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International finance far from sufficient for Indonesia to reduce emissions: study

  • Indonesia will have to come up with its own financing programs to have a chance of meeting its carbon emissions reduction target by 2030, according to a new study.
  • The government calculated that it needed $323 billion in funding from the international community to cut emissions by 41%, but only received $6.4 million between 2007 and 2019, according to the ‘study.
  • He found that Indonesia faces challenges in accessing international climate grants, with donors often prioritizing their own interests or preferring low-income countries over Indonesia.
  • A potential source of funding could be the sale of government debt which is a combination of environmental (green) bonds and Islamic-compliant bonds, known as sukuk, according to the study.

JAKARTA — Indonesia, a top emitter of greenhouse gases, will need far more than the international funding it has already been promised to meet its carbon reduction targets, according to a new study.

As part of its commitment to the Paris climate agreement, known as the Nationally Determined Contribution (NDC), Indonesia plans to reduce its emissions by 29% by 2030 compared to the projection of the status quo. With international funding, or the “conditional” scenario, the target increases to 41%. To achieve the latter, the Indonesian government has calculated that it will need $322.86 billion.

But between 2007 and 2019, it only received $6.4 million in international climate finance support, mostly in the form of loans, according to finance ministry data. To fill this massive gap, Indonesia will need to develop innovative means of independent financing, according to the study by researchers from the Bandung Institute of Technology (ITB).

“The Indonesian government needs a huge amount of climate finance to achieve these goals,” they write in their article in the newspaper. Environmental science and policy. “However, the [government] still faces challenges in bridging the gap between the availability of climate finance and the funds needed to reach the goal [emissions reduction] target.”

A wind farm on the island of Sumba, in the province of Nusa Tenggara, Indonesia. Image by Basten Gokkon/Mongabay.

To arrive at the figures, the researchers analyzed data obtained from interviews and discussions with key officials from the Ministry of National Development Planning, the Ministry of Energy and Mineral Resources, and the Ministry of Foreign Affairs, Global Green Growth Institute based in South Korea. , and an anonymous multinational geothermal energy company between December 2020 and December 2021.

They found that the Indonesian government faced challenges in accessing international climate grants, as donors often prioritized their own interests. The authors also said that international grants are generally given priority to lower-income countries than Indonesia, which is a member of the G20 group of the world’s largest economies.

Thus, donations represented only 4% of the $6.4 million in funding pledged by the international community. The rest was in the form of loans, which the researchers said the Indonesian government preferred because the social and economic benefits were greater than the grants. “However, this type of instrument poses problems for developing countries because the loans must be repaid over time and are added with interest,” they write.

An acacia plantation adjoins a natural forest in the province of Riau on the Indonesian island of Sumatra. Image by Rhett A. Butler/Mongabay.

In 2009, industrialized countries pledged to provide $100 billion per year by 2020 to the least industrialized countries to reduce their emissions and to the most vulnerable countries to overcome the negative impacts of climate change. However, the maximum they were able to disburse was $78.9 billion in 2018. The failure of the 2009 pledge was mainly attributed to the lack of a system to accurately track funding instruments .

Given these limitations surrounding international climate finance, the study says, Indonesia cannot rely solely on support this quarter and needs to create new independent finance programs to meet its emission reduction targets.

Bond sales could be key, the document says, especially the unique combination of environmental (green) and Islamic-compliant (or sukuk) bonds. In 2018, the Indonesian government raised $1.25 billion through the issuance of such an instrument, hailed as the world’s first sovereign green sukuk. Funds raised through such an instrument are used to fund government projects that are both environmentally friendly and compliant with Islamic finance laws. But some observers have raised concerns about the convoluted system for identifying eligible projects, and also noted the challenge of implementing green financing.

“[A] A more innovative climate change financing strategy could include the following sources of finance,” the new study states, “such as the non-public sector through banks, capital market and securities instruments to attract financing national and international”.

Quote:

Suroso, DSA, Setiawan, B., Pradono, P., Iskandar, ZS and Hastari, MA (2022). Revisiting the role of international climate finance (ICF) in achieving the nationally determined contribution (NDC) target: a case study of the Indonesian energy sector. Environmental science and policy, 131, 188-195. doi:10.1016/j.envsci.2022.01.022

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Article published by Hayat


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