BADAN KEBIJAKAN FISKAL KEMENTERIAN KEUANGAN RI Financing Indonesia's NDC Dr. Kindy Rinaldy Syahrir Deputy Director Center for Climate Change Financing and Multilateral Policy Fiscal Policy Agency, Ministry of Finance, Indonesia Jakarta, 30 November 2016
Contents I. Climate Change Development Policy II. Public Finance for Climate Change III. Fiscal Incentive to Leverage Private Finance for Climate Change IV. Accessing International Climate Finance BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI 2
1. DEVELOPMENT CONTEXT BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI 3
CLIMATE CHANGE IN INDONESIA’S DEVELOPMENT CONTEXT Indonesia’ s GHG emission is predicted to increase from Jeopardizing 2.1 to 3.3 GtCO 2 e between 2005 and 2030 (SNC, 2010) Sustainable Indonesia is vulnerable to changing climate. Potential Development economic loss due to climate change and climate disaster in 2100 is predicted 70% from GDP (WB,2010; ADB,2010) Indonesia’s commitment to reduce 29%-41% of its GHG Indonesia is a mega-biodiversity country. Biodiversity is a emissions by 2030 is to be development capital, but the full potential is undervalued aligned to the national and and it is decreasing (MoEF, 2014) sectoral development plans Estimate of the Need to finance Indonesia’s NDCs is for 2015-2020 US$68 billion for 2016-2020 BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI
CLIMATE CHANGE IN INDONESIA’S DEVELOPMENT (NDC2016) Projected BAU and emission reduction from each sector category GHG Reduction Annua1 GHG Emission GHG Emission Level 2030 Emission ‘ veragc % of Total BaU Average Growth Level (MTon CO2e) Growth (MTon CO 2 e) No Sector 2010* BaU 2000- (2010- 2012* MTon 2030) BaU CM1 CM2 CM1 CM2 CM1 CM2 CO2e 1 Energy* 453.2 1,669 1,355 1,271 314 398 11% 14% 6.7% 4.50% 2 Waste 88 296 285 270 11 26 0 .38 % 1% 6.3% 4.00% 3 1PPU 36 69.6 66.85 66.35 2.75 3.25 0.10% 0.11% 3.4% 0.10% 4 Agricuiture 110.5 119.66 110.39 115.86 9 4 0.32% 0.13% 0.4% 1.30% 5 Forestry** 647 714 217 64 497 650 17% 23% 0.5% 2.70% TOTAL 1,334 2,869 2,034 1,787 834 1,081 29% 38% 3.9% 3.20% *Including fugitive **Including peat fire CM1= Counter Measure (unconditional mitioation scenario) Notes: CM2= Counter Measure (conditional mitigation scenario) BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI
2. Climate Public Finance Strategy BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI 6
Overview of Climate Finance • Climate Finance: financial resources invested in mitigation and adaptation measures through financial instruments including loans , grants and guarantees , which have helped leverage additional private finance • Sources: public, private & intermediaries • Instruments: range of tools, mechanisms and modalities • Uses: mitigation vs. adaptation • Readiness: plan, access, deliver, monitor BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI
Public Sources & Intermediaries • US$ 137 Billion, or 42%, of total $331 Billion climate finance flows in 2014 (Source: CPI Global Landscape of Climate Finance, 2014) • Ministries & Government Agencies National strategies & • Bilateral Aid agencies policy frameworks • Export Credit Agencies conducive to • UN institutions investment • Development Finance Institutions Technical assistance, • Multilateral Development Banks (MDB) financial instruments • National Development Banks (NDB) & specialized • Bilateral Financial Institutions (BFI) knowledge • Climate Funds • Global Environment Facility (GEF) Grants & loans at • Adaptation Fund (AF) concessional terms • Climate Investment Funds (CIF) (finite lifetime, • Green Climate Fund (GCF) sectoral focus) BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI
Public Finance for Climate Change Indonesia’s Actions towards Sustainable Development Indirect Influences Fiscal Policy (Ministry of Finance) Int’l Institutions & Technology Policy, Mechanisms Strategic Industries Policy Tools Available For Influencing IFI Policies, Global Funds, Tech. Transfer Climate Change Mitigation / Adaptation Carbon Mkts, Debt swaps R&D, Trade, dll By managing Can influence: • Investment climate • Incentives • Pricing (fiscal) policies • Investments • Direct spending • Industry BUDGET • Risk and financial mkts • Int’l $ flows CONTROL • Sectoral rules & law • Pro Poor Approaches Taxes / Subsidies Financial/Investment Expenditure Policies Direct Regulation Policies • Strategic Budget • Enforcement / • Tax/Fees/Charges Priorities • Invest Climate (attract Incentives capital) • Royalties/Rent Capture • Zoning and Land Use • Direct Investment • Banking Sector • AMDAL/ Env Audit • Subsidies/Tax breaks • Public Service • Building / Design Obligation • Non Bank Finance Standards Inst’s • Vehicle Emission Stds • Green Procurement • Municipal Finance • Education – Awareness Rules BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI
Budget Priority Actions for Effective Climate Finance Indonesia’s Actions towards Sustainable Development GREEN PLANNING & SCORING & BUDGET TAGGING: BUDGETING PERFORMANCE-BASED BUDGETING Tracking climate Issuance of fiscal policies, and change-related mechanisms for financing Prioritization of climate direct and indirect prioritized and effective activity based on cost- activities climate change activities. effectiveness including Priorities 29% BAU poverty and gender • Forestry, Peat-land & benefits. Marine Resources protection • Agriculture and Irrigation Monitoring effectiveness & system rehabilitation efficiency of expenditure. • Energy and Industry • Public Transport, Urban & Regional Infrastructure • Education and Health • Disaster Management BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI
Public Finance Instruments for Climate Change Indonesia’s Actions towards Sustainable Development BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI
Public Finance for Climate Change International Climate Finance: - REDD+ - GCF - GEF - Bilaterals - Technology BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI
BUDGET TAGGING OF CLIMATE CHANGE MITIGATION Key Program Outcome Performance (Quantitative or Indicators Qualitative Target) Activity Activity Output Performance (Volume, Type and Unit) Indicators Component Tematik Anggaran: Climate 1. MDG’s -1 : Poverty Alleviation; Sub Component Change 2. MDG’s -2 : Basic Education; 3. MDG’s -3 : Gender Equality and Women Mitigation Empowerment; 4. MDG’s -4 : Child Mortality Rate; 5. MDG’s -5 : Mother Health; Account (6 digit) 6. MDG’s -6 : HIV/AIDS, Malaria, and Other Expenditure Diseases Alleviation; 7. MDG’s -7 : Environment and Climate Change; Detail 8. MDG’s -8 : Global Cooperation; 9. Infrastructure; 10. Public Private Partnership; 11. South-South and Triangular Cooperation. 12. Adaptation (CC) BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI 13 13.Mitigation (CC )
3. FISCAL INCENTIVE TO LEVERAGE PUBLIC FINANCE BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI 14
Private Sources & Intermediaries • US$ 193 Billion, or 58% , of total $331 Billion climate finance flows in 2014 • Project Developers: national/regional utilities, independent power producers, renewable energy • Corporate Actors: manufacturers, corporate end-users • Private Households: family level economic entities, high net worth individuals • Institutional Investors: insurance companies, pension funds, endowments • Commercial Financial Institutions • Private Equity, Venture Capital & Infrastructure Funds BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI
Fiscal Policies for Climate Change Revenue Expenditure Financing Government Capital Central Fiscal Incentive Government Private Sector Income Tax Facility Ministry of Energy and Mineral Resource PPP VGF VAT Facility Deconcentration Fund Direct lending Import Duty Subsidiary Loan Local Government Guarantee Transfer to the regions SLA Specific Allocation Fund and General Allocation Fund Revenue Sharing Fund BADAN KEBIJAKAN FISKAL - KEMENTERIAN KEUANGAN RI 16
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