil and gas based revenues indicate that revenue collection in other sectors could be signifi cantly improved (see Figure 4.1)
On average, revenues grew 8 percent annually, but this
masks an extremely erratic pattern of growth between
individual years. For instance, forestry revenues grew by 55 percent in 2001, but then declined dramatically by 46 percent the following year. The following years showed a similar erratic pattern, with the other sectors, notably fi sheries, also exhibiting the same extreme fl uctuations. The poor data quality can be partly explained by the fact that information on environmental revenues that are earmarked for environmental spending is not collected systematically at the Ministry of Environment.
Nominal environmental expenditure has increased
substantially during the period 2001-2008 (see Figure 4.2). In 2008, national nominal environmental expenditures amounted to 10.3 trillion IDR up from 1.9 trillion IDR in 2001. The increase was not steady, showing fl uctuations between 2003 and 2005, with environmental expenditures actually decreasing in 2004. In 2006, there was a very signifi cant jump from 6.1 trillion to 9.3 trillion IDR.
Environmental expenditures remain a minor item in the
overall economy, but have increased the share in recent
years. Environmental expenditures as part of total government spending are relatively small, moving in the range of 0.6-1.2 percent of GDP in 2001-2008. When compared to overall GDP, the share is even smaller at 0.24 percent in 2008. In real terms, environmental expenditures grew by around 30 percent on an annual average basis between 2001 and 2008
Despite economic growth and increased government
expenditures, spending on environmental purposes
remains comparatively low compared to other sectors,
with interest payments and subsidies crowding out
other spending items. Indonesia’s modest allocations of resources to the environmental sector have taken place within a favorable economic context. Between 2001 and 2008, Indonesia experienced economic growth in real terms, while total government spending as a share of GDP also increased. A breakdown into other spending categories shows that the government has prioritized increased budget allocation to education and government, which increased their budget share signifi cantly. The former increased its share by 5.4 percent, while the latter by a hefty 11.8 percent. In comparison, the expenditure share allocated to the environment was only 0.6 percent during the same period. Overall, total expenditures are dominated by the government’s commitment to pay interest on domestic debt and to subsidies: the central government budget allocates an average 30 percent of total expenditures to fuel subsidies per year.
4.1.2 Revenue-sharing
Revenue-sharing from natural resources provides a
strong incentive for local governments to accelerate
depletion. For natural resources other than oil and gas, sub-national governments typically retain 80 percent of revenues from resource sales and taxation (40 percent in the case of the Reforestation Fund). This provides an incentive for local governments to accelerate depletion of renewable resources (forestry, fi sheries) and non-renewable resources (mining, geothermal) in order to increase available revenues. Ideally, local governments should also be concerned about the long-term sustainability of natural resource-based revenues but this is usually beyond the scope of the electoral cycle.
4.2 Key Fiscal Policies Aff ecting
Environmental Sustainability
4.2.1 Macroeconomic and energy policy
distortions: fuel and electricity
subsidies
Indonesia’s economic growth path became increasingly
carbon-intensive. Figure 4.4 shows that from 1980 to 2004 CO2 emissions grew faster than energy use and energy use grew faster than GDP (Resosudarmo and Jotzko 2008). In other words, as the economy grew, energy intensity (energy/capita)
Figure 4.2. Environmental Expenditures 2001-2008
1.4%12,000
10,000
8,000
6,000
4,000
2,000
0
bn IDR
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0%2001 2002 2003 2004 2005 2006 2007 2008
National environmental expenditures
Environmental expenditures as % of total expenditures
Na
001 2002 20 003 20 004 220 005 220 2006 22 2007 22 20082
nvnEnEn
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also grew but CO2 emissions grew even faster. This points to a lack of investment in cleaner technologies in the energy sector.
Domestic policies create disincentives to use energy more
effi ciently. Current fi scal policies rely heavily on subsidies and provide wrong price signals. Fuel and electricity subsidies are the prime fi scal policy instruments the GOI uses to ensure price stability for domestic consumers. Many false economies and disincentives can be traced to these subsidies that are mandated by the “public service obligation.” Upstream policies on pricing and incentives infl uence downstream investment and environmental outcomes, as illustrated in Figure 4.3. Issues of concern include ineffi cient use of energy resources, over-consumption, compromised GOI fi scal position, unpredictable budget outlays, ineff ective targeting of subsidies towards poor consumers, under-development of alternative energy subsectors, leakages and smuggling, and adverse environmental and health eff ects.
These complexities and inter-linkages illustrate the challenges ahead in making progress on environmental and climate change issues at the downstream end of the policy distortions. Analysts have suggested some parallel actions that would help with a transition to a more sustainable fuel sector policy framework (WB, 2007). For example, the GOI could move toward petroleum pricing aligned with international benchmarks, better targeted poor protection eff orts, and more widely available alternative energy sources.
Fuel subsidies remain high, despite adjustments in 2005.
The share of fuel subsidies in the budget has fl uctuated widely in the past 10 years. These fl uctuations are mainly caused by international oil prices and the exchange rate. Fuel subsidies peaked in 2000, accounting for 28.6 percent of total spending, and decreased again in 2001 as the government executed a slight fuel price increase in October 2000. Subsidies decreased markedly in 2002 and 2003, as a combined result of appreciation of the IDR and a slight decrease of the international prices of oil. In 2004 and 2005, fuel subsidies increased sharply following a hike in international oil prices (increase of 97 percent in 2004 relative to 2003), and decreased again after the reduction of the fuel subsidy in March and October 200517.
Fuel subsidy reductions in 2005 freed up around $10 billion (World Bank 2007). However, fuel subsidies in 2008 were projected to have increased again to 13 percent of total government expenditures or around USD2 billion. Furthermore, in response to the global fi nancial crisis and lower global fuel prices, the government decreased the regulated price of gasoline from IDR 6,000 to IDR 5,000 in December 2008. Transport diesel prices were cut from IDR 5,500 to IDR 4,800 per liter. In January 2009, the government continued to cut gasoline and transport diesel to 4500 IDR per liter.
The environmental impacts of the fuel subsidies have not
been quantifi ed yet, but are very likely to be signifi cant.
International evidence suggests that distorted price signals often lead to wasteful consumption of petroleum products with dire environmental eff ects. Higher oil prices mean that the
Figure 4.3. Key Policy Distortions Impede Potential for Low Carbon Options in Energy Sector
Summarized and Adapted from WB IDPL (2007) and from WB CEA (2009)
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gap between domestic subsidized fuel prices and international prices becomes larger, increasing the budget share of fuel subsidies. Moreover, subsidized fuel prices present an incentive for smuggling and corruption (Granado, Cut Dian and Fengler 2008).
In Indonesia, oil-based production and consumption is still the largest source of energy-based CO2 emissions, although it decreased in the past two decades: in 1984 the share of oil in total emissions was 99 percent, but in 2004 it fell to 31 percent. This reduction is caused by depleting domestic oil reserves and higher international oil prices. However, as oil reserves deplete, the economy switches to even more polluting coal: emissions from coal – based sources increased from 1 to 53 percent during the same period (Resosudarmo and Jotzo 2008).
The increasing carbon intensity of electricity production is
to a signifi cant extent a result of the current pricing regime,
which relies heavily on subsidies and thus provides no
incentives to promote renewable energy supply. Subsidies to the electricity sector accounted for 28 percent of total subsidies in 2006. Electricity subsidies comprise of a direct subsidy to PLN (11 percent) and an indirect subsidy through the provision of oil derivatives at subsidized prices (17 percent) (World Bank 2007).
The key problem is that PLN applies a national subsidized
electricity tariff , but faces diff erent supply costs throughout
the country. The removal of the fuel subsidy to PLN in 2005 pushed the supply costs up, plunging PLN into near insolvency. The government expanded the PSO to include all consumers, pushing up the cost of subsidies further up. PSO payments increased from USD 400 million in 2004 to USD 3.5 billion in 2007. The combination of fi xed electricity tariff s and higher production costs – due to higher fuel prices – will keep pushing up the cost of the subsidy for the government (World Bank 2007). Moroever, it leaves the government with a limited capacity to invest in the much needed expansion of the country’s power infrastructure.
These energy price distortions hamper the development
of alternative renewable energy production. Under the government’s energy blueprint 2005 – 2025 the share of renewable energy production is targeted to rise from 4.3 percent to 17 percent. However, this target is only achievable, if the government provides the price incentives to make options like geothermal energy production more competitive (see Box 4.1). Currently, the government favors the expansion of cheaper, but more emissions-intensive coal fi red power plants under its 10,000 MW Electricity Fast Track Program. But if fuel and electricity subsidies would be removed and environmental externalities associated with coal-fi red electricity production would be accounted for, geothermal and other low-emissions technology options would be commercially more viable..
Figure 4.4. Annual Growth Rates of GDP, Energy Use and
Emission per Capita
Source: International Energy Agency (2007) [http://www.iea.org/] quoted in Resosudarmo and Jotzo (2008)
Box 4.1. Barriers to Geothermal Energy Supply
Geothermal power development in Indonesia provides one of the best alternative options for a more effi cient and sustainable expansion in an environmentally friendly manner. With nearly 40 percent of the world’s potential, Indonesia has a signifi cant comparative advantage in exploiting even a small part of the estimated 27,000 MW of renewable geothermal energy potential towards power generation, which will result in a far more optimal energy mix. However signifi cant investment and policy barriers need to be removed to spur the development of geothermal power supply. These include:
Improving overall economic incentives system: energy prices need to refl ect true market prices in order to make renewable energy • competitive. Introduce risk mitigation mechanisms to make reduce high initial costs in exploration. • Improve government planning and management capabilities to effi ciently conduct transactions of geothermal power projects.• Build up adequate domestic technical capabilities to support long-term growth in the sector. •
The key issue seems to be the proper pricing of the costs and benefi ts associated with geothermal energy production. Recent estimates suggest that electricity from a 600 MW coal-fi red power plant can be supplied at 8.2 cents/kWh (assuming 90$/t of coal). The production price from a 60 MW geothermal power plant is estimated to be at 11.9 cents/kWh. However, by reducing fuel and electricity subsidies and factoring in environmental values accrued by counting reduced emissions, the true benefi ts associated with the geothermal option are estimated to be at 17.7 cents / kWh, far outweighing the 11.9 cents/kWh selling price. ( JICA-GOI February 2009)
17 Discussion on fuel and electricity subsidies is mainly taken from Granado, Cut Dian and Fengler (2007) and World Bank (2007).
3.0
2.5
2.0
1.5
1.0
0.5
01980 1984 1988 1992 1996 2000 2004
Emissions per capita
GDP per capitaEnergy per capita
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Specifi cally in the power sector, the government needs to recognize that it needs to implement cost-refl ective electricity tariff s in the long run. Without these, the private fi rms will not undertake investment in the power sector, unless they receive guarantees or other forms of support from the government (IEA 2008).
Fuel and electricity subsidies are socially regressive,
benefi ting the higher income quintiles. Results from benefi t incidence analysis suggest that 89 percent of the fuel subsidy absorbed directly by households (an equivalent of 5 percent of the total budget) benefi ts the technically non-poor. Electricity subsidies are also regressive, although not as much as fuel subsidies. (Granado, Cut Dian and Fengler 2007).
4.2.2 Forestry and Land Policies18
The GOI earns substantial revenues from the forestry sector
through three main types of fees (non-tax revenue). The
main forestry fees are for the licensing of forest concessions (fee paid for the right to harvest timber on both natural forest concessions and timber plantation concessions, known in Indonesian as IHPH and IHHT), fees paid to the reforestation fund (based on the volume of timber harvested, known as Dana Reboisasi, DR), and the forest royalty fee (based on the volume of timber harvested, also known as IHH or PSDH depending on the name of the fee system in various years). The exact revenue sharing formulas can bee seen in Appendix 1.
The total cumulative contribution from the sector from 1985 to 2002 was about $6.5 billion. The forestry sector has contributed about 1percent of overall GOI revenue with slight variations over time. As shown in the chart below, the reforestation fund and interest earned on those funds constitute the largest contribution to forest sector revenues, by far (>70 percent using combined fi gures for the period 1999-2003). The forest resource harvesting levy (royalty) also contributes an additional
27 percent on average. Licensing fees for the rights allocated to industries to use huge areas of state claimed land generate less than 2 percent of total revenues, and this amount has been declining.
But implementation of the decentralized revenue sharing
scheme has been diffi cult, owing to an unclear relationship
between the regional autonomy and decentralization
laws and the forestry laws. The forestry law (41/1999) gives the central government control over forestry issues, while regional autonomy laws (22/1999) transferred authority to local governments. This has caused disputes between central and local government authorities, particularly in the initial phases of the decentralization process. As a result, there was a proliferation of local fees and taxes to raise revenues and the issuance of local logging rights, speeding up deforestation.
The process of re-distributing revenues has been slow and sometimes not transparent. This is mainly due to a cumbersome process within the Ministry of Forestry to reconcile data from the regions. The Ministry of Finance then allocates the revenues of forest concession license fees and the reforestation fund back to the regions. As Fox, Adhuri and Resosudarmo (2005) report, some local governments have instructed logging companies not to submit their contributions to the central government but to pay them directly to the district governments. This has prompted central authorities to monitor revenue fl ows closely and to issue warnings to several districts.
An added complication of the revenue-sharing scheme is that 40 percent of the DR revenues should be allocated to “producing regions”. There is a lack of clarity on the defi nition of a ‘producing region’, leading to some districts arguing that ‘producing districts’ should receive these proceeds. In
Figure 4.5. Incidence of Fuel Subsidies
Source: Agustina, Granado, Bulman, Fengler, and Ikhsan (2008)
Figure 4.6. Ministry of Forestry Revenue by Source
Ministry of Forestry Revenues by Source (1999-2003)
Source: World Bank (2006)
Fines, Wildlife, &Tourism 0%
HPH & HTI License Fees 1%
Forest Resource Levy 27%
Reforestation Fund 62%Interest on RF (DR) 10%
18 The following section draws heavily from World Bank (2006)
Subsidies go mostly to the richestShare of fuel subsidy received by households in each
consumption decile
Household consumption decilePoor Rich
50%
40%
30%
20%
10%
0%1 2 3 4 5 6 7 8 9 101 2 3 4 5 6 7 8 9 10
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practice, the producing province gets the 40 percent share, causing frustrations among several districts (Fox, Adhuri and Resosudarmo 2005).
Earnings from illegal logging are huge and are not captured
by the government. Using simple estimates by assuming that illegal logging is as high as 30 million m3/year, then unreported, illegal revenue is at least equal to $3 Billion (based on $100/m3) and uncollected taxes are at least equal to $ 600 million, each year (based on tax revenue of $20/m3). Using a more complex and complete procedure, BAPPENAS-NRM-MFP (2004) estimated that annual profi ts to illegal logging were about $1.5 billion per year and excess profi ts to industry are about $350-$400 million per year due to the modest levels of taxes and royalties set by the GOI (World Bank 2006).
The current system of taxes and incentives is insuffi cient to
reduce illegal logging and increase economic rent capture.
Fees, levies and fi nes for forestry infractions, authorized wildlife exports, and tourism all together account for less than hundreds of thousands in earnings in most years. In particular, fi nes for infractions are very small relative to the level of illicit earnings. This highlights the need to strengthen enforcement measures as well as the means to recover the costs of illegal activity.
Addressing policy distortions should start by viewing
taxes and fees as incentive instruments, not merely as
means for revenue collection. Indonesia’s forests are being depleted: their long term potential to produce timber is being damaged, along with the environmental benefi ts they provide. Some argue that all or most “excess profi t” should be taxed away (“captured”). Others argue that earnings due to forest depletion may not be a sustainable or socially desirable source of government revenue. To reduce forest depletion, environmental damage should be made expensive (taxed), not timber harvesting. An appropriate tax and incentive regime should protect the land’s environmental services and future productivity (next tree crop), not simply capture profi t from short-run forest depletion (World Bank 2006).
Specifi c incentive instruments could include performance
bonds, tenure arrangements, auctions, and better
inspection and enforcement. Both forest sector taxes and
environmental bonds should be set and managed in a way that promotes long term logging behavior and sustainable forest management. Similarly, any auction, transfer, or long term licensing rules should be designed to provide incentives to manage the land as a sustainable resource, not a short run windfall. If there is a desire to capture “rent” or “excess profi t,” these taxes should be linked to earnings after long term forest management investments are made and environmental damage prevented (rather than linked directly to revenue or short-run profi t). If there are distributional objectives, “excess profi ts” could be taxed at a rate higher than the normal corporate tax rate. Applying these instruments eff ectively will of course depend on whether GOI is capable of enforcing basic tax and payment rules (World Bank 2006).
4.2.3 Mining
The key policy distortion in the mining sector is the legal
uncertainty arising from confl icting interpretations of
the decentralization, mining and forestry laws which
undermines the long-term certainty in the Contract of
Work (CoW) system. Before 1999, Law 11/1967 on Mining and the accompanying implementing regulations established a system of individual contracts of work (CoWs) based on direct negotiations between mining companies and the central government. The decentralization laws with more revenue-raising power delegated to local governments undermined the existing CoWs. The government then issued Law 22/2001 on mining, which has confi rmed the right of the central government to award mining contracts and to set the conditions for revenue sharing among diff erent stakeholders (Fox, Adhuri, Resosudarmo 2005). However, real investment fl ows to mining operations has been stagnant since 2000, with global mining companies rating investment conditions and legal issues as main worries (PricewaterhouseCoopers 2006).
Relatively complex revenue-sharing formula is cause
for disputes between central government and regional
governments. The revenue-sharing formula for general mining distinguishes between diff erent regional units (producing areas/daerah penghasil) within same province. The lack of clear guidelines on how to distinguish between these regional units and the long, complex procedures to make these revenues fl ow from the centre to the regions makes it diffi cult for district governments, sub-districts and village heads to benefi t from lucrative resource extraction. This creates investment uncertainties for mining operations on the ground, as local frustration provides an incentive to local governments to increasing rely on imposing local taxes and fees to raise revenues (Fox, Adhuri and Resosudarmo 2005).
As a result, since the beginning of decentralization process in 2001 there was a proliferation of local additional taxes and levies on mining companies which has increased investment uncertainty. Local governments have devised an array of local taxes and fees on top of payment requirements in individual contract of work (CoW). For example, regional governments issue new local mining rights on areas already covered by existing CoWs.
Confl icts between mining and forestry regulations have
added another layer of uncertainty. Law No.19/2000 allows
for mining in protected forests and the status was confi rmed by the Constitutional Court in 2005, followed up by a Presidential Decree in 2004 which allowed 13 existing concessions to operate in protected forests. Recently, the Ministry of Mines and Energy has announced a plan to issue a Presidential Decree to allow more mining companies to operate in protected forests against an annual fee of 3 million IDR/ha (Jakarta Post, 3/1/2008). However, the eff orts to open up protected forests for mining has been opposed by many CSOs and the Ministry of Forestry. The Ministry of Forestry has also issued government regulation 14/2006 which adds several requirements on mining
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companies, including the possibility of new additional royalties. A draft of the new mining law is now currently being discussed in the parliament. Investors are concerned that the law will contain provisions to replace existing CoWs with shorter-term mining licenses (Reuters, Feb 27, 2008).
A new mining law has been passed by the Parliament, leaving investors in a state of uncertainty. The key feature of the new Mining law is that the current existing work licensing schemes (or contract of work agreements) are to be replaced with permits with shorter time frames. Previously, the maximum length of a lease was 30 years. The new law allows for a maximum of 20 years, with an option to extend for another 20 years. This provision will raise some uncertainties from the point of view of investors in large – scale mining operations, looking for a secure guarantee in tenure. However, the government will spell out details of the law in issuing implementing regulations and consulting stakeholders in the the process (Jakarta Globe, 2009).
4.2.4 Fisheries
Economically, the fi sheries sector accounts for 2.4 percent
of total GDP in 2007 (constant 2000 prices), making it the
second largest sector in agriculture after non-food crops
(6.8 percent). The fi sheries sector employs around 3 million people or percent of the total workforce, according to the latest available data from the labor force survey in August 2007. Fish and shrimp account for 30 - 40 percent of food export value, which is only 5percent of total export values. The marine capture fi shery is the most important component of the fi shery sector. Fish culture is growing quickly, too, but inland fi sheries are stagnant or declining. Most fi sheries production is used directly as food, not exported. This has important implications for the livelihoods and nutritional status of Indonesians, as well as the prospects for increasing value or growth in exports (Brown, Bengen and Knight 2005).
Recent estimates suggest that that Indonesia may rapidly
approach the limits to harvest growth in the fi shery
sector. The rising numbers of boats and industrial vessels has signifi cantly increased the industry’s capacity to harvest fi sh stocks. The marine fi shing fl eet tripled in numbers in the last 20 years and now amounts to an estimated total of 460,000 vessels. Larger motorized boats are the fastest growing segment of the
fl eet and now represent more than half the motorized fl eet. Fishing capacity measured in “boat tons” increased six times in the same period, indicating an enormous increase in pressure on Indonesia’s fi shery resources. Estimates of maximum sustainable yields (MSY) vary, ranging roughly between 5 and 6 million tons per years. However, taking account of the over-capacity of the domestic fi shing industry and illegal fi shing operations, actually catches are vastly under-reported and are more likely to be in the 8 million tons and above region. This vastly exceeds MSY estimates (Patlis 2007). Increasing confl icts involving disputes between fi shery communities coming from diff erent regions, as reported in Fox et al (2005) are an indication that stocks are approaching limits. Additional increases in eff ort will likely lead to declines in fi sh catch.
The key policy challenge is to increase the value added of
fi shery production, while limiting harvest growth. Brown, Bengen and Knight (2005) argue that this can be done in several ways. To increase GDP, fi sheries sector planners and mangers can increase value added through improved processing and storage. These improvements would also increase linkages to the rest of the economy, which results in ‘multiplier’ benefi ts beyond the contributions of the individual sector.
Increasing the value of the existing catch would include fi nding ways to preserve more the catch and reduce spoilage through – for example - cold chains and processing. Finding new markets and investing in value added processing would also increase the value of the catch without increasing the pressure on the limited resource.
Increases in tax revenue contributions can be achieved without increases in harvest. Tax and non-tax revenue contribution from fi sheries is quite low. This may indicate that increased eff ort on tax administration and collection eff ort for this sector could yield high returns in terms of revenue collected. However, one has to bear in mind that fi shing is a diff use activity and landings take place across Indonesia, so tax collection is relatively diffi cult. Still, tax and non-tax revenues fi gures seem to show that tax revenue from fi sheries is not commensurate with its economic contribution and its contribution to export value. Indonesian planners could increase tax revenue by raising the marginal tax rate or by increasing the effi ciency with which taxes are collected (Brown, Bengen and Knight, 2007).
Chapter 5:
Constituency, Awareness and Critical Partnerships
Children playing (World Bank Collection) Photo: Curt Carnemark
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5.1 Public Perceptions of the Environment
A search was conducted to identify past surveys on public perception on environment. An attempt was made to locate surveys that were generic in nature, i.e. not specifi cally designed to support a particular program or project. The search combined internet search with inquiries to contacts in various organizations, and a visit to the Ministry of Environment’s library. A total of 24 surveys were found, covering a period between 1998 and 2007. The surveys were examined and only relevant surveys were selected. Some surveys were considered too specifi c (and program-oriented) for the purposes of this study19
. The selected surveys were studied to compose a picture on the perception held by the general public on environmental issues. Table 5.1 describes the surveys selected for this study.
The nature of the surveys varies signifi cantly. In this study they are diff erentiated based on their treatment of environmental issues and their geographic scope. The surveys thus are classifi ed into 3 categories:
Birds-eye view: surveys not specifi cally designed to • capture environmental views, but include a general question on environment. The Pew Global Attitude survey and the CLSA “Mr. and Mrs. Indonesia” fall into this category. In terms of geographic span, the Pew survey covered 47 countries around the world, including Indonesia. While the CLSA survey was specifi cally designed for Indonesia.
National view on environment perception: surveys • designed specifi cally to obtain the public’s opinion on environment. Only one survey falls into this category, namely the KLH survey. However, not all environment and natural resources issues were covered; only those issues of relevance to KLH’s portfolio were surveyed.
Local view on environmental perception: surveys • designed to gauge the public awareness or attitude towards particular environmental or natural resources issues of one or more areas (provinces). The remaining surveys in the above list fall into this category. Most of the surveys were conducted in relation to a donor-funded program, with the exception of the WALHI and Papua surveys.
Based on the above surveys, a composite picture of the Indonesian public’s perception on environment was pieced together. Although a full and comprehensive picture was not obtained, the following attempts to summarize the fi ndings of the various surveys examined, and to make a statement on public perception on environment.
The surveys that fall into the ‘birds-eye view’ category does not provide a strong sense that environment is a top priority for Indonesians, nor does it show the reverse, that Indonesians do not at all care about the environment. The two surveys show that environment does appear on the radar of the Indonesian public, but does not appear to be the most pressing issue they face.
The Pew Global Attitude Survey found that only • about 30 percent of Indonesian respondents identifi ed that “pollution /environment” is the fi rst or second greatest dangers in the world today. The Indonesian respondents largely identifi ed the “gap between rich and poor” and “religious/ ethnic hatred” as the greatest threats. When asked specifi cally about global warming, 44 percent Indonesian respondents said it was a “less serious” problem, compared to 43 percent who said it was “very serious”.
A market survey of middle-class Indonesians (CLSA • Indonesia, 2007) with a much larger sample size
MAIN MESSAGES
The environment is on the radar screen of the Indonesian population, especially issues concerning water • (pollution, fl oods, droughts), cities (cleanliness, solid waste, air quality) and forests (degradation, illegal logging, fi res).
The GOI has policies, investments and programs for these public priorities, but their persistence as public • concerns is one indicator that they have not been adequately addressed.
The GOI is also pursuing areas that are not yet public priorities, e.g. climate change, coastal and marine resources, • biodiversity, clean energy, and hazardous wastes, indicating a low level of public awareness.
Partnerships are needed with four key actors who can bridge environmental communications between • the government and the public: the mass media, civil society organizations, the legislature, and religious organizations.
Promoting public participation and increasing awareness are essential for any development partnership that • seeks to build eff ective demand for environmental sustainability.
19 An example is Swisscontact’s survey of bajaj owners and drivers to assess their perception of the CNG-fueled bajaj introduced a few years ago in Jakarta
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(21,000) gives a more positive outlook. In this survey ‘Environment’ was identifi ed as the third topic of “biggest concern” among Indonesian middle-class (reaching 79 percent of respondents), after ‘Corruption’ (81 percent) and ‘Job Security’ (80 percent). ‘Environment’ even ranked higher than ‘Kid’s Education’ (55 percent) and ‘Crime’ (46 percent). The sample was largely urban.
The national view gives a closer look at the environment in the eyes of the public. With a sample size of 5000 respondents in urban and rural locations, the KLH survey found that the majority of respondents consider their cities, rivers and air to be moderately to severely polluted. Only a small percentage have a positive perception of their environmental conditions. Only 22 percent say their cities are clean and green; only 14 percent say their rivers are clean; only 33 percent of respondents feel the air quality is good.
The local-view surveys, which addressed environmental issues specifi c to the region, seem to indicate that Indonesians were able to respond or give an opinion on certain environment/ natural resource issues raised in the survey.
The KAP survey showed that about 30 percent of • respondents in East Kalimantan and North Sulawesi indicated they were ‘very concerned’ about water (river/lake), pollution in general, forests and land.
The INFORM focused on forestry issues in North • Sumatra, Jambi, Jakarta, West Java, Central
Kalimantan. The study concluded that the “public was already quite well aware of forestry issues”, such as on forest degradation, impact on natural disasters such as fl ooding, landslides, drought, the demand for wood exceeding legally produced wood. However, this study also states that “knowledge of particulars was limited” among the respondents. Examples of particulars that are not well known are: amount of wood needed, rate of forest destruction and the actual meaning of ‘sustainable forest management’.
Swisscontact conducted 2 surveys in DKI Jakarta on air • pollution, particularly caused by vehicular emissions. The study shows that the Jakarta public has “high cognition and aff ective results on air pollution, but is generally reluctant to practice air pollution reduction” (Swisscontact, 2003). A similar study in 2004 gave a mixed picture. About 70 percent of respondents say they are not aware of the negative impact of emission towards human health and productivity, but felt that air pollution should be a main priority (66 percent).
A survey conducted in Jakarta by WALHI also indicates • that a random set of people are able to identify issues they felt are at ‘crisis’ level in Jabodetabek. The survey resulted in the following top issues: garbage (40.5 percent), air pollution (37.5 percent), traffi c jams (34.7 percent) and fl oods (24.5 percent).
Surveys done in Papua showed that “more Papuans • think the condition of their forests, wildlife, rivers and
Table 5.1. Public Perception Surveys with Environmental Information
Title Implemented by Sample Size
1 Pew Global Attitudes Survey: “Global Un-ease with Major World Powers”, 2007
Pew Research Center 1,008 respondents spread in most part of the country
2 “Mr. and Mrs. Indonesia”, 2007 commercial market survey
CLSA Indonesia (Roy Morgan) 21,000 respondents (middle class) in 20 big cities
3 “Public Perception on Eff orts of Natural Resources Management - Looking Upon 2009"; 2006
State Ministry of Environment (KLH) 5,000 respondents from 22 cities and 41 kabupaten
4 "Knowledge, Attitudes and Practices (KAP) Survey Report - North Sulawesi and East Kalimantan"
Natural Resources Management Project (USAID)
2,000 respondents from 2 provinces (East Kalimantan and North Sulawesi)
5 "Report of Study on Jabodetabek Crisis", 2007
WALHI 1,000 respondents in DKI Jakarta
6 “Laporan Segar Jakartaku”, 2003; aware-ness survey following public campaigns
Swisscontact 1,517 respondents in DKI Jakarta
7 “Survey Campaign 2004 – Indonesia”, awareness survey following public cam-paigns
Swisscontact 2,292 respondents in DKI Jakarta
8 “Indonesia Forest and Media Campaign Monitoring and Evaluation”
INFORM program (PT. Insan Hita-wasana Sejahtera)
900 respondents in North Sumatra, Jambi, Jakarta, West Java, Central Kalimantan
9 “Papua Public Opinion Survey”, 2003 International Foundation for Election Systems (IFES)
3,450 respondents in 12 districts in Papua
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waterways have deteriorated over the past 5 years (than think they have improved)”. And yet, “more think the condition of their air, seas and oceans and soil have improved over the past 5 years”.
The surveys indicate that the Indonesian public is quite aware of the general condition of natural resources and environment in their immediate surroundings. However, several studies show that understanding of technical or specifi c information on cause, eff ect and solutions are weak.
Regarding attitude, the Indonesian public does not demonstrate a strong attitude towards environmental protection or natural resource conservation. Although there seems to be interest in these issues, political participation and personal action is limited. Most still identify the government as the party most responsible for managing the resources/ environment.
The KAP Survey found that natural resources are • regarded “primarily as a principle source of food or resource to be sold for money for direct family welfare”. The attitude of respondents towards natural resources is still low compared to attitude towards daily needs and family welfare. And although the “desire to protect natural resources is high”, the level of political participation with regard to natural resources issues is quite variable, with 61 percent in North Sulawesi and only 34 percent in East Kalimantan claiming participation.
The INFORM study found that respondents are willing • to participate in actions or activities to prevent, stop and overcome forest destruction, as long as they do not bear signifi cant risks. Further, the public “assigns the government as the responsible agency to manage the forests, except when it concerns utilization of forest products, communities want to play a role”.
The Swisscontact 2004 survey indicates that about 70 • percent of respondents feel that government is most responsible for air pollution, and seems to indicate “public does not feel they need to take initiative to handle air pollution”.
The picture that emerges is one where the environment is on the radar of the Indonesian population. However, to defi ne more clearly which environmental issues they are concerned about remains diffi cult. This is because the national- and local-view surveys were designed to address certain issues, and did not provide an opportunity for respondents to give an opinion on the whole array of environment and natural resources issues faced by Indonesia. If the fact that they responded positively to certain issues raised in the survey can be considered indicative of their concern for that matter, then it is possible to conclude that the public is highly concerned about:
Water (pollution, fl oods, drought),•
Cities (cleanliness, solid waste, air quality), •
Forests (degradation, forest fi res, illegal logging),•
The data available does not allow a deeper investigation into the perceptions on each environmental sub-topic. In fact, it is diffi cult to claim that the majority of Indonesians is only concerned about the three sub-topics. However, lacking more compelling and comprehensive data, the rest of the analysis will use the three sub-topics as the best-estimate.
5.2 Compatibility of Public Perception with
Government Priorities
Compatibility between government agenda and public concern on environment is seen as an indication that public concern is eff ectively communicated to the government. An analysis was
BOX 5.1. Public Access to Environmental Governance
Are the three access principles guaranteed under Indonesian law? Yes, but the legislation and regulations are insuffi ciently clear and explicit. All of the legal instruments studied, including general environmental law, sectoral environmental law and local environmental acknowledged and enshrined the right to information, to participate and to justice. However, the guarantees given in respect of the fulfi llment and upholding of these rights were insuffi ciently clear and explicit.
How are the principles upheld in Indonesia in practice? From the cases studied, it was found that the practice of upholding the principles varies greatly by case and geographical area. The highest level of access to information was on environmental status while the lowest level concerned information on corporate compliance and environmental performance. Public access to participate in the policymaking process is strong but participation at the project and licensing levels is weak. Access to environmental justice suff ers from a number of weaknesses but progress has been made in expanding locus standi to NGOs and interested third parties.
What factors lead to Indonesia’s poor performance in fulfi lling the principles? Legislation guaranteeing access to information, participation and justice lacks clarity and enforceability. For the public, clear and explicit legislation is required to provide guidelines on how access rights can be upheld and enforced. Also, there is a lack of capacity for the public and public bodies to uphold access rights.
SOURCE: Murharjanti et al., 2008
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undertaken that uses the three environmental issues of public concern identifi ed in the previous chapter. Each issue was evaluated with regard to:
trends in environmental degradation;a.
inclusion (or exclusion) in the government agenda b. (represented by the existence of programs and budget allocations20 to address the issues);
eff ectiveness of the above programs in ameliorating the c. situation (where data are available).
The analysis, available in the cited background paper, indicates that the government has addressed the key environmental issues of concern to the public. Programs are in place, and most have some degree of fi nancial support from the national government.
However, when compared to data on environmental trends, it appears that deterioration of the environment continues to proceed. This analysis concludes that government programs are unable to outpace the rate of environmental degradation. This means that the programs are either too slow to have eff ect, the programs are too limited in scope to produce systemic improvements, and/or that demands and pressures on the environment (and natural resources) from development activities evolve too fast for government programs and legislations to keep pace.
It is noteworthy that several items on the government’s environmental agenda do not appear as issues of concern to the Indonesian public including:
Atmosphere (global warming, greenhouse gases, • ozone depleting substances);
Coastal and marine resources;•
Biodiversity;•
Energy (clean-coal, alternative energy); and•
Hazardous materials and waste.•
Although some of the topics above were excluded from the scope of the surveys used in this analysis, it is fair to conclude that, in general, the Indonesian public’s awareness of these issues and concern is limited. Coastal and marine resources, for example, ranked low in the KAP surveys conducted in East Kalimantan and North Sulawesi. Awareness of climate change issues may just be developing since the UNFCCC in Bali end of 2007. It is curious that a world opinion survey that included Indonesia, did not ask respondents the question about climate
change (WorldPublicOpinion.org, 2007)21. Energy, on the other hand, generally is not seen by the public as an ‘environmental’ issue and thus does not emerge in public surveys. Hazardous materials and waste issues never seem to be understood by the public, likely due to the highly technical nature of information.
In conclusion, with issues of public concern represented fairly well in the government agenda, it is safe to conclude that public-to-government communication does occur eff ectively. However, the public still lacks awareness or concern about some issues that the government regards as important. This indicates that public awareness of environment and natural resources is still limited in breadth.
5.3 Assessing the Quality of Public Access in
Environmental Governance
Good environmental governance requires the application of the principles of transparency, participation and accountability in environmental planning and decision-making. Public rights to information, participation and justice are essential prerequisites for the eff ective implementation of these principles. These are further defi ned as:
Access to information• – every person has the right to access full, accurate and up-to-date information about the environment;
Access• to participation in decision-making – this includes access to participation in making decisions on environmental policies and programs, participation in the legislative process and participation in making particular environmental decisions based on an interest in the subject matter; and
Access• to justice – the existence of a mechanism by which members of the public can directly uphold environmental law should their rights to information, participation and/or enjoyment of a healthy environment be infringed.
These access principles were part of the 1992 Rio Declaration and were subsequently reaffi rmed at the 2002 World Summit on Sustainable Development as well as through other international agreements.
A set of indicators has been developed by The Access Initiative, a global coalition of NGOs, to assess governmental performance in fulfi lling the three access principles. The Indonesian Center for Environmental Law, a member of the Initiative, has recently completed an assessment based on these indicators in the representative provinces of Riau, West Kalimantan, East Java, Central Sulawesi, and North Sulawesi. The results of the assessment are summarized in Box 5.1.
2021
Data was only available for budget allocations, are used, in this study, as indication of government concern and intentions.The report states that local survey partners were given the discretion to exclude certain questions.
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5.4 Key Partners for Communications and
Awareness
In any democracy, three actors play a key role in bridging communications between the public and the government, namely mass media, legislative, and civil society. Besides individual links, the three actors reinforce each other’s work, especially as control mechanisms for the executive branch of government.
In post-reformasi Indonesia, the three actors are undergoing a multi-dimensional transition – one that covers their roles and responsibilities, who institutions cater to and who they must be accountable to, relationships with other institutions both horizontally and vertically. The term “democratic consolidation” is used by some researchers (Diamond, 2003 as quoted in Susan, undated), which implies a process that will lead to a new equilibrium in how the nation and its people act and react to the demands of the time or situation. In this period, the pillars of democracy — freedom of political expression, freedom of speech and freedom of the press – are being developed, strengthened and reaffi rmed. The players of this democracy, government executive branch, legislative branch, judicial branch, civil society and the mass media, are challenged with realignment and reestablishing their allegiances and redefi ning their constituencies.
This section will discuss the three actors, and their role in communicating the public’s environmental concerns and aspirations on the environment. An additional, and possibly an emerging player, will also be explored, namely religious institutions. Each section will discuss the role of the player in infl uencing public opinion as well as in channeling public opinion to infl uence government agenda, if any. This part of the analysis is largely based on literature review and interviews with selected resource persons (a list is provided in Attachment B). Where information was available, survey results examined in this study were quoted as additional evidence.
5.4.1 Mass Media
Mass communication literature states that “agenda setting is one of the most prominent eff ects that the media have on public opinion” (Yin, 1999). The public responds to information presented in the media. Yin further quotes “the public is likely to be aware of certain issues and consider them as important if these issues are highlighted by the mass media”.
In identifying the factors that infl uence public perception, the KAP survey found that media was the main source of information for both North Sulawesi and East Kalimantan respondents. Media includes radio, newspaper, and TV, although TV is considered more important in rural areas than in urban areas. The INFORM survey also found that TV is more eff ective (and likely the least cost per head), while printed media and radio seems to be less eff ective. Among Jakarta respondents of the
Swisscontact survey (2004), TV and radio were the main sources of information on the clean air campaign, followed by outdoor media (banners, posters and billboards). Swisscontact found that newspapers and magazines play a lesser role.
Casual observation22 of Indonesian media coverage indicates that news items and public service advertisements on environmental degradation, disasters, and over-exploitation of natural resources have increased over the years, in both electronic and print media. TV stations broadcast in-house documentaries on illegal logging, forest fi res, fl oods, garbage, etc. A “Green Radio” was also launched recently in Jakarta (previously Radio Utan Kayu), with all its programs geared towards building environmental awareness. And print media features investigative reporting on various issues, usually surrounding certain incidents (such as fl oods, forest fi res, landslides, etc). The UN Conference on Climate Change in Bali, December 2007, also provided an important momentum for media to cover a wide array of environmental issues.
Although media coverage on environment may have increased in Indonesia, it’s proportion and emphasis, relative to coverage on conventional issues, it is still miniscule. In the socio-political arena, the news is dominated by stabilization of the economy, anti-corruption drive, exercise in democracy (represented in local elections, political parties, parliamentarians, etc). But the dominant features of electronic and print media coverage are entertainment, infotainment and consumer product advertisements. Environment’s low position in the media totem pole creates only a superfi cial pro-environmental attitude among the Indonesian public, if at all.
The role of media in channeling public concern to the Government may be even more limited. From the surveys examined in this study, East Kalimantan and North Sulawesi respondents claimed they use media as the last resort in expressing their environmental aspirations, and prefer going directly or writing letters to the relevant government institution (KAP survey, 2001). However, it may be misleading to defi ne the role of media solely through the public’s preference for communication (or conveying complaints). The media’s role must be seen in a more complete picture, which includes media coverage of NGOs voice on environment.
5.4.2 Civil Society Groups
In the environment fi eld, NGOs/CVOs have played an important role ever since environmental management was incorporated in the development agenda in the mid-1980s. NGOs/ CVOs are classifi ed into diff erent types, but for the environment fi eld, their main mission or activities include: a) advocacy, b) scientifi c and/or policy research, c) community development/ empowerment, d) public awareness/ education, and e) conservation. With respect to public perception on environment, NGOs/ CVOs play at least two important roles, namely as: a) Source of environmental information for the
22 This study was unable to fi nd statistics on news coverage on environment/ natural resource issues.
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public; and b) Agent for bringing public’s environmental aspirations to the Government’s attention. These roles will be discussed in the following.
In recent years, the role of NGOs in the post-reformasi period has come under scrutiny. “Politicians have started to ask questions regarding NGO legitimacy and how much they really represent the interest of their constitutents” (Antlov et.al, 2005). Furthermore, the “role of public watchdog is no longer monopolized by NGOs, but shared with other actors…” The challenge of the time is “reformulation of NGO positions vis-à-vis the state and various other sectors in society”, in a setting where “power is no longer centralized but distributed among new power centers, such as parliament, political parties and judicial institutions” (Antlov et.al, 2005).
In this new setting, environmental NGOs will be challenged to defi ne more clearly their comparative advantage as ‘mouthpiece’ for the public or certain components of the public. Political parties and parliamentarians, particularly, claim they have a more legitimate role in representing the public’s views and aspirations. Granted that political parties and parliament are, at present, still in the process of trying to establish credibility (amid myriad corruption cases and personal scandals), the public can be expected to be more discriminating in selecting who to represent their aspirations.
NGOs have also been challenged to improve their accountability, both in terms of management of activities, as well as funding arrangements. International donors and sponsors have demanded better reporting of fi nancial contributions, while others see the need for NGOs to distance themselves from international donors. “It is also important that the philanthropic sector expands in Indonesia, so that civil society organizations in Indonesia become less dependent on foreign funds, and in that process start to relate increasingly directly to Indonesian stakeholders, being more responsive to local developments” (Antlov et al, 2005).
5.4.3 Legislature
With the downfall of the Soeharto regime, the parliament (at the national, provincial and district levels), found itself having a clearer, stronger mandate, and, with it, higher expectations from the public. Gone are the days where parliamentarians rubber-stamped the executive branch’s development plans – now parliamentarians are expected to have an informed opinion on the topics being discussed. Gone also are the days where the parliament was largely a monolithic voice – now parliaments at all levels are faced with multiple opinions from diff erent factions in the house, each carrying what is supposed to contain aspirations from their respective constituents. Attached to this are political parties, which have mushroomed from a mere 3 (three) in the Soeharto era to 34 (thirty-four) which passed the verifi cation process to participate in the 2009 general elections.
Political parties have not yet developed the infrastructure or culture of serving as a vanguard for public aspirations. There
is no mechanism or regulation that defi nes, elaborates or institutes how a political party interacts with their constituents. Relationships with constituents become individual rather than systemic in nature (http://forum-politisi.org). An interview with a DPRD member from West Java Province confi rms this assertion. This veteran parliamentarian claims that communication with the public is very dependent on each individual’s commitment and willingness to spend the hours attending Musrenbang sessions or other community meetings. Many DPRD members only attend the opening ceremonies for such meetings, and leave before the substantive discussions begin (Bawono, personal communications, 2008). Furthermore, individual members of the parliament do not obtain any support from their political party in their eff ort to communicate with constituents. Parties tend to use constituents for short-term gains every 5 years, namely getting votes during elections (LGSP, 2008 and http://forum-politisi.org). The term ‘constituent relations’ is understood as building relations with specifi c interest groups that can help get a legislative candidate elected (LGSP, 2008).
With legislative members left to their own devices to communicate with the public, to obtain information on what the public needs or wants, it is not surprising that the legislature have little to base their arguments in debates with the executive branch or other parties. This is further aggravated by the paucity of “intellectual support”, meaning provision of “background and specialist information – sifting and systematic explanation of a mass of material” (Sherlock, 2003). At the provincial and district levels, members must do their own research or hire assistants at their own expense (Bawono, personal communications, 2008). A member of DKI Jakarta parliament also says members rely on their knowledge of living conditions of their city, as well as input from others around them (Mukhayar, personal communication, 2008), indicating the absence of structure in the way parliament members prepare for their duties in representing aspirations of the public. Only at the national level parliament, do members have intellectual support. The Commission VII (for Environment, Energy, Research and Technology) is supported by a 6-member team of experts to gather data and conduct analysis. The members of the team have at least a Master’s degree in relevant fi elds and are employed on a full-time basis. The chairman of Commission VII said the team of experts was an eff ective way to sift through large amounts of information, including reviewing written grievances received by the Commission (Hartarto, personal communication, 2008).
In the environment fi eld, parliamentarians face a wide range of topics – all of which involve a combination of scientifi c information and frequently confl icting interests from diff erent stakeholders. Newly-elected parliamentarians need to quickly learn the issues and form their own opinions. Members of the DPRD of West Java Province initiated a radio-talkshow that addressed current environmental issues, as a crash-course on environment for parliamentarians. Guest speakers from academia, NGOs and local government agencies were invited to discuss diff erent topics. These exchanges became one of the references when reviewing draft legislations. However, again the persistence of individual parliamentarians is tested. Many parliamentarians come unprepared, not having reviewed draft
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legislations in question, let alone doing their own research. As a result, even in the national-level DPR, the quality of discussion, debate and questioning in most Commissions and Committees is poor (Sherlock, 2003).
Lacking offi cial “intellectual support”, legislative members have developed networks or other informal forum to exchange views and information. The DKI Jakarta DPRD members participate in a network which includes NGOs, media representatives, local government agencies and community groups. In West Java, DPRD members are linked in a caucus that crosses factions, crosses political parties, crosses Commissions, and regions. Such a caucus was initiated by the Ministry of Environment in 2002 – intended as an informal forum among DPRD members to keep environment in the agenda in all discussions in the parliament. To date, the Ministry boasts of 20 DPRD member caucuses on environment, covering 85 districts/cities and provinces (www.menlh.go.id). However, once formed, the fate of the caucuses again depends on the commitment of the individuals involved and how much support they manage to obtain from the DPRD or the government.
5.4.4 Religious Institutions
Religious institutions are not traditionally known to play a role in representing public aspirations or forming public opinion in the environment. It is discussed in this analysis as a group with signifi cant overall infl uence in the Indonesian society and recent interest in environment. The role of religious institutions was not addressed in any of the surveys examined in this study, and thus the discussion below relies on literature review and interview with resource persons.
In recent years, several religious institutions have proclaimed their environmental mission or engaged in environmental activities. Specifi cally, the two largest Moslem organizations, Muhammadiyah and Nahdlatul Ulama, have signed Memorandum of Understanding with, respectively, the Ministry of Environment and the Ministry of Forestry. Muhammadiyah, through its Environment Institute (Lembaga Lingkungan Hidup) aims to develop an environmental movement that is based on Islamic values. While Nahdlatul Ulama (NU) established a program designed to cater to its 45 million members, 65 percent of which live in rural areas and are linked, one way or another, to forested areas. NU’s cooperation with the Ministry of Forestry, called National Movement for Forestry and the Environment (Indonesian acronym GNKL), has a wide range of objectives, which include improving the welfare of NU members, increase their involvement in sustainable forest management, and providing inputs for policy makers.
Many Islamic boarding schools have also engaged with the Ministry of Environment through a program called Eco-Pesantren. With 15,000 pesantrens spread throughout Indonesia, and about two million students at any given time, pesantrens are considered a strategic ally for awareness building. Not only does the program aim to create pesantren as a model for good environmental practices, it also hopes to develop religious leaders (graduates of the schools) who are
sensitive to environmental issues and include environmental messages in their sermons (www.menlh.go.id).
Religious leaders have also been embraced by the Indonesian affi liate of US-based Conservation International (CI). CI initiated a discourse on Islam and conservation among kyais (Moslem preachers) and pesantren leaders. A study of the scripture and hadith literature indicates that the tradition of protection of nature (forests, land, animals, etc) does exist in Islam. As a result, Moslem preachers fi nd the message of conservation acceptable, compared, for example, to messages of gender equality, which are prone to heavy debate (Mangunjaya, personal communications, 2008). Based on the work with pesantrens and discussions with kyais, CI has observed pockets of increased action and participation with regard to environment. A kyai in the Province of Nusa Tenggara Barat, for example, initiated a regreening program for his surroundings, and a pesantren in Northern Sumatra proposed the designation of conservation area, now known as the Batang Gadis National Park (Mangunjaya, personal communications, 2008).
In the other major faiths in Indonesia, the Buddhist group Tzu Chi is recognized as promoting environmental protection as an integral part of its mission. Focused on assisting the poor, the Tzu Chi organization holds routine activities with communities, covering recycling, regreening/replanting eff orts, compost-making, etc. (www.tzuchi.or.id). The organization also owns a private TV station, DAAI TV, broadcast in Jakarta and Medan since 2006, which dedicates its programs to environmental topics (Jakarta Post, 6 May 2008).
Aside from that, an interfaith group was established by a concerned Catholic priest in alliance with other groups such as Maarif Institute, Wahid Institute, Clean and Healthy Life Movement, Lantan Bentala Foundation, Interfaith Dialog Society, Indonesia Institute for Pluralism, the Nahdlatul Ulama and Muhammadiyah youth groups, Kemang Pratama Indonesian Christian Church and others. Gempita (Gerakan Iman Peduli Jakarta), as the group is known, aims to change people’s waste management habits. “As religious values are connected to human behavior, religion can help social change by guiding human beings to more civilized behavior,” says Andang Binawan in an interview (Jakarta Post, 17 July 2008).
The eff ectiveness of religious institutions’ and religious leaders’ infl uence towards the public’s environmental behavior cannot be measured as yet, and may take some years to materialize. Their involvement in building environmental awareness can be seen as a positive development, adding another important player to the arena. However, their interest in the matter may, in fact, signal a frustration on the part of religious leaders/ intellectuals that environmental issues remain an unsolvable problem, despite the urgency and dire impacts they have created for the Indonesian population. On the other hand, the government and NGO’s initiative to include religious leaders in spreading the environment message can also be seen as a desperate attempt to reach the public, partly an admission of their own inability, after decades of environmental campaigns.
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SECTION 3:
Sectoral Challenges in a Changing Climate
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Chapter 6:
Adapting to a Changing Climate
Coastline, East Nusa Tenggara Photo: Endro Adinugroho
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6.1 Impacts of Climate Change in Indonesia
Recent analysis for the Southeast Asia region (Yusuf and Francisco, 2009) suggests that Indonesia is highly vulnerable within the region to various aspects of a warming climate. The eastern and western portions of densely-populated Java, the coastal regions of much of Sumatra, parts of western and northern Sulawesi, and southeastern Papua islands all rank highly on the multiple climate hazard map (see Figure 6.1).
Indonesia is susceptible to all major climate change risks (drought, fl oods, landslides, sea-level rise) except cyclones.
Indonesia will experience modest temperature increase. Annual mean temperature in Indonesia has been observed as increasing by around 0.30 Celsius (oC) since 1990 and has occurred in all seasons of the year, relatively consistent if not slightly lower than the expectation of the warming trend due to climate change. The 1990s was the warmest decade and a
MAIN MESSAGES
Specifi c areas of Indonesia are highly vulnerable to multiple climate change hazards (drought, fl oods, landslides, • sea-level rise)
While temperature may only increase modestly, more intense rainfall and sea-level rise will negatively aff ect • food security, water resources, coastal areas, farming and coastal livelihoods, forests, marine biodiversity, and health
People and ecosystems are especially vulnerable to climate risks on Java, Bali, parts of Sumatra, and a large area • of Papua
Climate change will have the most impact on the poorest Indonesians who are more likely to be: living in • marginal areas that are susceptible to drought, fl ooding and/or landslides; dependent on climate-sensitive agriculture or fi sheries for their livelihoods; and have fewer assets to cope with the impacts of a changing climate
The annual benefi t of avoided damage from climate change is likely to exceed the annual cost by 2050 and, by • 2100, the benefi t could reach 1.6 percent of GDP, compared to the cost at 0.12 percent of GDP
Many adaptation options exist to help reduce Indonesia’s vulnerability to climate change which will need to be • phased and prioritized according to the magnitude of costs, benefi ts and risks
Figure 6.1. Multiple Climate Hazard Map of Southeast Asia
Source: Yusuf and Francisco, 2009
0.00 - 0.04
Legend
Multiple Climate Hazard Index
0.24 - 0.31
0.04 - 0.09
0.31 - 0.39
0.09 - 0.14
0.39 - 0.47
0.14 - 0.18
0.47 - 0.60
0.18 - 0.24
Country Boundary0.60 - 1.00
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1998 increase of almost 1oC (above the 1961 – 1990 average) made it the country’s warmest year in the century (Hulme, et al., 1999).
Indonesia will experience more intense rainfall. Climate change is predicted to result in 2 percent to 3 percent more rainfall per year in Indonesia (Ratag 2001 in Susandi 2007). As Figure 6.2 shows, the entire country will experience more rainfall, with the largest change being in the Moluccas. The increased rainfall is expected to continue and, due to climate change, result in a shorter rainy season (fewer number of rainy days in a year), with signifi cant increase in the risk of fl ooding.
Food security in Indonesia will be threatened by climate
change. Perhaps the largest concern for Indonesia with regards to the impacts of climate change is the risk of decreased food security. Climate change will alter precipitation, evaporation, run-off water and soil moisture; hence will have eff ects on
agriculture and thus food security. The droughts caused by the 1997 El Nino event aff ected 426,000 hectares of rice. The loss of production (measured as the percentage deviation from a fi ve-year moving average) in eight El Nino years between 1965 and 1997 averaged 4 percent. Production variability during 1963-1998 was greatest for maize (13.5percent due mainly to chages in area harvested (World Bank, 2008). For particular regions, the losses may be higher: East Java/Bali, an area with a very short monsoon, is predicted to be 18 percent for the January-April harvest (Naylor et al., 2007).
Important income-generating non-food crops such as coff ee, cocoa and rubber were also aff ected (FAO, 1996). Projected changes in crop yields in Asia could vary between -22 percent to +28 percent by the end of the century in the event of a doubling of atmospheric carbon dioxide concentrations (Reilly, 1996). A model simulating the impacts of climate change on crops (Goddard Institute of Space Studies, UK Meteorological
Figure 6.2. The Average Change of Precipitation Pattern 1900-2000 September-November (in mm/100 years)
SOURCE: Ratag, 2007
< -100
0 - 25
-100 - -75
25 - 50
-75 - -50
50 - 75
-50 - 25
75 - 100
-25 - 0
> 100
Figure 6.3. Impact of Sea Level Rise Caused by Global Warming: Jakarta in 2050
Blue = inundation due to sea level rise at 1 cm/yr
(ITB, 2007)
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Offi ce) shows a decrease of crop harvest in West and East Java. Climate change will likely reduce long-term soil fertility by 2 percent to 8 percent, resulting in projected decreases of rice yield by 4 percent per year, soybean by 10 percent, and maize by 50 percent (Amin, 2004 and Parry and Nih, 1992)
Land and forest fi res in Indonesia are closely related to a
changing climate. In El Nino years, the total area of land and forest aff ected by fi re increased signifi cantly, as did carbon emissions (GoI, 2007). These fi res disrupt destroy habitats, pollute watersheds, reduce biological diversity, and increase air pollution, with consequent health eff ects. The 1997/98 El Nino-related peat fi res in Indonesia have been classifi ed as one of the top ten natural hazards in the world between 1907 and 2007, with the direct and indirect value of damages and economic losses potentially totaling $17 billion (OFDA/CRED, 2007).
Rainfall variability will negatively aff ect water resources. Decreases and increases in rainfall will adversely aff ect hydroelectricity generation and drinking water supply, both of which depend on steady supply from water reservoirs. Data from eight dams during six El Nino years indicate that hydropower plant output was below normal. Shortage of water in reservoirs also aff ects the availability of drinking water, especially for cities. On the other hand, heavy rainfall with associated turbidity will damage water processing facilities, contaminate the water supply and increase the costs of water treatment (GoI, 2007).
Sea level rise will inundate productive coastal zones. Climate change will also increase the average sea level due to increased volume of the sea water and the melting of polar ice caps. The mean sea level in the Jakarta Bay will increase as high as 0.57
centimeters (cm) per year. The average depth of inundated area varies between 0.28 and 4.17 in 2050 (Meliana 2005 in Susandi 2007). This coupled with the land surface decline as high as 0.8 cm per year, as observed in the Jakarta Bay, can have a tremendous impact on urban productivity and infrastructure, as visualized in Figure 6.3 (Priambodo 2005). Also, in rural districts such as Krawang and Subang, a 95 percent reduction in local rice supply (down 300,000 tons) is estimated as a result of inundation of the coastal zone. In the same districts, maize output would be reduced by 10,000 tons, about half of this due to inundation.
At the national scale, recent analysis by Columbia University has indicated the extensive risk of sea level rise to Indonesia (see Figure 6.3). Areas with a density of more than 1,000 people per square kilometres such as Jakarta, Yogyakarta, Semarang, Surabaya, are areas which will get hit the most by sea level rise (CIESIN, 2007). In total 41,610,000 Indonesians live within ten meters of the average sea level. They are the most vulnerable to sea level changes (IIED, 2007).
Sea level rise will reduce farming and coastal livelihoods. Sea-level rise would also be likely to aff ect fi sh and prawn production. In the Krawang and Subang districts, the loss is estimated at over 7,000 tons and 4,000 tons, respectively (valued at over US$ 0.5 million). In the lower Citarum Basin, sea-level rise could result in the inundation of about 26,000 ha of ponds and 10,000 ha of crop land. This could result in the loss of 15,000 tons of fi sh, shrimp and prawns output, and about 940,000 tons of rice production.
The overall eff ect would be to reduce potential average income. The estimated reduction of yield would cost the rice farmer
Population Density within and outside of a 10 meter low elevation coastel zone (LECZ), 2000
JAKARTA
<25Persons per sq km
within LECZ
outside LECZ
25-100 100-250 250-500 500-1,000 >1,000
Figure 6.4. Population Density Within and Outside of a 10 m Low Elevation Coastal Zone (CIESIN, 2007)
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US$ 10 to US$ 17 annually, the soybean farmer US$ 22 to US $72 and the maize (corn) farmer US$ 25 to US $130 annually. It is estimated that the decrease in yield would cause, in the Subang District alone, about 43,000 farm laborers to lose their jobs. In addition, more than 81,000 farmers would have to look for other sources of income due to the inundation of their rice fi elds or prawn and fi sh farms due to sea-level rise (Parry & Nih, 1992).
The warming of ocean water will aff ect marine biodiversity. Climate change will subject Indonesia’s ocean water to an increase in temperature of 0.2 to 2.5 oC. The 50,000 km2 of coral reefs in Indonesia, about 18 percent of the world’s total, are already in dire straits. The El Nino event in 1997 – 1998 alone was estimated to have caused coral bleaching to 16 percent of the world’s coral reef. In a 2000 survey, only 6 percent of Indonesia’s coral reefs are in excellent condition, 24 percent in good condition, and the remaining 70 percent are in fair to poor condition (John Hopkins University and Terangi, 2003). A survey in the Bali Barat National Park found that a majority of coral reefs were in poor condition. More than half of the degradation was due to coral bleaching. This puts the Bali Barat National Park as a catastrophically-aff ected site (Wilkinson, 2000 in Setiasih, 2006). In Pari island, in the Thousand Islands National Park, 50 – 60 percent of the coral reefs were found bleached in 1997 (Irdez 1998 in Setiasih, 2006); ten years later, this had increased to 90-95 percent (GoI, 2007b).
Climate change will intensify water- and vector- borne diseases. In the late 1990s, El Nino and La Nina were associated with outbreaks of malaria, dengue and plague. Malaria has spread to high elevations where it was detected for the fi rst time as high as 2103 m in the highlands of Irian Jaya in 1997 (Epstein, et al., 1998). In 2004, it appeared that a more virulent strain of the potentially deadly dengue fever virus may have emerged. Dengue fever has been spreading faster and killing more victims than in past years, especially during La Nina years (GoI, 2007).
The links between climate change and these diseases and health problems is poorly researched. The IPCC’s Fourth Assessment Report (2007) stated that there is too little data to reliably confi rm perceptions of an increase in extreme weather events, which may be due to increased reporting. However, perhaps as a forewarning of what is to come, the rise in the number of dengue fever cases during the rainy seasons in Indonesia, particularly in Java, could have been partially caused by warmer climates. Research has confi rmed that warmer temperature has led to mutation of the dengue virus, making cases more diffi cult to handle, thus leading to an increase in fatalities.
Impacts will be uneven across the country, but result in signifi cant economic damage and loss of livelihoods. For example, the economic impacts of forest fi res are estimated to cost an annual US$ 9 billion from droughts and fi res (Applegate, May 2006) and US$ 4 billion from haze related costs (International Development Research Center, 2003).
Figure 6.5. Vulnerability Map of Southeast Asia
Source: Yusuf and Francisco, 2009
Philippines
Vietnam
Thailand
Cambodia
Malaysia
Indonesia
Laos
mildly vulnerable (0.18 - 0.42)
LegendVulnerable regions (Country std)
moderately vulnerable (0.43 - 0.65)highly vulnerable (0.66 - 1.00)
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There is no proven evidence yet that intense and more frequent El Nino and La Nina events are caused by or are causing climate change. But these events can be a good proxy for looking at the damage that could occur due to climate change. The rare events could become the norm as the world will get permanently warmer.
6.2 The Socio-economic Costs and Benefi ts
of Adaptation
6.2.1 Vulnerability
With 65 percent of its population living in coastal areas, Indonesia is vulnerable to sea-level rise and other hydrometeorological events. This exposure is even greater when one considers that nearly half the population depends on agricultural as well as forest-based livelihoods (GoI, 2007b). Recent analysis (Yusuf and Francisco, 2009) has evaluated the exposure of people to climate change in Southeast Asia as well as climate threats to protected areas. When human and ecological vulnerability are considered, important population centers in Indonesia will be at risk, especially on Java, Bali, parts of Sumatra, and a large area of Papua (see Figure 6.5).
6.2.2 Economic Costs and Benefi ts
Economic impacts of climate change will be high in Indonesia. Without considering non-market impact and catastrophic risks, mean GDP loss is projected to reach 2.5 percent by 2100. This is over four times the global mean GDP loss of 0.6 percent
because Indonesia has a long coastline, high population density in coastal areas, high dependence on agriculture and natural resources, relatively low adaptive capacity, and a tropical climate (ADB, 2009). With no further mitigation or adaptation measures, mean GDP losses from market and non-market impacts could reach 6.0 percent by 2100. If the chance of catastrophic events is also considered, they could go as high as 7.0 percent of GDP.
Benefi ts of adaptation far outweigh the costs. For Indonesia and three other countries in Southeast Asia, the cost of adaptation for agriculture and coastal zones (mainly the construction of seawalls and the development of drought- and heat-resistant crops) would be about $5 billion per year by 2020 on average. The annual benefi t of avoided damage from climate change for Indonesia is likely to exceed the annual cost by 2050. By 2100, the benefi t could reach 1.6 percent of GDP, compared to the cost at 0.12 percent of GDP (ADB, 2009). It should be stressed that further adaptation cannot entirely mitigate the projected damage from climate change and must be complemented by global mitigation of greenhouse gas emissions to avoid the greater impact of future climate change.
Chapter 7:
Land Use and Climate Change
Land clearing for oil palm plantation, Sumatra Photo: Heri Wibowo
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7.1 Deforestation and Land Degradation
7.1.1 Overview23
In recent decades, Indonesia has been known for high rates of deforestation, illegal logging, forest fi res, and peat land conversion. All of these contribute to high rates of greenhouse gas emissions. The exact emissions fi gures are uncertain and disputed because of the many factors that must be measured or estimated to develop sound estimates (e.g., timing/severity of fi res, depth/subsidence of peat, deforestation vs. degradation, carbons stocks in diff erent kinds of forests).
Greenhouse gas emissions estimates have focused renewed attention on Indonesia’s forests in the context of the global climate change debate. However, sustainable forest management and governance has long been a topic of concern in Indonesia, as well as the rate of conversion of forest and peat land into plantations and other uses. These issues have been the subject of study and debate for many years (see World Bank, et al., 2006 for an overview of forest sector issues). Climate change and the focus on carbon emissions provide another rationale for raising the level of policy and management attention to this set of issues, especially as it has the potential to unlock up to a billion dollars of payments for the preservation of standing forests. Green house gas emissions are just another symptom/indicator of the underlying issues of forest management for improved equity, economic growth, and environmental projection, as refl ected in the national development focus on “pro-poor, pro-jobs, pro-growth.”
Forest Loss is Declining. More recently, data and analysis (cited in MOFr, 2008) show an improvement in the rate of deforestation. The fi gure to the right compares average areas deforested during diff erent periods based on when satellite information was gathered by diff erent organizations. The most recent period, since 2000, shows a clear indication that deforestation is declining. The current rate may be only a third of average rates estimated in the 1990s. These data from mapping analyses (and see fi gure below) have been developed using more sophisticated and detailed images and analysis from new satellite systems (Hansen, et al., 2007). These results depend on defi nition of forest and interpretation of land cover, but there is a clear indication that deforestation is going down in more recent years. During the period of the monetary crisis and decentralization (1997-2000) in Indonesia, most analysts believed that deforestation was increasing (World Bank, et al., 2006). These data confi rm that judgment, but also show that in more recent years, the rate of deforestation may be only a third
MAIN MESSAGES
High rates of deforestation, illegal logging, forest fi res, and peatland degradation constitute the single largest • source of Indonesia’s greenhouse gas emissions and have made it one of the world’s principal emitters.
10 provinces account for 78 percent of dry forest loss and 96 percent of swamp forest loss as well as related • emissions, with just Riau, Central Kalimantan and South Sumatra accounting for over half of all losses and emissions.
Although there is uncertainty about the magnitude of such emissions, there is consensus that forestry and land • use are key priorities for mitigation.
The policy and institutional issues, driving forces, impacts, and development costs of forest and land degradation • have been well-known for many years in Indonesia.
“No regrets” options exist that should be pursued regardless of climate benefi ts, i.e. improved forest law • enforcement, management and governance; realigned incentives for timber harvesting and processing fi rms to improve sustainability; restructuring and revitalization of forest sector industries, forest and land fi re control, greater equity and transparency in forest/land use decisions, and independent monitoring of legal compliance.
Forest climate fi nance such as REDD can provide an important incentive for implantation of these “no regrets” • options.
23 Because emissions data are still under review, this section focuses on land use change and deforestation for an overview of the size and location of the issue.
Figure 7.1. Indonesia: Deforestation and Degradation
Deforestation
Rate (M ha/year)
3.0
2.5
2.0
Mil
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01982 - 1990 1990 - 1997 1997 - 2000 2000 - 200682 - 1990 90 - 1997 97 - 2000 000 - 2006
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or less than the average rates in the late 1990s. However, no offi cial analysis has been conducted and publicized to explain the drop in deforestation. Thus, it is still unclear whether the decline is due to eff ective law enforcement policies, the increasing cost and diffi culty of accessing unexploited forest areas, or some other combination of factors.
The Ministry of Forestry is currently preparing to implement a plan for reducing emissions from Indonesia’s forestry sector. As part of that work, there will be an eff ort to translate the latest information on forest cover loss into estimates of GHG emissions and rates of change. Since emissions are based on land use change and deforestation can be shown to be declining (to perhaps a third of prior estimated levels), it can be expected that lower estimates of Indonesia’s forest-based emissions will emerge.
Peat Swamps and Fires. This Section analyzes deforestation patterns. However deforestation is not a perfect guide to emission because diff erent forest and soil types have diff erent carbon content. Many estimates of emissions show that peat drainage and fi res have been a more important source of emissions than deforestation. Fires do not happen every year with same severity, so estimates of this source may vary by methodology and which years are taken into account. These emissions also create costs in terms of air pollution and health risks to the local population and in neighboring countries (BAPPENAS-ADB, 1999). Reducing the use of fi re in peat conversion would have multiple benefi ts24, and could perhaps be achieved at negative cost (that is, overall, society would gain through this change, even after the implementation cost is considered). However, peat fi res and peat land drainage on land without trees are not currently considered part of the
REDD incentive scheme being negotiated under UNFCCC.
Comparison of Emissions Estimates. Emissions estimates from forest loss and land use change are subject to a wider range of assumptions and uncertainties than those coming from fossil fuels. Since a range of assumptions are employed at various points in the analysis, it is relatively more diffi cult to elaborate a specifi c range in the fi nal analysis. Forest cover information was developed from satellite analysis conducted by Ministry of Forest in collaboration with South Dakota State University (MOFr 2008; Hansen, et al., 2007). This analysis for a more recent period indicates that forest loss during 2000-2005 was about one third of prior estimates (0.7 million ha/yr vs. 1.3-1.9 million ha/yr in FAO 2007 and other sources). Estimates vary due to the defi nition of forest and methods used (e.g., resolution of images). In general, though, lower deforestation estimates in the newer period would lead to lower estimates of overall emissions than previous estimates in international publications. Several other considerations and assumptions also contribute to overall emissions estimates, including estimates of the carbon stock (which can be disaggregated for diff erent types of soils and forests). Assumptions about the depth of peat and the rate of burning also have a substantial eff ect on the emissions estimates. The period before 2000 not only included more deforestation, but also more forest fi res and hot spots. More recent analysis shows that the number of hot spots and range of forest fi res has been lower than in 1997-98 period. The approach for incorporating these fi ndings into an overall country estimate and a baseline for future projections is at the heart of analytical concerns and discussions going on now among Indonesia’s forest carbon analysts inside and outside of government.
Figure 7.2. Decrease of Forest Cover in Indonesia 2000-2005: Forest Cover Change Areas
Reported by Mr. Hermawan Indrabudi, Min Forestry’s Center for Forest Inventory and Mapping.National Workshop on Forestry and Climate Change in Indonesia. Jakarta, Aug 27-28, 2007. GTZ & GOI.
Forest cover changes area
Landscape classes
Natural forestsOther areasNo data (clouds) and inland water
Modis analysis - SDSU/SUNY-ESFLandsat analysis - SDSU/MoFModis pre-processing - NASA/UMd/SDSULandsat data provision - USGS/GPW/UMdIndonesia land cover - MoF
24 Use of fi re for land clearing for planting is not legal in Indonesia and can be reduced and contained through a number of well-understood practices (Bappenas-ADB, 1999). Some hold that alternative practices are more expensive, would undermine profi ts, and hurt poor small holders. Evidence shows that most fi re activity is found on large estates, not smallholdings, however (WWF/Eyes on Forest 2008). Further, there are clear societal and global gains in terms of health and greenhouse gas emissions from changing these practices. Priority should be placed policies, incentives, regulations, or law enforcement approaches that can eff ect a shift toward less destructive and emissions-producing practices.
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7.1.2 Disaggregating the Deforestation
Findings
A more disaggregated analysis of deforestation locations and trends can reveal much about how and where Indonesia can make eff orts to reduce emissions. Following deforestation is a reasonable approach, because deforestation is clearly linked to emissions. Emissions will not track deforestation areas exactly, because of diff erences in the carbon content of diff erent forests and soils, as well as the method of deforestation. For example, deforestation through burning contributes emissions more directly and quicker. Deforestation and further drainage of peat land (mainly swamps, or lahan gambut in Indonesian) creates more emissions per unit area due to the high carbon storage ability of these soils. An analysis of emissions, however, would be subject to much uncertainty, given the ongoing debate over the level of emissions from peat lands and burned areas, as well as the rate and frequency of burning. Indonesia is in the process of compiling its Second National Communication, as well as a ‘readiness’ submission to the Forest Carbon Partnership Facility. These processes should lead to more consensus on the forest sector emissions levels, as well as a baseline for judging future reductions.
Deforestation by Land Use. The data available on deforestation are informative on a number of issues, such as the locations and types of land where deforestation is most prevalent. These would be the most likely targets for an eff ort to reduce deforestation, hence emissions, and achieve some level of international compensatory payments. Although total emissions from deforestation are still under study, the deforestation fi gures are more widely accepted (since they can be read relatively directly from satellite imagery) and the basic trends and relative values are reasonably clear.
As the fi gure 7.2. shows, most forest losses in recent years occurred on production and conversion forest land. These
areas have been allocated for economic exploitation through selective harvesting or through liquidation and conversion to agricultural or plantation uses. In contrast, protection and conservation forests are relatively less damaged, better protected.
The fi gure also shows that both “dry land forests” (i.e., most forest areas in Indonesia) and “swamp forests” (forests on wetlands, often peat, or lahan gambut) are facing heavy deforestation pressure. This is critically important for emissions because peat swamp forests contribute several times more GHG emissions than dry land forest areas. Thus, even though a smaller area is aff ected, overall emissions from this area could well be higher.25 Note that production and conversion areas accounted for almost all of the forest loss on swamp/peat land in this analysis.
Production Forests are allocated for permanent production through selective harvesting, such that the timber can grow back and be harvested again over some long period. However, note that the highest level of deforestation is occurring on these production forest lands. This is unauthorized deforestation, resulting from poor forest management practices, illegal behavior, and insuffi cient or ineff ective law enforcement. Reducing emissions on these lands would mean addressing the underlying drivers of deforestation that have been analyzed at length in other sources (World Bank, et al., 2006).
Conversion Forests are allocated for liquidation to non-forest uses. This means these are planned losses within Indonesia’s forest management framework. These planned losses contributed 25 percent of overall deforestation on state-claimed land. Converted lands are used for agriculture and plantation crops, and a high proportion is converted to timber (pulp) and oil palm plantations, which are some of the fastest growing land uses in Indonesia. Other analysis shows also that pulp plantations and oil palm plantations are important to regional economies. Some of this converted forest is swamp
Figure 7.3. Forest Loss by Land Use Type, 2000-2005
Figure 7.4. Forest Loss on State Forest Land (Percent)
25 MOFr/IFCA (2008) indicates that emissions from deforestation on peat soil can be ten times higher than emissions from deforestation on mineral soil, though emissions vary by forest, soil, and fi re type.
1.81.61.41.21.00.80.60.40.2
0Production Conversion
Land Use / Forest Classifi cation
Conservation Protection Not in Forest Estate
Swamp Forest Change 2000-05 (Ha)
Dryland Forest Change 2000-05 (Ha)
Sw
rDrDr
oduction onversion nservationti rotectionrotection ot in Forest
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%Production Conversion
Land Type
Conservation Protection
Swamp
Lowland
Sw
owLo
Prooduction Connversion nonservation Prootection
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land on peat soil (lahan gambut). These categories represent only 5-8 million ha of land, but are likely among the most intensive sources of emissions per hectare. Because of high carbon concentrations in peat soil, smaller areas may lead to higher emissions than deforestation on mineral soil, or “dry land”. If the Government wanted to reduce deforestation here, it would have to reconsider the policy of authorized forest clearance for economic purposes.
Conservation and Protection Forests have not suff ered the large and rapid deforestation on other classes of forest land – though any deforestation is too much in areas set aside to preserve Indonesia’s heritage and biodiversity. Looking only at the state-claimed forest areas, in the fi gure 7.3., it can be seen that only 8 percent of deforestation on state lands (the four left most bars in the fi gure) occurs in protected and protection areas, while two-thirds occurs on lands managed under the concession system of allowable harvesting. Another 25 percent occurs on land slated for liquidation, conversion to non-forest uses. ). These are areas allocated for protection of watershed services and conservation of biodiversity and landscapes.
The IFCA process and report on REDD readiness provide extensive analysis of the issues and options for controlling emissions from deforestation and land use (MOFr/IFCA, 2007). A few key points are worth summarizing, however. Substantial emissions come from deforestation in the forest estate. These emissions can be reduced by focusing on forest management practices and the drivers of deforestation. However, the fi gures in this section also show that substantial deforestation (and emissions) are coming from planned land conversion to plantations and the continued operation of those plantations, on both mineral and peat soil. To address this source of emissions, a diff erent suite of policy interventions may become more important. For example, the role of land use licensing
and the role of local governments in allocating and creating incentives for land conversion would have to be considered – as opposed to improvements in forest management or traditional law enforcement methods.
Outside State Forest considerable deforestation is also occurring. The fi gure above (right-most bar) indicates that a million hectares of forest were lost there (with associated emissions) during the study period 2000-2005. Note that land categories are also subject to change. After clearing and permitting for other uses, such as plantations or agriculture, conversion forests are removed from the state forest area and become non-forest area. During the early decentralization period, large areas were removed from the state forest area, even though a large portion still had good forest cover. Forested land outside the state forest may be in large blocks, or in smaller areas controlled by small holders (mixed agroforestry areas), private operators or local governments. The remote sensing behind this analysis indicates less swamp area in this category of land use; these swamp forests may be under greater threat of clearing and conversion, however. Plantation crop expansion is the main driver of deforestation on non state forest areas, with permits granted by local governments (Casson, 2000; World Bank, 2006). The GOI exercises less central control in these areas, which include private lands. Actions to reduce deforestation in these areas would have to be based on the legal authorities and incentives appropriate to lands under local and private control.
As noted above, payments through a forest carbon market (REDD) could provide a source of revenue that would allow the Government to address underlying deforestation drivers. Under some combination of carbon and land values, REDD payments would be suffi cient to displace certain other kinds of economic activities, beginning with those of lower value.
Figure 7.5. Forest Loss by Type and Province (Top 10),
2000-05
source: Modis Analysis by MOFr and SDSU
Figure 7.6. Forest Loss During 2000-2005, By Province
Mil
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of
He
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1.2
1.0
0.8
0.6
0.4
0.2
0
Riau
Kalim Centra
l
Sum South
Sum North
Kalim East
Papua East
Jambi
Kalim W
est
Kalim South
Lampung
Swamp Forest Loss, 2000-05 (Ha)
Dryland Forest Loss, 2000-05 (Ha)
Sw
r
d SDSU
DrDr
Riaunntra
lount outh
oou orth Eo EastEE EastE mbi
WWestoW outho ung
u
3.0
3.5
2.5
2.0
Mil
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n H
a L
ost
20
00
-20
05
1.5
1.0
0.5
0
Top 10 Provinces Account for 83% of Forest Loss
(Total Loss = 3.5 M Ha, IFCA Analysis & Assumptions)
Riau
Kalim Centra
l
Sum South
Sum North
Kalim East
Papua East
Jambi
Kalim W
est
Kalim South
Lampung
Cumulative Area Lost from Swamp Forest
Cumulative Area Lost from Dry Forest
Cu
uCuCu
Riaunntra
loun outh
NoouNorth ENo East
EE EastaE ambi
Wa WestoW outh
po pungpu
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Deforestation by Province. Looking at deforestation at the island and province level, reveals that deforestation is most prevalent in a few places, mainly on Sumatra and Kalimantan. Ten provinces account for 78 percent dry forest loss and 96percent of swamp forest loss in the 2000-2005 period (see Figure 7.5.). As noted, GHG emissions fl ow from forest loss and swamp land disturbance (with higher emissions per unit of peat land and for burning). Thus, these 10 provinces are also the largest emitters of GHG from forest loss and land use change. Of these, Riau, Central Kalimantan, and South Sumatra account for well over half of overall losses during the period, including most of the swamp forest areas degraded. As forests become scarcer in the west, Papua will become increasingly a focus for forest harvesting, and hence a center for deforestation in the future. This highlights the important role that specifi c provincial and local governments have in contributing to eff orts to reduce deforestation. A cost-eff ective, effi cient and well-targeted REDD initiative should focus most attention on the largest sources of deforestation (and emissions).
This concentrated geographic distribution of forest loss means that eff orts to reduce it can be targeted to a few places, where the drivers and trends are well known. Targeting of actions and interventions can lead to more eff ective resource deployment and more cost-eff ective approaches to reducing deforestation. However, it must also be realized that forest law enforcement and governance remains a challenge. These are the same provinces that have, in recent times, produced the most timber harvesting, timber processing and illegal logging, based on past estimates and other studies (World Bank, et al., 2006).
A few changes in a few places have the potential to create fi nancial benefi ts for Indonesia and emissions reduction benefi ts for the whole globe. The converse is also true: continued inaction in these few provinces puts at risk the opportunity for benefi ts on a large scale. In terms of REDD payments, the places where deforestation is highest have the most to gain
from eff orts to reduce forest loss. These few provinces have the potential to contribute the most to Indonesia’s forest sector GHG emissions, which could potentially yield up to a billion dollars in payments annually, if successful.
7.2 Land Use and Carbon Emissions
Indonesia’s forest and land use emissions are still being
tabulated through offi cial consultative processes. The
Ministry of Environment is developing Indonesia’s Second National Communication to UNFCCC on GHG emissions, while the Ministry of Forestry is developing a plan and baseline estimates for a national initiative on Reduced Emissions from Deforestation and Degradation (REDD). The Ministry of Forestry is also developing a Forest Resource Information System and a National Carbon Accounting System. A global REDD framework, under negotiation through UNFCCC, holds the potential to provide payments through markets for GHG emissions reductions from forest lands.
However, considerable consensus has emerged on the
importance of forestry and land use emissions in Indonesia’s
overall profi le (National Action Plan on Climate Change, 2007; National Development Planning Response to Climate Change, 2008, MOFr/IFCA, 2007)26 . Land use change and forest loss are key mitigation issues and the GOI is placing a high priority on this issue and working toward preparation and implementation of a national REDD Initiative (REDDI). Because this detailed sectoral work is ongoing, this low carbon study incorporated available results and for comparison with fossil fuel and energy sector results. These forestry and land use data are preliminary and will be improved as the Second National Communication is fi nalized and submitted by the end of 2009.
Emissions from forests and land use change. A range of estimates of emissions from deforestation and land use change, including conversion by fi re, are summarized in the Table below.
Box 7.1. Forestry Sector Management Issues
Much has been written about Indonesia’s forest sector. Forests are a national asset that provides economic benefi ts in terms of jobs, production, and trade, as well as livelihoods for millions of the poorest Indonesians. Forest loss hurts rural livelihoods and ecosystem services, such as water regulation and soil fertility that provide benefi ts far beyond forest boundaries. Weak forest governance damages the investment climate, rural economic potential and Indonesia’s competitiveness. Forest crime robs the state and diverts public revenues that could be better spent on development goals. Forest resource management aff ects equity, development and decentralization and is an essential issue of governance.
Forest management and incentive mechanisms (forest fi scal policies) aff ect outcomes, including revenue, forest cover, exports, and employment. The forest sector employs ineffi cient fi scal mechanisms, with poor incentive structures and low revenue recovery. Illegal logging, under-reporting of harvest and underpayment of tax/non non-tax obligations have all been identifi ed as important fundamental issues of forest management and governance. As a result of past policies, practices, and performance in the sector, industrial output, employment, and competitiveness are declining. Over-exploitation, ineffi ciency and weak governance contribute to under-performing fi rms, plantations, tax losses, and indebtedness. In recent years, GOI has been allocating large sums to reforestation and rehabilitation of lands that have been deforested and degraded as a result of poor forest exploitation practices. In other words, public funds are being used to correct private misbehavior that damaged state assets.
Forest fi scal policies are highly relevant to the REDD discussion. Fiscal incentives, properly designed, can improve forest management, decrease deforestation (and associated emissions) and promote sustainable management.
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The wide range of estimates is because estimates are based on diff erent periods of activity and diff erent methods and focus. In particular, the 1997-98 El Niño-Southern Oscillation period was especially severe and caused widespread drought and fi res that have been estimated to have caused a global spike in GHG emissions (Page, et al., 2002). Even eff orts to look carefully at deforestation and land use change may not capture all emissions from peat land degradation and drying. Indonesia has extensive areas of peat soil (lahan gambut), which are particularly rich in carbon and a key contributor to Indonesia’s overall emissions profi le.
There is an important caveat on forestry and land use data. As noted in Table 7.1, several reputable, international sources have reported diff erent emissions estimates; some including fi res, deforestation (dryland and/or swamp forest) and/or both. However, it must be noted that data on land use changes are subject to some uncertainty and the total estimated emission level depends on a number of assumptions about land area and emissions per hectare. Estimates that include peaks in emissions from years with fi res (1997-1998) may over-estimate Indonesia’s average annual emissions contribution, especially if forest loss due to fi re and degradation is being reduced in
Table 7.1. Forest and Land Use Emission Estimates (MtCO2e)
Total Deforest-ation Forest and Peat Fires Sources and Period
469 n.i. 469 van der Werf, et al, PNAS, 2008 (annual average for 2000-2006)
502 502 n.i. IFCA/MOF 2008 (annual average for 2000-2005)
768 768 n.i. Ministry of Forestry (annual average for 2000-2005)
1596 1596 n.i. Houghton (based on annual FAO deforestation rate for Indonesia)
2000 n.i. 1400 Hooijer et al. 2006 (annual)
2398 538 1860 PEACE 2007 (annual)
2563 1138 1425 CAIT-WRI 2005 (annual)
26 Indonesia Forest Climate Alliance (IFCA) is a coalition of donors (WB, AUSAID, DFID, GTZ), NGOs, and scientists working with the Ministry of Forestry on technical studies in support of the REDD initiative.
Figure 7.7. Forest & Land Use Sector : Upstream Policies & Distortions Impede Progress and Impose Cost on Society
Modifi ed and expanded from WRI State of the Forest Report 2002WB Strategic Options for Forest Assistance In Indonesia, 2006
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recent years. Formal reporting on GHGs is done through the National Communications to the UN Framework Convention on Climate Change (UNFCCC). The latest such reporting from Indonesia is from 1999 with data from 1994. Estimates of forest, peat and fi re GHG emissions will continue to be refi ned through ongoing processes (the Ministry of Forestry’s Readiness Plan and the Ministry of Environment’s development of the Second National Communication). It is clear, however, that all estimates of emissions from forests and land use are larger – potentially much larger – than the total emissions from the combustion of fossil fuels (336 MtCO2e, as reported in Chapter 8).
7.3 Forest Management Issues
Forestry and land use issues in Indonesia have been analyzed for many years. The fi gure below summarizes some of the key issues and drivers contributing to deforestation in Indonesia. It is a complex story of underlying policy and institutional issues, as well as a range of more proximate causes that give rise to visible eff ects on the landscape. To address GHG emissions from forestry and land use, Indonesia will have to address the
fundamental issues of management and governance that have existed for some time. Climate change and greenhouse gas considerations add a new lens, but not diff erent fundamental options or solutions than have been off ered in the past. The climate change angle, especially the potential for payments for reduced emissions from deforestation and degradation, may help to create new political will and fi nancial incentives for implementing changes. Figure 7.6 illustrates some of the challenges that will be faced on the road to reducing emissions from deforestation.
Chapter 8:
Energy and Climate Change
Coal-Fired Power Plant, East Java Photo: Endro Adinugroho
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The purpose of this chapter is to examine energy, environmental, and climate change issues and linkages by:
Demonstrating how energy sector policies and • incentive structures have contributed to impacts on environmental outcomes, as well as climate change options, at the same time diminishing potentials and opportunities in other areas, such as the development of alternative energy sources.
Discussing energy sector issues and contributions • as they relate to Indonesia’s climate change position and opportunities
Reviewing some alternative and renewable energy • issues and alternatives from the perspective of environment and climate change, and policy enabling conditions, rather than from the perspective of contribution to energy supply, or cost/benefi t.
Describing some practical or feasible actions that • could be undertaken to improve the situation, while recognizing the diffi cult political-economic issues associated with poverty, energy access and pricing.
MAIN MESSAGES
In the future, fossil fuel emissions will be a greater concern than forest and land use emissions.•
With current energy subsidies, it will be more diffi cult to promote effi ciency, cleaner technology or innovation • for environmental and climate benefi ts.
Indonesia uses fuel and electricity ineffi ciently and in excess.•
On the other hand, the country has the world’s largest potential for developing geothermal power, sustainable • biofuels and other renewables (hydropower, wind, solar, and biomass).
While fossil fuel GHG emissions per capita and emissions intensity are low, they are increasing rapidly with coal • emissions growing fastest.
Industry is currently the largest source of carbon emissions, the transport sector is the largest user of liquid fuels • and petroleum is currently the main contributor to CO2 emissions.
Even assuming a decrease in energy intensity, emissions from energy consumption will triple by 2030 from • 2005 levels.
Mitigating these emissions will require more realistic energy pricing, a more enabling environment to develop • renewable energy resources, and greater effi ciency in the industrial, power, manufacturing, and transport sectors.
Figure 8.1. Indonesia’s Fuel Consumption by Fuel Type and Sector
Sources: Indonesia Handbook of Energy Economics Statistics (2005); Indonesia Oil & Gas Statistics for 2005
Mil
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ilo
lite
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10
20
30
40
50
60
70
1990
33
52
64
1997 2005
Avtur
IDO
MFO
Kerosene
Gasoline
ADO
Av
O
ndbook o
ID
M
ergy Econ
Ke
Ga
tatistics
A
33
64
1990 1997 2005
36%
42%
43%20%
21%
27%
24%
19%
18%
Mil
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ilo
lite
rs
0
10
20
30
40
50
60
70
1990 1997 2005
PowerHH - Household
Industry
HH
Transport
Po
IndInd
HH
TraTra
13%
11%
22%
21%
24%
19%
1990 1997 2005
42%
48%
14%
18%
17%
50%
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8.1 Energy in the Country Economic and
Development Context
This section looks at trends in the energy sector, focusing on fossil fuels, electricity generation, the increasing importance of coal, and the potential for renewable and alternative energy sources.
8.1.1 Fossil Fuels
The domestic oil market in Indonesia is large, with a
high proportion of high-value products. Petroleum fuel consumption by 2005 had reached 64 million kiloliters or about 1.1 million barrels per day. Automotive Diesel Oil (ADO), gasoline and kerosene together make up nearly 90percent of total consumption. Gasoline and kerosene, on the other hand, are almost exclusively used for transportation and household consumption respectively. Transportation uses have been growing at the relative expense of household and industry use. The share of oil fuels going into power generation has also been rising and domestic demand continues to grow (WB, 2008). (See Figure 8.1.)
Demand is increasingly met through higher imports as
domestic oil production is falling while refi ning capacity
remains stagnant. Aging existing oil fi elds with declining production and a shortage of investments in new exploration are the main reasons. Indonesia also has not expanded its refi ning capacity over the past decade, which has led to increasing imports to meet domestic fuels demand. The combination of unfavorable production prospects and rising domestic consumption resulted in Indonesia becoming a net oil importer in 2005 (WB, 2007). (See Figure 8.2.)
The fuel subsidy regime leads to economic ineffi ciencies
that curtail prospects for higher growth. Over-consumption
of subsidized fuel products is leading to ineffi cient outcomes
such as the signifi cantly higher volume of kerosene used in Indonesia compared even with other countries that also apply heavy subsidies. The substantially lower kerosene price relative to, say diesel, has likely led to mixing of these fuels (adulteration) to reduce consumers’ costs. It will ultimately lead to diminished economic life of automotive engines and meanwhile exacerbate street-level air pollution. Similarly, low oil fuel prices challenge the introduction of competing technologies thus hampering the development of the broader energy economy. (WB 2008)
8.1.2 Electricity Generation
Growth in demand for electricity (power) has been rising
along with economic growth at around 6 percent each year.
Forecasts indicate that this trend will continue. The state-owned electricity utility (Perusahan Listrik Negara, or PLN) has struggled to increase generation capacity, improve reliability, and manage the rising demand. Some generation capacity is being added, but there are still risks to the reliability of the power supply system in the interim. Many analysts report that electricity supply-demand imbalances could undermine economic growth (WB, IDPL, 2007; IIEE, 2007). (See Figure 8.3.)
Annual demand growth of 7 to 9 percent is forecast in the
next decade, but there has been no corresponding growth
in available system capacity. Additional growth could be foreseen if greater progress is made in providing household connections to the third of the population currently without electricity access. Peak demand has progressively approached available capacity, until reserve margins are now inadequate. Blackouts and load-shedding are occurring, particularly on the islands outside the inter-connected Java-Bali system. (WB, DPL4, 2007).
Low access to electricity contributes to economic and social
disparities. Over 70 million people in Indonesia, mostly the
Figure 8.3. Indonesia Power Demand Projections
1999 2000 2001 2002 2003 2004 2005 20062 00 2200 01 2200 02 2200 03 2200 04 2200 05 2200 06200
Figure 8.2. Domestic Production and Refi ning Capacity
Source: Indonesia Handbook of Energy Economics Statistics (2005) ; Indonesia Oil & Gas Statistics for 2005.
Mil
lio
n b
arr
els
pe
r d
ay
1991 1992 1993 1994 1995 1996 1997 1998
1.2
1.4
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1.8
1.0
0.8
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01991 1 92 1199 93 1199 94 1199 95 1199 96 1199 97 1199 19999811811199
Refi nery Production
Refi nery CapacityCrude Oil and Condensate Production
Re
RefiReruru
R
rce: Indo
CrCrCCSource: PLN, Nexant, Beicip Franlab
1996 2000 2004 2008 2012 2016 20200
100
200
300
400
PLN 2006-2015 plan (Growth: 8.5% /yr)
Beicip study 2002-2025 (Growth: 6.2% /yr)
Nexant 2005-25 (10% /yr to 2010 then 6%)
Annual GDP growth: PLN 7.3% for 2006-2015, Beicip study 5% for 2002-2025, Nexant study 6% for 2005-2025
e
NeNe
B i i F
NN
LN
ee
NN
Be
PLPL
BBeBBB
0000 2004 2008 2012 2016 2020000 2996996 0020202020
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poor, still do not have access to electricity. About 80 percent of those without electricity access live in rural areas and over half live outside of the dominant economic centers of Java and Bali. Increasing electricity access in Indonesia is an important consideration for inclusive growth that will improve the quality of life of the poor. (WB, IDPL, 2007)
Potential private investors in the power sector have
hesitated or requested further Government assurances,
due to uncertainty about fi nancial viability and the enabling conditions. Given the potential for a looming power crisis, PLN will now have to take some rapid action to address the immediate concerns while also taking prudent action for long term development of the sector to support the growing economy. (WB, IDPL, 2007)
The GOI is working on three areas of electricity sector reform:
system expansion, household access, and environmental
sustainability (WB, DPL4, 2007). System expansion needs in the face of growing demand have lead to the short run development of the “crash program” to build 10,000 MW of coal fi red power plants. A second program of 10,000 MW will rely to a greater extent on geothermal and other renewables. In the near term, this will lead to an increase in greenhouse gas emissions and an increase in emissions intensity.
The pace of electrifi cation (access) is aff ected by PLN’s commercial incentives, with tariff s and subsidies playing critical roles. Because cost of supply varies across regions, one avenue for expanding household access to electricity would include regionally diff erentiated electrifi cation strategies, supported by local governments. With tariff s set below cost, PLN faces a commercial disincentive to connect new customers, especially in rural areas off Java.
Less has been done on environmental sustainability. Though plans are on paper for a shift in the energy mix, these plans are based more on the perceived need for improved energy
security (reduced reliance on oil) than on a desire to improve environmental performance (increased reliance on coal). Though climate change attention has increased in the last year, most energy sector plans and decisions were made before greenhouse gas emissions and the potential for carbon payments became an issue. As a result of attention at the 2007 Climate Change Conference in Bali, Indonesia is beginning to develop a low carbon options analysis and a second phase expansion plan with greater reliance on renewables.
8.1.3 The Increasing Importance of Coal
Indonesia has vast reserves of coal and is a major exporter. Though prices are rising, coal remains a cheaper alternative than oil for power generation. PLN estimates that about $40 billion in generation, transmission, and distribution investment are needed to keep pace with power demand growth and to maintain system reliability27. The Government has instructed PLN to diversify its fuel mix by expanding the utilization of coal for power generation. Presidential decree (Perpres No 5/2006) on National Energy Management states the intention to increase use of coal from 24 percent of overall energy use to 33 percent of energy use over 20 years (almost a 40 percent increase).
The GOI has initiated a program to develop 10,000 MW of coal-fi red power plants to be ready in the next few years (Presidential Decree 71/2006). It remains questionable whether this expansion can be adequately fi nanced by PLN without some form of assistance from the Government. Some of the plants are under construction, even though there are still uncertainties in coal supply and fi nancing sources. Note that options for improving effi ciency, promoting alternatives, and shifting investment to cleaner coal technologies could be more benefi cial than any stand alone environmental program.
Table 8.1. Primary Energy Reserves and Production in Indonesia
No. Major Islands Coal Natural Gas Oil Geothermal Hydro Biomass
MTOE MTOE MTOE MWe MW MW
1 Java 6 165 67 3086 54 13,622
2 Bali - - - 226 20 347
3 Sumatra 13,558 425 1,551 5,433 5,489 6,433
4 Kalimantan 5,885 1,180 200 - 6,047 6,231
5 Sulawesi 20 24 - 721 4,479 5,337
6 Nusa Tenggara - - - 645 292 1,174
7 Maluku - - 1 142 217 1,093
8 Papua 64 24 2 - 24,974 6,814
TOTAL 19,533 1,817 1,822 10,027* 41,436 41,651
* total geothermal potential that is presently ready for commercial extraction. There is an estimated additional potential of 17 GW that could be exploited with more development. Source: Ministry of Energy and Mineral Resources, Indonesia
27 Private investments in the power sector have been negligible in Indonesia in recent years.
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8.1.4 Renewable and Alternative Resources
Indonesia is rich in renewable energy resources and could benefi t from increasing the share of renewables in power generation. Indonesia has nearly 40 percent of the world potential geothermal resources, which could be a viable addition or alternative for baseload power generation. Geothermal generation can be developed at a scale that would be economically feasible, especially if coal prices keep rising.
Biomass and hydro resources are abundantly available in
most of the outer islands, and can be attractive options for switching away from the largely diesel-based generation in many of these locations. To exploit these resources, however, there is a need to develop a strategy and action plan to address technical, policy, and commercial barriers that presently hinder progress.
8.2 Environmental Concerns
Indonesia uses fuel and electricity ineffi ciently and in
excess. Consumption demands are rising faster than supply expansion. Excess consumption and ineffi ciency contribute to local, regional, and global environmental issues. Locally, air pollution and particulates are a health concern. Regionally, coal-fi red power generation can contribute to acid rain. Globally, excessive use of fossil fuels contributes greenhouse gases to the atmosphere – contributing to climate change. The pricing and subsidy policy leads to excessive pollution that damages the environment and also imposes substantial health costs. Initiatives to address fi scal and incentive issues in the energy sector would also have environmental benefi ts.
A summary of environmental as well as economic concerns is presented in Table 8.2.
8.2.1 Environmental Concerns from Over-
Consumption
Key pollutant levels in Indonesia are high compared with other Asian countries. Excessive use of petroleum fuels has been identifi ed as one of the key reasons.
Air quality is declining. Air pollution resulting from industrial emissions, power production, and motorized vehicles creates
Table 8.2. Energy Subsidies: Economic and Environmental Issues
Economic Effi ciency and Targeting Concerns Environmental Implications
Ineffi cient in targeting the poor and thus ineffi ciently provide a social safety net
Encourages excess energy consumption with associated emissions. Waste and excess: Resources are not used to maximize returns. Private costs not equal social costs of pollution and ineffi ciency.
Distort price signals for industry and households toward ineffi cient and internationally uncompetitive choices: less fuel effi cient production and transport approaches and technologies. High fuel consumption means higher subsidy outlays.
Broader structural distortions: consumers buy less fuel effi cient cars or live further from their workplaces than if facing true opportunity cost of fuel); Industries use ineffi cient production technologies, less competitive
Hinder competitiveness and private investment, if only SOEs are authorized to delivering energy products at prices below cost.
Slows introduction of innovation and technology into the sector, which could improve environmental performance
Reduce fi scal space, the resources available to government to promote growth through investments in infrastructure or human capital. Undermine macroeconomic stability because expenditures increase when world oil prices increase
Also reduces available resources for environmental services or protections
Undermine ability to participate or benefi t from global markets, as the global regulatory and trade regime eventually makes carbon emissions more costly or carbon intensive products less desirable.
Larger than optimal greenhouse gas emissions, increasing emissions intensity. Carbon ineffi cient and polluting production choices are likely to become far more expensive when carbon emissions are priced globally
Create opportunities for corruption and smuggling of products from low price to high price zones or sectors, or in neighboring countries, thus weakening the rule of law.
Weak rule of law undermines any eff orts to improve environmental compliance
Figure 8.4. Indonesia’s Fuel-Based Emissions
Indonesia Vietnam India China Philippines
CO2 from petroleum use
INDONESIA
CO NOXCO NOCO
sia m a a nesInddonne Vieetnaam India CChinna Philipppin
1.2
1.0
0.8
0.6
0.4
0.2
0
Relative levels of per capita emissions with Indonesia’s emissions = 1
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negative impacts on people’s property and health – including respiratory diseases. Degraded air quality can also require people “to allocate greater proportion of their income to cover costs of medical treatment” (Bappenas, 2007). Although the air quality monitoring network has not yet reached all areas, the number of health problems related to poor air quality increases. (See Figure 8.4.)
During the 1990s, it was estimated that over three quarters of the NOx and SO2 emissions in Jakarta were from fuel consumption, mostly transport. Additionally, some 90 percent of the carbon monoxide emissions were from vehicles while fuel use accounts for two-thirds of the particulate emissions, which are signifi cantly higher than in neighboring countries. Such deteriorating environmental conditions impose signifi cant economic costs as indicated by a recent study that estimated the health impact attributed to air pollution can cost the Indonesian economy in excess of $400 million every year (WB, Fuel Paper, 2007) See Chapter 2 for more detail on the costs of environmental degradation.
Water quantity is essential for power generation28.
Bappenas (2007) has identifi ed water as one of the key risks as development and energy use grow. Decreasing availability of water relative to need “can be seen in the growing confl icts over water resources, especially during the advent of more frequent droughts, compounded by the increasing cost of clean water production” (by public water utilities). Availability of water varies spatially across Indonesia, and Java, with 65 percent of the population, has high potential to be short of water. Meanwhile the demand for water is growing to cope with increasing population and escalating industrial growth. IIEE (2007) notes that power sector expansion plans (e.g., 10,000 MW coal fi red expansion program) will strain water supply and transport systems, especially on Java.
Conservation and effi ciency. Energy savings measures provide opportunities for relatively quick and cost eff ective options for reducing capacity expansion needs, and some eff orts are already underway. It is estimated that Demand-Side Management (DSM) measures that are already being considered or implemented have the potential to reduce power generation capacity needs upwards of 2,500 MW. If these programs are scaled-up and realize their full potential, this would be equivalent to expanding generation capacity, without
relying on coal-fi red generation and associated emissions. International experience suggests that DSM measures are most successful when complemented with incentive in price-based regulation of consumption (WB, IDPL, 2007). (See Table 8.3.)
8.2.2 Concerns over Plans to Shift Fuel Mix
Indonesia has an abundance of energy resources that can be used for power generation, yet the fuel mix is dominated by fossil fuels. The Government hopes to improve the fuel mix to enhance effi ciency. Government subsidies for petroleum products have hindered investment in alternative energy. The Government has proposed a switch away from diesel based power generation towards greater utilization of coal, natural gas, and renewable energies. To realize this goal in an environmentally sustainable manner, the following issues will need to be addressed:
Develop clean coal-based power• . Increased coal use would lead to signifi cant negative environmental impacts associated with high sulfur content and potential impacts on forests from land clearing. Expanding use and export of coal has the potential to lead to much more extensive strip mining – aff ecting already threatened forests in Kalimantan and Sumatra – not to mention the direct pollution impacts. Coal-fi red power generation for base load could be justifi ed provided that the environmental impacts of such expansions are thoroughly assessed and mitigation measures are implemented in accordance with environmental laws and regulations. Cleaner technologies should be progressively promoted whenever they are feasible and economically justifi ed. Aside from GHG emissions (mentioned above), increasing use of coal also leads to localized pollution such as acid rain.
Develop• reliable supplies of natural gas. PLN has already constructed nearly 3,500 MW of combined cycle gas turbine (CCGT) power plants, but has been unable to secure gas supplies. These facilities are presently using diesel, a key factor in the high cost of supply in Java-Bali. Resolving the gas supply shortage will be necessary to move toward more cost eff ective and environmentally sound alternatives.
28 Though water quality in Indonesia is poor, this issue is not primarily tied to energy sector development.
Table 8.3. Potential for Energy Savings from DSM Programs
On-going Programs Potential Savings
Effi cient lighting (CFL, FTL) 730 MW
Street lighting 160 MW
Partnership for industrial and building energy conservation 760 MW
Energy labeling for appliances 910 MW
Total Reduction of Capacity Requirements 2,560 MW
Source: Econoler International
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Promote the development of abundant renewable •
energy resources. Indonesia is rich in renewable and alternative energy resources, and could benefi t from increasing the share of renewable generation. Scaling up in this sector will require actions to address technical, policy, and commercial barriers that presently hinder progress.
8.2.3 Potential Benefi ts from Alternative
Energy Resources
Geothermal29. Indonesia has the world’s largest geothermal power development potential, estimated to be about 27 GW. So far, 60 geothermal fi elds have been identifi ed and more than half are ready for detailed exploration or exploitation – but only a few percent of this potential has been developed. In 2003, GOI passed the Geothermal Energy Law to open up new opportunities for private and public investments. Despite this, Indonesia still faces major hurdles in attracting investors and fi nancing and is likely to fall far short of its goal of increasing 1200 MW by 2008. With a projected doubling of electricity demand in the next 10 years, mostly to be met through the expanded use of fossil fuels, any shortfall in the expansion of geothermal power generation capacity would be met through coal-fi red power plants – resulting in greater emissions of GHGs and conventional pollutants.
The key barriers that have hindered GoI’s eff ort to scale-up geothermal development include: (i) lack of a policy framework that provides suffi cient economic incentives, proper risk mitigation, sector coordination, and regulatory certainty for investing in geothermal power; (ii) lack of government management, planning, and implementing capacity to eff ectively engage investors through effi ciently conducted transactions; and (iii) insuffi cient domestic technical capacity – in areas of planning and managing, as well as resource assessment, equipment manufacturing, and construction. These kinds of barriers, which aff ect other alternative energy sources, will need to be removed before Indonesia will be able to exploit its vast alternative energy resources, which could be providing sizable economic and environmental benefi ts to the country. Developing geothermal and other local, alternative energy resources will enhance Indonesia’s energy security and provide a hedge against global fossil fuel price fl uctuations.
In addition to analysis on identifying barriers that prevent greater levels of investments in geothermal, the Bank is facilitating a carbon fi nance transaction of the Lahendong geothermal project, which will provide lessons for further refi ning the Government’s program for geothermal policy reform. The World Bank also has a signifi cant engagement in helping the Government expand investments in the infrastructure sector through public-private partnerships, which would also benefi t geothermal power development.
Biofuels Development: Threat or Opportunity30. Biofuels have become a hot topic globally – and in Indonesia — as countries strive to develop renewable energy resources to reduce greenhouse gas emissions, improve energy security and substitute for fossil fuels. With oil prices near all-time highs and high import dependence, both developed and developing countries are actively pursuing large scale production of liquid biofuels, mainly for transportation. In Indonesia, Presidential decree (Perpres No 5/2006) on National Energy Management states the intention to quadruple the use of “biofuels” from 1.3 to 5 percent of total energy use (a 400 percent increase) in the same period.
Analysts have expressed concern that the development and commercialization of biofuels will have implications (positive and negative) on the poor and the environment. For the rural poor, implications include impacts on food prices and land tenure, as well as opportunities for improved livelihoods. Environmental and land use implications include potentially signifi cant eff ects on forests and agricultural land. In particular, in Indonesia, there is concern that the push for oil palm development for biofuel will follow the existing pattern of oil palm development for food and manufacturing purposes: increasing and unregulated conversion of natural forests to oil palm plantations. There is also the concern that agricultural lands currently devoted to food production will be converted into biofuel crops, this could interfere with food production or prices, or even stimulate additional conversion of forests into agriculture to replace the lands that are lost. However, along with these land management challenges, there are opportunities for income generation for poor smallholders as bioenergy production increases globally.
The economic, environmental, and social eff ects of biofuels are widely debated. These eff ects depend on the type of feedstock, the production process used, and the changes in land use. The arguments for and against biofuel development need to be carefully evaluated. For example, some favor expanding biofuel production to reduce reliance on imported fuel sources, thereby contributing to energy security. With current technology, however, biofuels can only marginally enhance energy security in individual countries because domestic harvests of feedstock crops meet only a small part of fuel demand. There are a few exceptions, such as ethanol in Brazil. Second-generation liquid biofuel technology, using wood and grass fi bers, could potentially make a higher contribution to energy security, but still will not be the only solution to energy independence.
Some also argue that substitution of bioenergy for fossil fuels may help to reduce greenhouse gas emissions. However, the benefi ts should be evaluated on a case-by-case basis since they will be diff erent for each feedstock and production processes. The analysis should cover the whole life of the fuel, from production processes to transport to market. Also, it will be imperative to look at changes in land use, such as cutting
29
30
Source: GEF PIF For Geothermal Power Generation Development Program. Prepared by WB in Partnership with Min. Energy and Mineral Resources. September. 2007Adapted from WDR, 2008, and WB PCN on Biofuels.
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forests, draining peatland, and forest conversion caused by changes in agricultural production. The benefi ts of biofuels have come under increasing attack as scientists took a closer look at the global environmental cost of their production (Rosenthal, 2008). Recent studies (Science, 2008; Royal Society, 2008) suggest that poor or inappropriate production processes can cancel the carbon emission savings for centuries.
Finally, it is also argued that biofuels can benefi t smallholder farmers by generating employment and increasing rural incomes. However, current fuel sources that could be used to meet energy demands require fairly large economies of scale and vertical integration because of the complexity of the production process in the distilleries. At the same time, developing biofuels on a large scale also poses a number of risks, including increases in food prices and issues surrounding land tenure and land acquisition, which could undermine the livelihoods of the poor unless handled carefully.
Indonesia is actively promoting biofuel development – in advance of a full evaluation of the benefi ts and risks. Indonesia is already producing between 1.5-1.8 million kiloliters of biofuel per year. Under the government’s biofuel promotion plan, Indonesia will need to increase its consumption of biofuel to 5.3 million kiloliters by 2010 and 9.8 million kiloliters by 2015. As in other countries, fi scal incentives and quotas are being suggested as means to stimulate the sector. Indonesia’s National Biofuel Development Committee has suggested the government make it mandatory for biofuels to constitute 2 to 2.5 percent of the nation’s total fuel consumption. This would equal 1.2 million to 1.5 million kiloliters (kl) per year. Industry representatives have suggested the government provide incentives in the form of tax exemptions for businesses in the industrial sector using diesel fuel with biodiesel added (a formulation known locally as “biosolar”). The Indonesian Biofuel Producers Association (APROBI) demanded the government make biofuel use mandatory at 1 percent of the country’s total fuel consumption to help develop the industry (Krismantari, 2008). The World Bank is conducting several analyses to investigate these issues and the options appropriate to Indonesia.
Wind, Solar, Biomass. As mentioned, Indonesia has the largest geothermal potential in the world and is actively seeking to develop these resources. In contrast, the potential for wind, solar, biomass is lower and less developed. The Ministry of Environment (Ministry of Environment, 2008) reports that the role of hydro power in the energy mix droped from 11.8 percent in 2004 to 9.6 percent in 2006 and is expected to decline further to 7.8 percent by 2010. This is declining share is due to the lack of investment of large hydropower plants, relative to the continued construction of conventional plants.
There is an increasing eff ort to construct micro and small scale hydropower facilities at the community level. These are useful locally, but generallly do not add much to the overall grid capacity and national energy mix.
The State of Environment Report (Min Env, 2008) notes that development of alternative energy sources is an environmental priority. Yet, performance remains below expectations for increased contribution to the national energy mix. (see table 8.4.). Some of the obstacles to increased investment are noted as the high cost relative to the return (in the face of conventional energy pricing), the low interest among private investors, and the capability of the domestic energy and service companies. The ministry notes that emissions and air pollution problems will increase if renewable energy cannot grow as a portion of overall national energy supply.
8.3 Energy and Climate Change Issues
This section highlights climate change issues associated with Indonesia’s energy development pathway.
8.3.1 Fossil Fuel Emissions in Global
Context
Overall Emissions. When considering only fossil fuel combustion, since 2004, Indonesia is among the top 25 CO2 emitters, or ranked 16th when counting EU as one country. Many countries in this range have only a slightly higher or lower level of emissions than Indonesia, making Indonesia’s position (rank) sensitive to small changes. However, if CO2 emissions due to deforestation and land use change are included, Indonesia then rises to among the top emitters. It is important to note that there are questions on the reliability of emissions data from deforestation and land use change due to diff erent methods of
Table 8.4. Wind, Solar, Biomass Potential 2007, Min Env, State of Environment Report
Renewable Resource Equivalent to Installed Capacity
Biomass 49.8 GW 445 MW
Solar 4.8 kWh/m2/day 12.1 MW
Wind 3-6 m/sec 1.1 MW
Figure 8.5. Top 25 CO2 Emitters in 2004
Source: International Energy Agency (2007) [www.iea.org]
USAChina
RussiaJa
panIndia
Germany
Canada UKIta
lyKorea
France
Mexico Iran
Australia
South Afri
ca
IndonesiaSpain
Saudi Arabia
Brazil
Poland
Taiw
an
Turkey
5,000
4,000
3,000
2,000
1,000
0
Deforestation (estimated 2000)
Mt CO2/yr
USAChi
Ru Japhina
Rus apussiaJa
pus ap IndapanInd
mananndia
mamanyana Unadana ItUK
ItK
KorItaly
KoMeorea
Fran exiance
Mexan Irexico Icost AfIra
nstr
aanAfriraliaAftra nefri
cane Spaanesia
Spsia pain
Arabaina Braaabia
BrabPolaBrazPolaazil
aiw Tulanaiw
ndwan
Turkrkrkrkeyrkk
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estimation. More recent estimates of deforestation provided by the GOI indicate a substantial decline in deforestation. (See Figure 8.5.)
In the future there should be a tendency for slower deforestation emissions as the rate of deforestation will be slower due to decreasing available forest areas. Meanwhile, energy use and fossil fuel emissions will keep growing as GDP grows unless mitigating actions are taken. In the long run, CO2 emissions from fossil fuel combustion will most likely be much more important than that caused by deforestation and land use change.
Emissions per Capita. Indonesia’s fossil fuel GHG emissions per capita are still low in comparison with other countries. However, as can be seen in the fi gure to the right (for energy only, not forestry), it is growing relatively fast. From 1994 till 2004, Indonesia’s CO2 emissions per capita from fossil fuel combustion grew faster than China’s and India’s. (See Figure 8.6.)
From 1980 to 2004, annual growth rates of energy consumption per person have increased slightly less than those of GDP per
person. Comparing 1980 to 2004, the growth rate of GDP/person has increased by 2.3 times and energy/person by 2.1 times. In the meantime, CO2 emissions growth varied with changes in the energy structure and technology. In Indonesia, annual growth rate of CO2 emissions per capita has risen faster than those of energy use per capita; indicating carbon intensity of energy has increased as well. Comparing 1980 to 2004, the growth rate of energy use/person has increased 2.1 times and CO2/person by 3.3 times. (See Figure 8.7.)
Emissions Intensity. Intensity is a measure of the level of emissions per unit of economic activity (as measured by GDP). The fi gure to the right compares changes in fossil fuel emissions, GDP, and emissions intensity for several countries and regions. Developing countries like India and China have high GDP growth rates (fi rst, grey bar) and developing countries generally have faster growing emissions (second, yellow bar) than the developed nations of Europe. In most countries, GDP has been growing faster than fossil fuel emissions, so emissions intensity declines over time (third, brown bar). In Indonesia, by contrast, emissions from fossil combustion grew faster than GDP during the decade 1994 to 2004, so emissions intensity increased. The 1997/98 fi nancial crisis which reduced GDP but did not change energy consumption much had a role to play. But Indonesia’s emissions intensity also increased strongly from 1999-2004 – at nearly 2 percent per year. (See Figure 8.8.)
Internationally, increasing emissions intensity is uncommon. However, many fast-growing developing and industrializing countries are shifting increasingly to coal, which will tend to increase emissions intensity. The level of Indonesia’s emissions intensity (kgCO2/$GDPppp) is similar to that of the world average, and still below the non-OECD average.
Emissions Intensity over Time. To understand better what happened during the 1994-2004 period, it is possible to look separately at the pre- and post-crisis periods: 1994-1999 and 1999-2004. The fi gure below shows that CO2 emissions grew faster during the earlier 1994-1999 period than during the later
Figure 8.8. Average Annual Growth Rates 1994-2004
Source: International Energy Agency (2007) [http://www.iea.org/]
Figure 8.6. Fossil Fuel CO2 Emissions per Capita and Their
Growth Rates
Source: International Energy Agency (2007)
IndonesiaChina
IndiaBrazil
Mexico
South Afri
ca USAEU-25
Emissions/person (t, 2004) Annual emissions growth 1994-2004 (%)
Source
Em
ency (20
An
02468
101214161820
esiasia hinahina
ndiaddiarazilrazil xicoxico
fri
cafri
ca USAUSSA
U-25U
25
Figure 8.7. Annual Growth Rates of GDP, Energy Use and
Emission per Capita
Source: International Energy Agency (2007) [http://www.iea.org/]
3.0
2.5
2.0
1.5
1.0
0.5
01980 1984 1988 1992 1996 2000 2004
Emissions per capita
GDP per capitaEnergy per capita
EmiEE s
Pr
GDPGGrEEneE
IndonesiaChina
IndiaBrazil
Mexico
South Afri
ca USAEU-25
Change in fossil fuel emissions
GDP growth
Change in emissions intensity (Emis/GDP)
Ch
GDGD
ChCh
8
6
4
-4
2
-2
0
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1999-2004 period, though energy use grew faster. So although energy intensity increased from 1994-2004, the rates of increase declined, which indicates progress. Carbon intensity has progressed as well: the increasing rates of carbon intensity declined. It is, hence, not surprising to see that the rate of increase of emissions intensity was lower in the later period than the earlier one. Thus, although the situation related to energy use and CO2 emissions intensity in Indonesia had been increasing during the 1994-2004, the rates of these increases have been declining. (See Figure 8.9.)
Carbon Emissions Decomposition. The following fi gure presents the average annual change of population, GDP per capita, energy intensity, and carbon intensity for Indonesia and several other countries. From this fi gure, comparing with other countries, it can be seen that the main long-term driver for increasing CO2 emissions in Indonesia is the increasing carbon intensity. The average annual growth of carbon intensity in Indonesia is much higher than those in other countries. Long term annual change of energy intensity in Indonesia is in the right direction, albeit less progressive than in Vietnam and China. (See Figure 8.10.)
To understand why carbon intensity in Indonesia has increased signifi cantly, we need to observe the level of emissions for each type of fossil fuel combustion (or by energy sources). The role of coal in the electric generating sector emerges as a prominent factor in the increase in emissions intensity over time.
8.3.2 Emissions by Type of Fossil Fuel
Combustion
Overview. The fi gure below presents the level of CO2 emissions by the type of fossil fuel used. Note that the numbers shown are for the amount of emissions, not the amount of energy consumed. Coal is the most emissions intensive fossil fuel, followed by oil, then gas. Coal releases roughly twice the amount of CO2 per unit of energy than gas, depending on the quality of fuel and combustion technology. From this fi gure, it can be seen that emissions for each type of fossil fuel combustion have increased with time. However, emissions from gas and coal combustion grew faster than that from oil combustion. Since 1995, emissions from coal combustion grew fastest.
Comparing the shares of CO2 emissions by type of energy use in 1984 and 2004 (not shown), one fi nds that the contribution from oil combustion has been declining from contributing 85 percent of total CO2 emissions in 1984 to 53 percent in 2004. Meanwhile, the contributions of coal increased from 1 percent in 1984 to 26 percent in 2004, while the contribution of gas moved from 14 to 21 percent in the same period.
The broad trend in Indonesia’s energy system basically shows that although oil is still the main contributor of CO2 emission, the share of oil is decreasing as domestic reserves are exhausted and oil price rises. In the meantime, the share of coal is increasing and replacing the role of oil in the stationary energy sector, whereas the share of gas roughly remains constant as there are signifi cant gas exports.
Looking at CO2 emissions by sector, the fi gure 8.11 shows that industrial activities have been the main source of CO2 emission. One of the reasons is that a signifi cant number of fi rms have
Figure 8.11. Emissions by Sectoral Sources (Shares)
Source: International Energy Agency (2007) [http://www.iea.org/]
Figure 8.9. Emissions Intensity: Ave. Annual Growth Rates
1994-2004
Source: International Energy Agency (2007) [http://www.iea.org/]
Figure 8.10. CO2 Emissions Decomposition
(Source: IEA 2007)
Emissions
Energy
GDP
Energy in
tensity
(Energy/G
DP)
Carbon in
tensity
(Emis/energ
y)
Emissions in
tensity
(Emis/GDP)
1994-1999
1999-2004
19
919
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%
n g D i P)onnsergg
yGDPDP
sity
P)sity
P) sity
y)ity y) sitit
y P)
P
e=E/Yy=Y/P
c=C/E
P
e=y=y=
=c=
8
6
4
-4
-6
2
-2
0
Indonesia
Malaysia
Philippines
Thailand
Vietnam
ChinaIndia
Wprld
Electricity
I t
Ele Transport
2007) [h
TraIndustries
E
Ind Residential
i
Res
80
100
120
140
160
60
40
20
1971 1975 1979 1983 1987 1991 1995 1999 20030
1971 1975 1979 1983 1987 1991 1995 1999 2003971 1975 1979 1983 1987 1991 1995 1999 2003971 1975 1979 1983 1987 1991 1995 1999 2003
Mto
n C
O2
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their own electric power generators. The types of energy that they use and the determinants of industrial fossil fuel use will be investigated more thoroughly in a second phase of work.
CO2 emissions from the transportation sector grew steadily but less so than the industrial sector. It is interesting that emissions from the electricity sector grew the fastest (steepest slope) since the mid 1990s. CO2 emissions from residential sector grew the slowest, perhaps refl ecting increasing levels of household electrifi cation. The household sector is not a primary issue in itself, but should be considered in how it relates to the overall growth in electricity demand, and how that electricity is supplied (e.g., coal-fi red power plants). Eff orts to improve effi ciency and manage demand at the household level will have some eff ect on the need for generating capacity. (See Figure 8.12.)
The Figure 8.13. shows emissions shares by sector. This conveys the same points: industry is largest, electricity is fastest growing. While total emissions have been growing by around 7.5 percent annually, the emissions from electricity grew by around 11 percent in the last two decades.
Figure 8.14 focuses on shares of emissions in the electricity sector. This shows that coal use in electricity has grown much faster than in other energy sources. Hence, by 2004, proportion of coal use in electricity sector was much higher than that in other sectors. This is the main reason that the proportion of CO2 from electricity sector grew faster than the proportion of CO2
from other sectors. It also highlights the important of looking carefully at power generation development plans, taking into account the costs, economic impacts and implications on resource endowments.
Fossil Fuel Emissions Decomposition. The fi gure 8.15 summarizes GHG emissions for the main product categories
(coal, oil and gas) and for the main consumption categories (Industry, Electricity, Transport, and Residential). Industry is currently the largest source of emissions, but further analysis is needed to determine which subsectors are most responsible or fastest growing over time. Electricity is the fastest increasing major component. This is mainly due to the increases in electricity demand, being fed by expansion of coal-fi red generating capacity in recent decades and the increasing eff ort to replace oil-fi red power generation for energy security and price reasons. There has been almost a 5-fold increase in coal use since 1994.
Transport is the largest user of liquid fuel, due to growth in vehicle fl eet and the low price of liquid fuel products for transportation. Low fuel prices (due to subsidies) mask improvements in vehicle effi ciency that may be taking place over time. The residential sector is not a large user of coal or gas. Emissions come mainly from the combustion of kerosene for home cooking.
Preliminary Sub-sectoral Results. Using the IEA database for 2004 and Indonesian sources, analysis indicates that a dozen sub-
Figure 8.12. Emissions by Type of Fossil Fuel Combustion
Figure 8.13. Emission by Sectoral Sources (Shares)
Source: International Energy Agency (2007) [http://www.iea.org/]
Source: International Energy Agency (2007) [http://www.iea.org/]
Table 8.5. Indonesia: Fossil Fuel Emissions ( MtCO2 in 2004)
By Fossil Fuel Source
By Consumption Group Coal Oil Gas Total Emissions Share of Fossil Fuel Emissions
Emissions growth ‘94-’04
Industry 31.9 35.4 50.7 118.0 35% 48%
Electricity 54.9 25.2 9.9 90.0 27% 170%
Transport - 78.0 - 78.0 23% 74%
Residential - 41.0 9.0 50.0 15% 71%
Total 86.8 179.6 69.6 336.0 100% 80%
Source: IEA, 2004
OIL
7) [htt /
OIL COAL
i
CO GAS
]
GA
80100120140160180200
604020
1971 1975 1979 1983 1987 1991 1995 1999 20030
Mto
n C
O2
971 1975 1979 1983 1987 1991 1995 1999 2003
1984 2004
Residential
Transportion
Industry
Electricity
Sh
are
of
Em
issi
on
s (t
o 1
00
%)
1984 2004
Re
Tr
In
El
20%9%
25%
23%
42%
41%
13%27%
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sectors account for about half of emissions. Preliminary fi gures and fi ndings suggest that non-metallic minerals (cement), textiles, steel making and rolling, pulp, food and beverage and fertilizer are high emitting segments of the manufacturing/industrial sector. These need further investigation of the kinds of cost eff ective interventions that can be pursued in these specifi c industries. These may be good targets for policy and actions to increase effi ciency, reduce emissions – assuming that these actions are also compatible with the economic and development needs of the country and the benefi ts of action exceed the costs.
Within the transport sector, road transport is the largest user and nearly the only one of consequence. Emissions are roughly split between use of motor gasoline and gas/diesel. In the residential sectpr, residential emissions are almost entirely from kerosene use (mainly for cooking), with minor emissions from the use of LPG. Commercial and public services generate emissions mainly from use of natural gas. Agriculture and fi shing have relatively small emissions from fossil fuel use (and dwarfed by land use emissions).
Future Emissions Trend and Scenario. If the trend from the 1971-2004 period continues, by 2030 total CO2 emissions will be around four times the level in 2005 as can be seen below. Total CO2 emissions grow by about 5 percent annually, while CO2 emissions from coal grow by about 7percent annually.
There are many assumptions imposed on this trend, such as future proportion of energy used in the electricity sector and composition of energy use among renewables, oil, coal, and gas, which are the same as those predicted by the International Energy Agency (See Figure 8.16. and Figure 8.17)
(IEA) with the exception of energy intensity. IEA predicts a reduction in the rate of energy intensity by around 2.5 percent annually, which is very high compared internationally and much higher than the historical rate in Indonesia where energy intensity has actually increased over the last decade. For the projection here, energy intensity declines by around 1percent annually, which is roughly in line with the global average reduction rate of energy intensity in the past.
Even assuming a decrease in energy intensity, it can be expected that emissions from energy consumption will triple in the period to 2030. It is important to note that CO2 emissions from fossil fuel combustion under this projection roughly double every 15 years. CO2 emissions from energy use increase as Indonesia’s GDP grows and the proportion of households with medium and high levels of income increases. In the electricity sector, by 2030, total emissions will be around 3 times the level in 2005. The main driver of increasing emissions from electricity is emissions from coal combustion.
Figure 8.14. Emissions by Energy Use: Electricity Use
Source: International Energy Agency (2007) [http://www.iea.org/]
1984 2004
Gas
Coal
Oil
Electricity
Pe
rce
nt
/ S
ha
re (
to 1
00
%)
1984 2004
Ga
Co
Oi
99%
53%
31%
1%16%
1984 2004
Gas
Coal
Oil
Others
Pe
rce
nt
/ S
ha
re (
to 1
00
%)
1984 2004
Ga
Co
O
77%
10%
63%
1%
22% 28%
Figure 8.15. ID: Emissions by Fossil Fuel and Using Sector
Source: IEA 2004 in MtCO2e
Industry
Largest Using Sector
Fastest Growing
Component Largest Single Compont
Electricity Transport Residential 0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
CoalCoa GasGasOilOil
Transportndustry ectricity esidentialid i l
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Figure 8.16. Estimate of Future Emissions from Electricity
Sector
Source: International Energy Agency (2007) [http://www.iea.org/]
Figure 8.17. Estimate of Future Emissions from All Fossil
Fuels
Source: International Energy Agency (2007) [http://www.iea.org/]
2005 20052010 20102015 20152020 20202025 20252030 20300 0
50 200
100 11%
21%
16%
23%
60%26%
72% 35%
29% 53%12%
42%
400
150600
200
800
250
1.000
300
1.200
1.400
Mt
CO
2/y
r
Mt
CO
2/y
r
2005
26%21%26%
53%
26%
2010 2015 2020 2025 2030
23%
35%
42%
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SECTION 4:
The Way Forward
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Chapter 9:
Towards a More Sustainable Indonesia
Off -shore Bunaken, North Sulawesi
Photo: Winarko Hadi
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The previous analysis suggests that a more sustainable Indonesia is one where:
The costs of environmental degradation and climate • change are lowered so that less wealth is diverted from growth;
Good environmental management contributes to • poverty alleviation by reducing impacts on the poor and better sharing of benefi ts;
Renewable resources are used sustainably while non-• renewable ones are wisely developed for investment in human and physical capital; and
Citizens are aware of and participating in • environmental issues directly or through their representatives and other organizations.
Options for moving toward this vision are outlined in the sections below which cover environmental governance, adaptation to climate change, forestry and land use, and energy. The World Bank has a long history of partnership with Indonesia on environmental and natural resource management issues. The ongoing engagement has centered on forestry management and biodiversity conservation as well as coastal and marine resources. Given the fi ndings of the CEA, there are opportunities for increased partnerships in the areas of environmental governance and climate change that are summarized in this chapter and elaborated in the Annex.
9.1 Options for Better Environmental
Governance
9.1.1 Strengthening Decentralized
Environmental Management
Options for strengthening decentralized environmental governance include geography-based environmental
management, local-level fi nancial management and incentives, and a clarifi cation of roles.
Geography-based environmental management. One recommendation is that environmental management should be unitary, based on geography such as a watershed. As Indonesia’s law on water resources allows for water to be managed within the context of watersheds, there is a precedent that could be applied to other resources, such as land management. Currently environmental management follows administrative boundaries rather than geographic boundaries. Transboundary issues get kicked up to the next level of administrative authority but seldom do environmental authorities at the next level up have adequate power or resources to address the problem. The Ministry of Environment has only fi ve regional offi ces to address such problems. For example, the Leuser Ecosystem in North Sumatra spans two provinces (Aceh and North Sumatra) but the closest regional offi ce of Ministry of Environment is in Pekanbaru, quite some distance away.
Financial management and incentives. Another challenge for decentralized environmental management is the fact that local governments get their funding on a yearly basis so they have no facility for long-range investment. To further compound the fi nancing picture, it takes so long for central government transfers to actually reach the local governments, an estimated 80 percent of local government spending takes place in the last quarter of the year. Having no money for most of the year and then having to spend money quickly during the fi nal quarter makes for very ineffi cient spending patterns. More fl exible fi nancing options, such as DAK and BLU, could be more fully utilized for fi nancing environmental management at the local level.
The Ministry of Environment is currently looking at environmental fi scal reform. Income coming from taxes is currently not earmarked to specifi c tasks or activities, but it could be. Similarly, externalities are not being considered. There is also mention of better opportunities for incentives through matching grants provided through deconcentration
MAIN MESSAGES
Options for better environmental governance include strengthening decentralized management, implementing • more enabling policies and expanding the voice and access of stakeholders.
Adapting to a changing climate can be pursued through a range of reactive and proactive options that need to • be prioritized and phased over time.
Mitigation of land-based emissions can be accomplished through a number of “no regrets” options that can be • supported by new forest carbon fi nancing opportunities.
Mitigation of energy-based emissions can be achieved through high-level planning and coordination such as a • low carbon growth strategy as well as specifi c sectoral options.
The World Bank will realign its activities and partnerships to support Indonesia’s options for better environmental • governance and climate change while continuing its engagement in other areas of environmental importance.
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mechanisms. There may also be incentive mechanisms through special assistance measures for national assets such as national parks. Deconcentration is a mechanism for leverage. With regard to law on local government fi nancing, the existing environmental taxation policy is poorly designed as it is based on revenue, rather than taxing those companies who perform badly in their environmental management practices.
Clarifi cation of roles. One of the more signifi cant challenges of building regional capacity for environmental management is that the management units are too small—there are now nearly 500 local governments in Indonesia, and this fi gure may increase over time. At the same time, central government agencies often have a tendency to deal primarily with provincial governments. However, the functions of the provinces under regional autonomy have been restricted and they are often unable to act with authority even where clear-cut environmental externalities arise. Local governments frequently challenge the intervention of a higher authority on environmental matters (whether provincial or national), preferring instead to work individually, sometimes with support of donors who are keen to place their assistance as close as possible to the source of the problem.
In this light, a suggested recommendation is to clarify roles and responsibilities. The central government could focus on its comparative advantages of setting policies and standards, monitoring and reporting, identifying and disseminating good practices, quality control, providing technical assistance, and capacity building. Local governments could focus on implementation of policies and programs in an accountable manner. Provincial governments would then focus on issues that transcend more than one district within a province. Were the government to pursue this course, it could be gradually implemented and in a manner that allowed districts to maintain maximum opportunities for local participation and better governance.
9.1.2 Enabling policies
Indonesia’s fi scal regime for natural resource management is currently biased towards unsustainable resource extraction. In the power sector, fuel and electricity subsidies distort price signals and limit the capacity of the government to invest more in renewable energy production. In the forestry sector, the current system of fi scal instruments is not capable to reduce the incentives for illegal logging and to fully capture the economic rent associated with forest – based economic activities.
Clean up the legal framework. Across sectors the key problem is that national policies and laws governing specifi c sectors not only contain contradictions within sectors, but also overlap with decentralization laws and regulations aff ecting local resource use. Specifi cally, in mining and fi sheries sectors, policy distortions arise from confl icting sector-based regulations and the decentralization laws. Thus, a priority would be to harmonize these laws and regulations to provide a better base to improve revenue collection and – sharing between local and national governments.
An environmental fi scal reform agenda. In order to overcome these policy barriers, the government needs to engage in a long–term reform and gradual environmental fi scal reform agenda. The objectives of such an agenda should be to set up a regulatory and economic framework which provides incentives to change behavior, accounts for external environmental costs, enhances resource conservation and improve revenue collection mechanisms.
The key is to identify the optimal mix of fi scal policy instruments which can create potential synergies between these various goals and minimize short-term trade-off s. An example would be Indonesia’s successful experience with fuel subsidy reductions coupled with conditional and unconditional cash transfer programs targeted at poor households. Given that fuel subsidies have largely regressive eff ects, a continued gradual program of fuel subsidy reductions or even applying a carbon tax could be politically feasible options in the medium and long-term.
Similarly, the government needs to introduce cost-refl ective electricity tariff s in the medium and long run. The current tariff structure prevents private investors to undertake signifi cant investments in to renewable energy production. As with fuel subsidies, relatively low electricity tariff s do benefi t the rich more than the poor. Any program of a national gradual subsidy reduction could be coupled with targeted connection subsidies to the poor or subsidized tariff s based on location and housing characteristics (IEA 2008).
The REDD program off ers a huge potential revenue opportunity, but it will not work without a functioning fi scal system for the forestry sector. REDD will allow for payments for projects and policy actions that reduce forest-based carbon emissions. However, any carbon compensation system will depend on erasing the underlying fi scal distortions in the forestry sector. These distortions arise as true economic and environmental values of forests are not captured. Thus there is a need to develop a transparent royalty collection and monitoring system. Policy instruments that could provide the incentives for more sustainable forest management include performance bonds, better tenure arrangements and auctions. Similarly, other sources of climate fi nance (Climate Investment Funds, Adaptation Fund, bilateral programs, etc.) will not function eff ectively if economic and fi scal parameters such as the overall investment climate or fuel and power pricing continued to be distorted.
9.1.3 Expanding voice and access
NGOs/CVOs have historically played an important role in raising specifi c cases to the public eye and government’s attention, largely using the media as their ally. However, with legislature (and political parties) carving out a more solid position in this democracy, NGOs will face increased scrutiny in their role of representing people’s aspirations. NGOs will have to clarify their constituent-base and solidify their capacity for management and analysis of environmental data. NGOs/CVOs will also have to establish or assert their credibility more aggressively, if they
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want to continue to play a role in building public awareness and public demand for environment.
The legislature is still in the process of solidifying itself as a key force in the democratic process. The more established political parties, with a nation-wide network, have an advantage in communicating with the public. Newer parties have yet to develop a culture and eff ective mechanisms to communicate with constituents. They may, in the future, play an important role in channeling public aspirations but this will probably not happen before political parties and legislature have convinced the public about their sincerity. As the democratic transition progresses, the role of legislature at all levels can be expected to strengthen.
Religious institutions are an emerging player, mainly in infl uencing public behavior. Their eff ectiveness, however, is not yet evident. Furthermore, there is insuffi cient information to determine their role in channeling public aspirations to the government, at present or in the future.
Media, especially TV, does play an important role in transmitting information on environment. But environmental messages tend to be drowned out by the dominant messages of development, consumerism and entertainment. As a medium to channel public aspirations, the media does not feature strongly.
In summary, who represents the Indonesian public in environmental issues is undergoing transition. In the past, NGOs have played an instrumental role. At present, the national legislature is beginning to exert themselves as the
legitimate player, and can be expected to strengthen its mark in the future. Provincial and district/level legislature should also follow suit. However, with the institutional/ political situation being so fl uid, it may take at least another cycle of executive-legislative appointments to see whether the democratic culture of representing public interest will bear fruit, and whether the legislative members will be able to accelerate the learning curve with respect to environment.
Finally, the public itself needs to build a more complete understanding of environmental issues and their contribution in protecting or destroying the environment. It is insuffi cient to know the visible or physical manifestations of environment and natural resource problems; the public must begin to understand the interconnectedness of environment and natural resource issues, and the impacts of government’s decisions and each individual’s actions. The public also needs to learn to articulate (or defi ne more clearly) their demands for a better environment. Without it, other parties may make assumptions about public aspirations which will only confuse decision-making in an area already burdened by multiple confl icting interests. This will require pursuing options for expanded access as outlined in Box 9.1.
9.2 Options for a Changing Climate
9.2.1 Adapting to a Changing Climate
Reactive and proactive options can help Indonesia adapt.
Table 9.1 indicates the range of responsive and anticipatory actions that can be taken to adapt to climate change with
BOX 9.1. Options for Expanding Access to Environmental Governance
Government needs to:
Work with other stakeholders to monitor and appraise the performance of its own institutions in fulfi lling access to information, participation • and justice, and encourage the adoption of policies that better guarantee their fulfi llment.Encourage a process of legal reform so as to bring the de jure and de facto situations into line.• Provide an integrated system capable of guaranteeing access, especially for marginalized groups.• Develop the capacity of its institutions through the assignment of specially trained staff , the provision of the necessary infrastructure and • facilities, and the allocation of adequate funding.Improve collaboration with the media and NGOs, as well as other stakeholders that have the potential to encourage the fulfi llment of access • principles.
The media need to:
Actively and continuously scrutinize the performance of government on issues of access.• Increase the attention it pays to environmental issues, including making of decisions that are likely to have an adverse impact on the • environment.
Non-Governmental Organizations need to:
Monitor the process of legal reform so as to ensure that the gap between the de facto and de jure situations can be bridged.• Collaborate with Government and other stakeholders so as to encourage better access.• Encourage heightened public demand for access to information, to participate and to justice.• Develop own capacities, and the capacity of the public, particularly marginalized groups, to secure access to information, to participate • and to justice.
SOURCE: Adapted from Murharjanti et al., 2008
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regards to water resources, agriculture, forestry, coastal/marine resources, and health. The options that are already incorporated in Indonesia’s National Action Plan Addressing Climate Change (GoI, 2007a) and National Development Planning Responses to Climate Change (GoI, 2008) are highlighted in bold. As not all of the adaptation options have been considered in Indonesia, there is scope for additional emphasis on: water resources (groundwater management, water recycling, and policy reforms); agriculture (changes in planting, harvest and cultivars, policy reforms and early warning); forestry (agro-forestry, better fi re management, protection of biodiversity); coastal marine (protection of infrastructure and more integrated coastal zone management); and health (improved housing, living conditions and urban design, and public health reform).
Phasing and selectivity of adaptation measures are
needed. This is an enormous agenda for any country to take on all at once. It will be necessary to think through where to
begin, what to scale up and how to link actions over time (see Box 9.2). An example of how this is being proposed for the agriculture sector in Indonesia is provided in Figure 9.1. An important consideration in prioritization will be to invest in measures to protect the populations that are at greatest risk in terms of health and livelihoods. Selectivity can also be guided by economic analysis through choosing options that have the highest economic return and greatest net present value.
Mainstreaming of adaptation will require complementary eff orts. The planned and possible measures for mainstreaming adaptation in climate change will need to be complemented by:
Eff orts to raise public awareness about climate • change and its impact in order to build a consensus for signifi cant public action
Table 9.1. Adaptation Options
Reactive/Responsive Proactive/Anticipatory
Wat
er R
esou
rces
• Protection of groundwater resources• Improved management and maintenance of existing
water supply systems
• Protection of water catchment areas
• Improved water supply
• Groundwater and rainwater harvesting and desalination
• Better use of recycled water• Conservation of water catchment areas
• Improved system of water management• Water policy reform including pricing and irrigation poli-
cies• Development of fl ood controls and drought monitor-
ing
Agric
ultu
re
• Erosion control• Dam construction for irrigation
• Changes in fertilizer use and application
• Introduction of new crops
• Soil fertility maintenance
• Changes in planting and harvesting times• Switching to diff erent cultivars• Educational and outreach programs on conservation and
management of soil and water
• Development of tolerant/resistant crops (to drought,
salt, insect/pests)
• Research and development
• Soil and water management
• Diversifi cation and intensifi cation of food and planta-
tion crops
• Policy measures, tax incentives/subsidies, free market• Development of early warning systems
Fore
stry
• Improvement of management systems including con-
trol of deforestation, reforestation, and aff orestation
• Promoting agroforestry to improve forest goods and ser-vices
• Development/improvement of national forest fi re manage-ment plans
• Improvement of carbon storage in forests
• Creation of parks/reserves, protected areas and biodi-
versity corridors
• Identifi cation/development of species resistant to climate change
• Better assessment of the vulnerability of ecosystems• Monitoring of species• Development and maintenance of seed banks• Forest fi re early warning systems
Coas
tal/M
arin
e • Protection of economic infrastructure• Public awareness to enhance protection of coastal and
marine ecosystems
• Building sea walls and beach reinforcement• Protection and conservation of coral reefs, mangroves,
sea grass, and littoral vegetation
• Integrated coastal zone management• Better coastal planning and zoning• Development of legislation for coastal protection• Research and monitoring of coasts and coastal ecosys-
tems
Hea
lth
• Public health management reform• Improved housing and living conditions• Improved emergency response
• Development of early warning systems
• Better and/or improved disease/vector surveillance
and monitoring
• Improvement of environmental quality• Changes in urban and housing design
SOURCE: Adapted from UNFCCC (2007) in ADB (2009)
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More research to better understand the local impact • of climate change, cost-eff ective technical solutions and sound strategies that go beyond technical solutions (migration, social protection, livelihoods, governance)
Multi-agency coordination and planning to promote • interdisciplinary approaches to adaptation, e.g. linking adaptation with disaster risk reduction
Strengthened local capacity to plan and implement • adaptation measures, including improved central-local coordination, planning and fi nancing
Increased resilience of poor households and other • vulnerable groups to climate shocks, e.g. through
economic diversifi cation, protection of assets and other coping strategies (ADB, 2009).
9.2.2 Forests, Land Use and Climate Change
Forestry ‘No Regrets’ Options. REDD off ers new fi nancial incentives for improvement of forest management practices, but payment is only based on performance, or outcomes, not plans or projected improvements. To improve performance in the forest sector, both GOI sources and independent analysts have concluded (Min Forestry, 2006 and 2007; World Bank, 2006) that there is a need for:
Improved forest law enforcement, management • and governance to improve asset management and revenue collection within the sector.
Box 9.2. Prioritizing Adaptation Options
The 2010 World Development Report provides a useful four-step guide to prioritizing options for adapting to climate change in an environment of uncertainty:
Give priority to “no regrets” investments and policy options that provide benefi ts even without climate change. These exist in almost every 1. sector but may not be implemented due to lack of information, transaction costs and/or political will.Buy “safety margins” in new investments to increase climate resilience, e.g. the marginal costs of building a higher dam or including 2. additional groups in a social protection scheme.Favor reversible and fl exible options. Examples include restrictive urban zoning to anticipate new fl ooding patterns or crop insurance to 3. protect farmers against a projected higher frequency of drought.Plan based on scenario analysis. Assess strategies under a wide range of possible futures, review investment programs and adjust the 4. scenarios as well as the programs according to new information.
SOURCE: World Bank, 2009
Figure 9.1. Phasing Adaption : Example for Agriculture Sector
Year: 2005 2010 2015 2020 2025 2030
• Adjust the cropping pattern following the climate forecast
• Improve crop management
• Improved irrigation facility and irrigation effi ciency
• Provide more opportunity for alternative economic activities
• Set up policy to limit conversion of rice fi elds to other uses in Java, stand-by funding, insurance system
• Expand the rice growing areas to less vulnerable areas, new varieties
• Maintain and increase forest cover in the upstream Diversify food consumption
• Develop new irrigation facility in vulnerable rice production centre areas whenever possible to allow for increasing planting index and productivity
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Realigned incentives for timber harvesting and • processing fi rms, to improve competitiveness and economic returns
Restructuring and revitalization of forest sector • industries to balance demand with supply, capture and keep international markets, and improve competitiveness.
Forest and land fi re control to reduce smoke and haze • that cause high health costs
Equity and transparency in forest/land use decisions • (also fundamental for any fi nancing and distribution mechanism)
Independent monitors of legal compliance and • participation standards.
Under any climate scenario, these policy and governance actions make sense to improve management and fi nancial returns from an important national asset. Thus, these could be seen as “no regrets” options.
International forest carbon fi nancing opportunities. REDD is a major opportunity and incentive for Indonesia, which is a strong advocate in international negotiations. An international forest carbon market is expected to be established in the post-2012 framework, under negotiation now. Estimates of the potential gains to Indonesia through a REDD scheme range from $0.5 - 2 billion per year, depending on the area covered and overall performance, as well as the stock of carbon in the diff erent types of forests. These payments for REDD can benefi t Indonesia by creating an incentive and a revenue stream that off sets the costs of making needed changes. Many donors are now engaged in assisting the GOI to develop the REDD program through pilot demonstrations and development of policy frameworks. Also, many private sector agents and NGOs are pursuing REDD schemes through voluntary markets (World Bank, 2009).
In fact, producing solid, verifi able emissions reductions for sale on an international is an investment process with risks. For this reason, the involvement of the Ministry of Finance is necessary and important. Reducing deforestation (and emissions) verifi ably costs time and money: sites have to be selected and surveyed, actions have to be taken in the fi eld to change incentives or replace behaviors, monitoring and verifi cation are needed to assure carbon buyers that the emissions have indeed been reduced, with some permanence and minimal leakage in other areas. Willing buyers also have to be found and deals negotiated with appropriate sharing of both fi nancial benefi ts and risks. Reducing deforestation means addressing the drivers of deforestation: governance, enforcement, rent-seeking. This remains a challenge, though recent forest monitoring data indicate that Indonesia has had some success in recent years.
In addition to REDD, Indonesia can tap other sources of forest carbon fi nancing. The Forest Investment Program, within the
World Bank’s Strategic Climate Fund, will provide grants and low-interest credits for development of REDD demonstration projects as well as investments in sustainable forest management and conservation of forest carbon reservoirs. The Government of Norway is providing development fi nancing in countries such as Brazil in exchange for verifi ed reduction in the national rate of deforestation. The UK’s Prince of Wales Rainforest Project seeks to provide similar payments on performance, perhaps fi nanced by the issuance of rainforest bonds.
9.2.3 Energy and Climate Change Options
High-level planning and coordination. One of the key options for an eff ective climate change response, especially with regard to fossil fuel use, is integration and coordination of the policy response across the Government. The Government has formed a National Council on Climate Change to help coordinate a policy response, but this institution is still developing its capacity. To improve the technical basis of its recommendations and coordination eff orts, the National Council has commissioned a National Economic and Environmental Development Study (NEEDS) and an assessment of emissions abatement costs across a range of sectors.
Key sectoral ministries (energy, industry, forestry, etc) are aware of the importance of climate change as a national development challenge and are formulating sector specifi c plans. In particular, in the area of fossil fuel emissions, the Ministry of Environment and the Agency for the Assessment and Application of Technology (BPPT) have produced a Technology Needs Assessment on Climate Change Mitigation.
Many policy options are under consideration for reducing Indonesia’s emissions. The GOI has developed a National Action Plan for Climate Change and a National Development Planning Response to Climate Change. The Ministry of Finance has commissioned a low carbon development options study and a green paper on climate change to help in formulating options to address both mitigation and adaptation. BAPPENAS is integrating climate change issues into the medium term development planning framework and developing a ‘road map’ for addressing climate change issues. Both institutions are working to incorporate climate change priorities into national budgets and longer term plans.
Specifi c sectoral options. Bappenas (2007) has identifi ed specifi c policy options that may help Indonesia “to reduce energy-related emissions and to remain internationally competitive [including] effi cient energy use to conserve the low cost energy source; fossil fuel substitution to adopt eco-friendly fuel, the use of renewable energy technology, and application of emissions standards, a carbon tax and other incentives to support reforestation and sustainable forest management.” To overcome the limitation of fossil energy resources, Bappenas enumerates a number of possible eff orts, including the need to “identify new resources, increase production, limit exports, and fi nd/develop new and alternative renewable resources, including water power, geothermal, biomass (organic waste), solar energy, ocean energy, and wind energy.”
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From the analysis in Chapter 8, ongoing discussions and the climate change literature, several additional energy-related options can be pursued:
Energy pricing• - The approach to pricing energy hinders eff orts to improve energy effi ciency, develop alternative energy resources, conserve on increasingly expensive fossil fuels, and reduce greenhouse gas emissions. This is a diffi cult political issue, but new forms of climate fi nancing may help Indonesia make progress in some specifi c areas.
Renewable• energy development - Indonesia has abundant renewable energy resources but their development lags due to lack of investment and a weak enabling environment. If Indonesia continues to tackle the policy challenges and perceptions that improve the investment climate generally, there will be benefi ts for investments in mitigation actions and development of alternative energy sources. These investment climate issues may require a more in-depth look at banking sector policies, tax and depreciation incentives, and trade policies that help or hinder the application of new technologies.
Energy• effi ciency - Even in the current energy pricing regime, there are some opportunities for emissions reductions through energy effi ciency and energy management approaches with short payback periods, especially in the power, manufacturing and transportation sectors. Many of these actions make fi nancial sense now at the fi rm level. Also, energy management and effi ciency standards for certain types of equipment may be appropriate for consideration in the Indonesian context. The energy and cost savings would benefi t the fi rm; the emissions savings would benefi t all Indonesians.
Financing• incentives - International fi nancing mechanisms, in particular the carbon market and the Climate Investment Funds, can help provide some off setting payments or lower cost funds to help Indonesia meet its mitigation objectives. Again, improvements in the investment climate would help
to stimulate and accelerate the needed investments.
9.3 A Role for the World Bank
The World Bank has a long and evolving history of engagement with Indonesia on the environment and natural resource management. This engagement will continue in sectors such as forestry, biodiversity conservation and coastal and marine resources. Partnership will be strengthened in the areas emphasized in this CEA – environmental governance and climate change.
9.3.1 World Bank Engagement in the
Environment and NRM Sectors
Over the past two decades, the World Bank has been engaged with Indonesia in the area of environment and natural resources (mainly in the forestry sector) at diff erent levels and in diff erent ways. Before 1994, the Bank was involved in lending operations and worked directly (and unsuccessfully) with the GoI to achieve policy reforms. After 1994, the Bank withdrew from lending but tried to remain involved through higher-level dialogue, analytical/advisory services to build capacity of local environmental agencies (Bappedalda) and the recently established Ministry of Marine Aff airs and Fisheries. In addition, environmental “mainstreaming” also occurred through participation in the design and supervision of lending activities such as COREMAP I and II, KGRIP, ILGRIP, and UPP II and III, and the application of environmental safeguards in Bank loans to all sectors.
Then, in 2001, following launch of the Government’s major decentralization program, the Ministry of State for Environment (KLH) called upon the Bank’s expertise to help devise a strategy to improve the level and quality of environmental management at the local level. Specifi cally, the Bank supported the development and implementation of the second phase of the PROPER program. Unlike the fi rst PROPER program, which targeted industrial water pollution only, PROPER II is based on eight aspects, and participation in the program is mandatory by ministerial decree. In addition, the Good Environmental Governance Program was also launched to complement PROPER. GEG is meant to assess the state of environmental governance, promote capacity building and provide incentives
Box 9.3. Indonesia and Reduced Emissions from Deforestation and Degradation (REDD)
IPCC (2007) and Stern (2006) have noted that reducing deforestation is one of the most cost-eff ective approaches to reduce GHG emissions in the short run. The UNFCCC is discussing how to create markets for forest carbon by instituting a REDD scheme (as recommended by the Bali Roadmap adopted at COP 13). A mechanism to encourage payments for carbon emissions reductions from forest land would provide a powerful incentive to improve forest management. If an ambitious mechanism is established after 2012, Indonesia could potentially gain USD 1 billion or more in annual payments, assuming successful and verifi able eff orts to reduce deforestation and degradation. Forest carbon emissions reductions are produced through sound forest governance and management activities that reduce forest loss. Indonesia has already committed to combat deforestation and illegal logging and is developing a REDD initiative (MOFr, 2008). REDD payments for forest carbon (avoided deforestation) could provide resources and incentives for sound forest management, as well as compensation for those who must forego benefi ts to prevent deforestation.
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for better environmental performance in urban centers across Indonesia. As in the case of PROPER, the Bank was instrumental in supporting KLH’s eff ort to scale up the program and develop meaningful indicators to measure progress and impact of this program.
A new phase of engagement began in 2004 on: (i) natural resource management, with a particular emphasis on forestry and coastal management, and a more policy-based focus on mining; (ii) local environmental governance, including loans, grants and technical assistance to support decentralized environmental management; (iii) addressing global environmental issues, including greenhouse gas emissions, biodiversity, international waters, and ozone depleting substances; and (iv) safeguarding the environment through continued, better-coordinated support to lending operations in all sectors.
The previous CAS (2004 – 2007) outlined a reform-oriented program around three objectives (Improving the Climate for High Quality Investment, Making Service Delivery Responsive to the Need of the Poor; Governance) that are aligned with the Government’s Medium Term Development Plan (RJPM) for 2004 – 2007. However, the CAS did not encompass the environment or natural resource management. Environmental sustainability and providing a healthy environment for the poor are identifi ed as strategic priorities but these are not supported by substantive programs. Faced with this gap, two important regional documents, the Environment Strategy for the World Bank in the East Asia and Pacifi c Region and the EAP Forestry Strategy, provided critical guidance for expanding the Bank’s engagement in Indonesia. These strategies emphasized the importance of improving the quality of life, enhancing the quality of growth, protecting the regional and global environmental commons, engaging with local partners, supporting sustainable natural resource management, and assisting the reform process.
In contrast, the new Country Partnership Strategy (2009-2012) embraces environmental sustainability as a core engagement area along with disaster mitigation. This engagement aims to strengthen Indonesia’s ability to manage environmental challenges and reduce disaster-related risks to ensure sustainability. Specifi cally, work is to be undertaken on environmental sustainability to build the capacity of the country to adapt to climate change and address environmental challenges through climate change mitigation and adaptation, natural resource management, biodiversity conservation, and local environmental management. Disaster mitigation also encompasses the importance of mainstreaming adaptation to climate change through support to Indonesian institutions as well as within the Bank’s own portfolio. The inclusion of this engagement area was partly based on intermediate inputs used to develop the Country Environmental Analysis.
9.3.2 Areas of Continued Engagement
The following is a brief overview of the themes/areas where the World Bank already has a meaningful engagement in Indonesia (forest and biodiversity conservation, and, coastal/marine resources), and where it is likely to remain engaged at least through the current Country Partnership Strategy. Considering environmental challenges more broadly, the World Bank will continue its support for water and sanitation, environmental services and infrastructure, and sustainable agriculture.
Forest management and biodiversity conservation. In the forest sector, the Bank’s assistance strategy from 2004-2007 aimed at improving management and governance to support governments and communities in sustainable forest management, conservation, development and dialogue. Biodiversity conservation has been supported through a number of medium-sized terrestrial and marine initiatives supported by the GEF. From 2008 to the present, the Bank’s primary forestry focus has been on developing the market for REDD in Indonesia as part of a strategy to reduce deforestation and forest-based carbon emissions. The World Bank proposes to scale up and mainstream assistance in Indonesia’s forestry sector to develop more comprehensive programs —both in conservation and collaborative management at the community level—, to build environmental protection and forestry issues into activities with actors outside the forestry box —including enforcement authorities, customs, trade, local governments, communities—, and into larger scale macro-policy interventions focusing on public revenue losses, corruption, and poverty alleviation. Dialogue will also be scaled up on community-based resource management, land rights and access, and their contribution to growth and equity. In forestry, this will be done primarily through continued support for REDD through the Forest Carbon Partnership Facility, the Forest Investment Program and partnerships with government, donors and REDD demonstration projects. For biodiversity, the emphasis will be on scaling up promising approaches such as the ecological restoration concession concept.
Coastal and marine resources. Most Bank and other key donor assistance has contributed to strengthening institutional capacity of responsible institutions (both national, regional and sub-regional). These capacity building programs are based on management models and approaches that have been successfully tested as pilots in Indonesia or other parts of the world. The Bank has led the development of a 15 year program called the Coral Reef Rehabilitation and Management Program (COREMAP), which is the largest Program of its kind anywhere in the world. The proposed Fisheries Revitalization Project will increase income of rural coastal and fi sheries communities in participating districts. The World Bank has consistently supported the GoI to enhance management eff orts promoting sustainability use of coastal and marines resources. Learning from what has been going on since Bank’s involvement, there is a unique opportunity to continue supporting Indonesia, especially in enhancing and widening impacts and outcomes
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of Bank’s and other donors involvements along the following lines: i) Improve learning capacity of coastal and marine resources stakeholders: issue identifi cation, plan development, managing implementation of the plan, monitoring, evaluation, controlling; 2) Focusing on enhancing impact and outcome of coastal and marine resource management, especially on socio-economic issues in advancing small-scale fi sheries-based industries and livelihood, post-harvest industry and trading of marine products, conservation-based marine tourism industries promoting coastal community welfare; and 3) Facilitation inter-regional cooperation in maximizing fair share benefi t from marine-based product for producers as tools for improving coastal community welfare. Many coastal communities have been encouraged to implement options of producing processed materials from coastal and marine resources in sustainable manners.
9.3.3 Implications of the CEA for New Bank
Partnerships
Environmental governance and climate change have been identifi ed in this report as areas that would be critical for strengthening the GoI’s eff orts towards sustainable development over the next years in the new Country Partnership Strategy. To date in Indonesia, the World Bank has only had a limited engagement with these two areas, and plans to step up its presence over the next three years to respond to the GoI’s request for support, enhance the Government’s relevant strategy and use the Bank’s comparative advantages.
Environmental governance. Lessons learned and fi ndings from the implementation of the ILGR, ULGR and USRDP, COREMAP, PROPER and GEG programs indicate that there is room and scope for developing an operation that addresses the expansive demands for technical and institutional capacity needed to strengthen the environmental management capacity of local governments, which ongoing pilots and relatively small-scale initiatives cannot provide. With the evolving institutional and regulatory framework, scaling up and mainstreaming assistance for local environmental governance could help systematically address existing gaps and needs in the sector at the local level. This can best be done through existing platforms, e.g. the “Green KDP” program and the emerging “Green Urban Poverty Program”, both within the government’s community empowerment framework (PNPM). A second option would be to develop an investment operation that provides: a) grants for locally-prioritized environmental infrastructure and services for those local governments that receive high performance scores from the national rating system (Bangun Praja), and b) technical assistance for the poor-scoring local governments that have the political will to improve and qualify for grant assistance. By focusing on local level needs for environmental management capacity, the Ministry of Finance could on-grant funds to local government as environmental improvement would qualify as a non-revenue generating activity.
Climate change. The World Bank is one of several actors that have been active in climate change issues over the past fi ve years. This has included: a) implementing activities with the GEF climate change mitigation program; b) raising awareness
about CDM opportunities; and c) actively developing CDM projects for carbon fi nancing. Given the context described above, there is now a unique opportunity to increase our engagement and eff ectiveness in helping Indonesia to tackle climate change issues. Each of the following strategic pillars builds on one of these comparative advantages with the objective of supporting Indonesia’s ability to understand and respond to the key challenges presented by climate change.
Pillar 1: Increasing the focus on the costs and benefi ts of • adaptation. The Bank should use its convening and analytical powers to help stakeholders in Indonesia understand the issues and options faced by the country in adapting to global warming. The two fl agships for this pillar would be a) increasing the climate resilience of the World Bank’s investment portfolio and exploring possible stand-alone operations that fi nance investments in adaptation, and b) suport for the low-carbon growth strategy in order to identify diff erent development scenarios that enable economic growth while lowering the emissions intensity of development and incorporating the costs (and benefi ts) of adaptation.
Pillar 2: Enhancing the focus on avoided deforestation • and degradation. As forest and peatland degradation are the overwhelming sources of Indonesia’s greenhouse gas emissions, it is sensible to strengthen the Bank’s approach in this area. The objective should be to help Indonesia develop and implement its strategy for reducing emissions from deforestation and degradation, both through technical assistance and fi nancing of demonstration projects for REDD, sustainable forest management and conservation of forest carbon reservoirs.
Pillar 3: Building support for clean energy. • With energy-based emissions likely to overtake those from land use, there is an opportunity to increase World Bank support for clean energy. This would include initiatives to: a) promote more investment in renewable energy and especially geothermal power; b) support policies and programs to promote greater energy effi ciency in industries, transportation and buildings; and c) assistance to reduce carbon emissions from coal and petroleum products. Potential instruments include fi nancing from the Clean Technology Fund, lending for geothermal power expansion, growing the CDM portfolio, promoting clean fuels and technologies in the transport sector;, and supporting sector policies and reforms through development policy lending.
9.3.4 Adjusting to the New Challenges
In light of the CEA fi ndings on environmental governance and climate change, the World Bank can adjust the Country Partnership Strategy’s focus on sustainability in two ways. First, there is a need for new and strengthened partnerships. Enhancing environmental governance will require more direct work with local governments, civil society, parliamentarians,
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religious organizations, and general public awareness. Tackling climate change should involve new actors in Indonesia (the National Climate Change Council, the Indonesia Climate Change Trust Fund and other local fi nancing mechanisms, and the Disaster Management Agency system for the linkages between adaptation and disaster risk reduction). Beyond Indonesia, the World Bank can help facilitate Indonesia’s access
to new sources of climate fi nancing such as the GEF Adaptation Fund, the Climate Investment Funds and the Forest Carbon Partnership Facility. Second, there are new opportunities for the World Bank to invest in a more sustainable Indonesia. Some of these are summarized in Table 9.3, beginning with a base case; a fuller table with more ambitious scenarios is presented in the annex.
Table 9.2. Engagement Areas and Activities
Engagement Areas and Activities (Base Case) Potential Partners
Environmental Governance
AAA
• Strategic environmental assessment on climate change for Greater Jakarta• TA for setting up Green Urban Poverty Program (UPP) • Study on harmonization of the decentralization framework for environmen-
tal managementGRANT FUNDING
• Continued scale-up of Green Kecamatan Development Program• Public awareness campaign(s) on key environmental issues(s)DIALOGUE/CONVENING
• Increased consultation & involvement with mass media, legislature & reli-gious organizations
Min. of Environment, local governmentsMin. of Public WorksMin. of Environment, local authorities
Min. of Home Aff airsNGOs, mass media
NGO as facilitator
Adaptation to Climate Change
AAA
• Mapping of climate change vulnerability at the national scaleGRANT FUNDING
• Activities to link adaptation and disaster risk reduction agendas (GFDRR grant)
DIALOGUE/CONVENING
• Donor coordination for TA, capacity building & investment on adaptationINVESTMENT LENDING
• Mainstreaming of climate resilience as part of overall investment portfolio
Disaster Mgmt. Agency (BNPB)
Bappenas, BNPB, Nat’l Council (DNPI)
Bi- and multilateral donors & NGOs
World Bank & co-fi nanciers
Land Use and Climate Change
AAA
• TA for implementation of REDD Readiness Plan at national level• Regional support for continued forest law enforcement & governance work• Identify Forest Investment Program investment program (with ADB and IFC)• Analysis of wetlands/peat issues related to carbon emissions (WACLIMAD)GRANT FUNDING
• Management of Indonesia Forest Carbon Trust Fund with AusAID resources• Expansion of ecological restoration concessions with new GEF grant• Extension and expansion of Aceh Forest and Environment Project (MDF
grant)
Min. of ForestryMin. of Forestry, ASEANMin. of Forestry, private sectorProvincial & district governments
Central Kalimantan, AusAIDBurung Indonesia, Min. of ForestryNAD government
Energy and Climate Change
AAA
• Low carbon options study with emphasis on energy-related issues and op-tions
• Develop Clean Technology Fund investment program (with ADB and IFC)GRANT FUNDING
• Removing barriers to investing in geothermal power (existing GEF grant)INVESTMENT LENDING
• Geothermal power generation loan with Clean Technology Fund
Min. of Finance, DNPIVarious government & private partners
Min. of Energy & Mineral Resources
Pertamina
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ANNEX: Business Plan Scenarios for Increased World Bank Involvement
Base Case Medium Engagement (Base Case +)
High Engagement(Medium Engagement +)
Environmental Governance
AAA
• Strategic environmental assessment on climate change for Greater Jakarta
• TA for setting up Green Urban Poverty Program (UPP) with Ministry of PW
• Study on harmonization of the decentralization framework for NRM
GRANT FUNDING
• Continued scale-up of Green Kecamatan Development Program
• Public awareness campaign(s) on key environmental issues(s)
DIALOGUE/CONVENING
• Increased consultation & involvement with mass media, legislature & religious organizations
AAA
• Support to Ministry of Environment for Sumatra spatial planning initiative
• TA to local governments to strengthen AMDAL and other environmental functions
• Engagement on land resource access and tenure rights at the local level
• Targeted environmental awareness events for legislators, mass media and religious organizations
GRANT FUNDING
• Expansion of reputational ranking programs in KLH (PROPER, Adipura, MIH)
• Pilot fi nancing for Green UPP in select urban areas with Ministry of Public Works
AAA
• TA for strengthening local enforcement of NRM and environmental regulations
• Development of environmental fi scal reform measures
INVESTMENT LENDING
• LG block grants based on environmental performance and for capacity building
• Financing for mainstreaming Green KDP and UPP in next PNPM lending
• Inclusion of environmental fi scal reform measures in DPL series
• Expansion of environmental curriculum through education sector programs
Adaptation to Climate Change
AAA
• Mapping of climate change vulnerability at the national scale
DIALOGUE/CONVENING• Donor coordination for TA, capacity
building & investment on adaptation
GRANT FUNDING
• Activities to link adaptation and disaster risk reduction agendas (GFDRR grant)
INVESTMENT LENDING
• Mainstreaming of climate resilience as part of overall investment portfolio
AAA
• Detailed mapping of climate change vulnerability in highest-risk areas
• Assist Bappenas to develop a national adaptation needs assessment & investment program
GRANT FUNDING
• Co-fi nancing of adaptation activities with the Indonesia Climate Change Trust Fund
AAA
• Development of adaptation action plans with the most vulnerable localities
INVESTMENT LENDING
• Climate change adaptation soft loan with GEF Adaptation Fund inputs
Land Use and Climate Change
AAA
• TA for implementation of REDD Readiness Plan at national level
• Identify FIP investment program• Regional support for forest law
enforcement & governance work• Analysis of wetlands/peat issues related
to carbon emissions (WACLIMAD)
GRANT FUNDING
• Management of Indonesia Forest Carbon Trust Fund with AusAID resources
• Expansion of ecological restoration concessions with GEF grant
• Extension and expansion of Aceh Forest and Environment Project (MDF grant)
AAA
• TA for implementation of readiness programs in select provinces
GRANT FUNDING
• Execution of FCPF Readiness grant on behalf of Ministry of Forestry
• Co-fi nancing of ICCTF activities related to forestry and land use
DIALOGUE/CONVENING
• Donor coordination of diff erent approaches to reduce forest carbon emissions
AAA
• Palm oil issues and options paper
GRANT FUNDING/CARBON FINANCE
• Purchase carbon emissions reduction credits from 2-3 REDD demonstration projects with FCPF Carbon Fund money
INVESTMENT LENDING
• Soft fi nancing for REDD demonstration projects, sustainable forest management and/or conservation of forest carbon reservoirs with Forest Investment Program (with IFC)
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Energy and Climate Change
AAA
• Low carbon options study with emphasis on energy-related issues and options
• Develop Clean Technology Fund investment program (with ADB and IFC)
GRANT FUNDING
• Removing barriers to investing in geothermal power (GEF grant)
INVESTMENT LENDING
• Geothermal power generation loan with Clean Technology Fund
AAA
• Biofuels issues and options note• Study on removing barriers to investment
in other renewable energy sources
GRANT FUNDING/CARBON FINANCE
• New CDM projects for renewables and energy effi ciency/fuel substitution
• Co-fi nancing of ICCTF activities related to clean energy
INVESTMENT LENDING
• Loan(s) for energy effi ciency in the private sector (IFC)
INVESTMENT LENDING
• Clean technology investment program (with IFC and ADB)
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