Report No. 50762 - ID Sustainable Development, East Asia and Pacific Region INVESTING IN A MORE SUSTAINABLE INDONESIA COUNTRY ENVIRONMENTAL ANALYSIS 2009 INVESTING IN A MORE SUSTAINABLE INDONESIA COUNTRY ENVIRONMENTAL ANALYSIS 2009 © 2009 The World Bank Group October 2009 Printed in Jakarta, Indonesia All rights reserved The World Bank Group World Bank Office Jakarta 1818 H St. NW Indonesia Stock Exchange Building Washington, DC 20433 Tower 2, 12th floor USA Jl. Jenderal Sudirman Kav. 52-53 Tel: 1-202-473 1000 Jakarta 12190, INDONESIA Fax: 1-202-477 6391 Tel: 62-21-5299-3000 www.worldbank.org Fax: 62-21-5299-3111 www.worldbank.org/id Investing In a More Sustainable Indonesia This study was prepared by the Indonesia Sustainable Development Unit of the Sustainable Development Department, East Asia Pacific 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 Pacific 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 findings, interpretations and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. ii 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. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. 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Printed on cyclus offset (recycled paper) Abbreviations ADB = Asian Development Bank DALYs = Disability-Adjusted Life Years ADIPURA = Clean City Program DFID = Department for International Development ADO = Automotive Diesel Oil DHS = Demographic and Health Survey APHI = Asosiasi Pengusaha Hutan Indonesia DKP = Departemen Kelautan dan Perikanan (Ministry (Association of Indonesian Forestry of Maritime and Fisheries) Businessmen) DNPI = Dewan Nasional Perubahan Iklim (The API = Air Pollution Index National Council for Climate Change) APROBI = Asosiasi Produsen Biofuels Indonesia DPL = Development Policy Loan (Indonesian Biofuel Producers Association) DPR = Dewan Perwakilan Rakyat (House of ARI = Acute Respiratory Infection Representative) AusAID = Australian Agency for International DR = Dana Reboisasi (Reforestation Fund) Development DSM = Demand Side Management BAPPEDA = Badan Perencanaan Pembangunan Daerah EAP = East Asia Pacific Region (Regional Planning and Development Boards) EIA = Environmental Impact Assessment BAPPENAS = Badan Perencanaan dan Pembangunan Nasional (National Development Planning ENRM = Environment and Natural Resources Agency) Management BKSP = Badan Kerjasama Pembangunan (Greater FAO = Food and Agriculture Organization Country Environmental Analysis Jakarta Coordination Board) FCPF = Forest Carbon Partnership Facility BLU = Badan Layanan Umum (Public Services Agency GDP = Gross Domestic Product Unit) GEF = Global Environment Facility BPPT = Badan Pengkajian dan Penerapan Teknologi (The Agency for the Assessment and GEG = Good Environmental Governance Application of Technology) GFDRR = Global Facility for Disaster Reduction and CAIT = Climate Analysis Indicators Tool Recovery CCGT = Combined Cycle Gas Turbine GHG = Green House Gas CDM = Clean Development Mechanism GIS = Geographic Information System CEA = Country Environmental Analysis GNI = Gross National Income iii CED = Carbon Emissions Decomposition GNKL = Gerakan Nasional Kehutanan dan Lingkungan (National Movement for Forestry and the CI = Conservation International Environment) CIESIN = Center for International Earth Science GOI = Government of Indonesia Information Network GTZ = Gesellschaft für Technische Zusammenarbeit. CNG = Compressed Natural Gas HPH = Hak Pengusahaan Hutan (Natural Forest CO2 = Carbon Dioxide Concessions) COPD = Chronic Obstructive Pulmonary Disease HTI = Hutan Tanaman Industri (Industrial Forest COREMAP = Coral Reef Rehabilitation and Management Area) Program IAP = Indoor Air Pollution COW = Contract of Works IBSAP = Indonesia Biodiversity Strategy and Action CPS = Country Partnership Strategy Plan CSO = Civil Society Organization ICCTF = Indonesia Climate Change Trust Fund CVO = Civil Voluntary Organizations ICEL = International Center for Environmental Law DAK = Dana Alokasi Khusus (Special Allocation Fund) IDR = Indonesian Currency DANIDA = Danish International Development Agency IDPL = Infrastructure Development Policy Loan IEA = International Energy Agency OECD = Organization for Economic Co-operation and Development IFC = International Finance Corporation (a member of the World Bank Group) PCN = Personnel certification in non-destructive testing IFCA = Indonesia Forest Climate Alliance PEACE = Pelangi Energi Abadi Citra Enviro, PT IFES = International Foundation for Election System PLN = Perusahaan Listrik Negara (State-owned IHPH = Iuran Hak Pengusahaan Hutan ( Fee paid for Electricity Company) the right to harvest timber ) PM10 = Particulate Matter 10 m IHH = Iuran Hasil Hutan (Forest Royalty Fee) PNPM = Program Nasional Pemberdayaan Masyarakat IHHT = Iuran Hasil Hutan Tambahan (Additional Forest (Community Driven Development Royalty Fee) Programme) IIED = International Institute for Environment and PROKASIH = Program Kali Bersih (Clean River Programme) Development PROPER = Program Penilaian Peringkat Kinerja IIEE = Indonesian Institute for Energy Economics Perusahaan Dalam Pengelolaan Lingkungan ILGR = Initiatives for Local Governance Reform (Industrial Performance Rating Program) ILGRIP = Initiatives for Local Governance Reform Project PSO = Public Service Obligation Investing In a More Sustainable Indonesia INFORM = Indonesia Forest and Media Campaign REDD = Reducing Emissions from Deforestation and Monitoring and Evaluation Forest Degradation in Developing Countries IPCC = Intergovernmental Panel on Climate Change REDDI = Reducing Emissions from Deforestation and Forest Degradation in Developing Countries JICA = Japan International Cooperation Agency Initiative KAP = Knowledge, Attitudes and Practices RPJM = Rencana Pembangunan Jangka Menengah KDP = Kecamatan Development Program (Government's Medium Term Development Plan) KGRIP = Kabupaten Governance Reform and Initiatives Program SO2 = Sulfur Dioxide Kl = Kilo Liter TA = Technical Assistance KLH = Kementerian Lingkungan Hidup (State UN = United Nation Ministry of Environment) UNDP = United Nation Development Program KWh = Kilo Watt per Hour UNFCCC = United Nations Framework Convention on LPG = Liquefied Petroleum Gas Climate Change iv MDF = Myotonic Dystrophy Foundation UPP = Urban Poverty Program MDG = Millennium Development Goals USAID = United States Agency for International Development MFP = Multi stakeholder Forestry Programme USD = United States Dollar MIH = Menuju Indonesia Hijau (Towards a Green Indonesia, a program of the Ministry of USDRP = Urban Sector Development Reform Project Environment) VSL = Value of Statistical Life MSY = Maximum Sustainable Yields WACLIMAD = Water Management for Climate Change MtCO2 = Million ton of Carbon Dioxide Mitigation and Adaptive Development in the Lowlands MW = Mega Watt WALHI = Wahana Lingkungan Hidup Indonesia (Friends MOFr = Ministry of Forestry Of Earth Indonesia) NEEDS = National Economic and Environmental WB = World Bank Development Study WDR = World Development Report NGO = Non Government Organization WHO = World Health Organization NOx = Nitrogen Oxide WRI = World Resources Institute NRM = Natural Resource Management WWF = World Wide Fund for Nature 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 Significance and Costs of Environmental Degradation 9 2.3 Summary of Degradation Costs 13 2.4 Distributional Consequences of Environmental Degradation 14 Country Environmental Analysis 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 v 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 Affecting 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 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 Benefits 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 Investing In a More Sustainable Indonesia 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 vi bibliography 90 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 Country Environmental Analysis 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 Classifications 12 vii 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 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 Refining 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 Investing In a More Sustainable Indonesia 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 viii 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 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 firm of PT Qipra Galang Kualita. Giovanna Dore (EASRE) assisted with management of the task during the first 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 financial support of the CEA Trust Fund managed by Poonam Pillai (ENV) and for World Bank budget support from the EASIS work program. Country Environmental Analysis ix Investing In a More Sustainable Indonesia x Executive Summary Country Environmental Analysis xi Rice fields (World Bank Collection) Photo: Curt Carnemark 1. The objective of this Country Environmental Analysis (CEA) have evolved to embrace democracy and decentralization. is to highlight the underlying challenges and opportunities Similarly, there is an impressive set of laws, policies, for Indonesia's environment and management of its programs, and national as well as local institutions that natural resources in order to guide World Bank support to are responsible for environmental and natural resource Indonesian institutions for more sustainable development. management. Over the past decade, many aspects Thus, it is important to clarify at the outset that the CEA of environmental management and natural resource is not a "State of the Environment" Report ­ this type of management have been decentralized to the local level. environmental stocktaking is a regular publication of the Greater local control has had positive aspects through Ministry of Environment and can be found at www.menlh. reputational programs, greater political will, inter- go.id. Rather, the CEA sets the broader context (Chapter agency collaboration, community empowerment, and 1) and economic costs of environmental degradation integration of environment in spatial planning. At the (Chapter 2) in order to identify underlying challenges same time, decentralization has resulted in obstacles to and opportunities. These are divided into two sets of good environmental management, including: inadequate priorities ­ those related to environmental governance standards and enforcement; problems with incentives, and those that are more sectoral in nature. Environmental empowerment and insufficient capacity; and specific governance encompasses the decentralized framework for issues with forestry, fisheries and environmental impact environmental management (Chapter 3), enabling policies assessment. Options for improvement exist, including for greater environment and resource sustainability geography-based environmental management, improved (Chapter 4) and building environmental constituencies governance, financial management and incentives, and Investing In a More Sustainable Indonesia (Chapter 5). The sectoral challenges that are most clarification of central-local roles on environmental issues. important for Indonesian development are vulnerability to climate change (Chapter 6), land use and climate change 4. Enabling policies for sustainable development (Chapter (Chapter 7) and energy and climate change (Chapter 8). 4). Indonesia's spending for environmental purposes has The report concludes with options for a more sustainable been relatively low for most of the decade, environmental Indonesia, including recommendations for how the World revenue collection has been low and natural resources Bank can more effectively invest in light of the CEA findings have been underpriced. Fuel and electricity subsidies (Chapter 9). enhance overconsumption, burden the budget and benefit higher income groups, while making it difficult 2. Why bother about environmental sustainability? for renewables to compete. Legal and financial incentive "The Economics of Environmental Degradation" (Chapter structures have not been effective in curbing illegal 2) indicates that natural capital constitutes about one logging and slowing down deforestation as well as quarter of Indonesia's total wealth but this capital is being degradation. Policy distortions in fishing and mining have rapidly depleted while not being offset by commensurate contributed to unsustainable harvesting patterns and investments in human or produced capital. The economic illegal mining activities. In all sectors, policy distortions consequences of climate change represent the highest arise from conflicting sector-based regulations and potential cost to Indonesia's economy in the long term, national laws, especially those involving decentralization. xii amounting to annual losses of between 2.5 and 7.0 percent These policy distortions could be overcome through an of GDP by the end of the century. Inadequate water and environmental fiscal policy reform that uses taxation and sanitation constitute the largest short-term cost to the pricing instruments to raise revenues but also to provide Indonesian economy, estimated at more than $6 billion in incentives for more sustainable behavior. 2005 or more than 2 percent of GDP. The health impacts of outdoor and indoor air pollution have been estimated 5. Building constituency, awareness and critical at $4.6 billion per year or about 1.6 percent of GNI. partnerships (Chapter 5). The environment is on the Significant economic losses are also caused by other types radar screen of the Indonesian population, especially of environmental degradation, especially deforestation, issues concerning water (pollution, floods, droughts), soil depletion, and coastal/marine degradation. In total, cities (cleanliness, solid waste, air quality) and forests environmental degradation costs are likely to grow in the (degradation, illegal logging, fires). The GOI has policies, future and are currently on par with the average annual investments and programs for these public priorities, but growth rate. This is even more relevant when one considers their persistence as public concerns is one indicator that that environmental costs disproportionately impact the they have not been adequately addressed. The GOI is also poor. In short, management of the environment matters pursuing areas that are not yet public priorities, e.g. climate to Indonesia's economic and social development. change, coastal and marine resources, biodiversity, clean energy, and hazardous wastes, indicating a low level of Environmental Institutions, Policies and public awareness. Partnerships are needed with four key Governance Matter actors who can bridge environmental communications between the government and the public: the mass media, 3. A challenging institutional setting of decentralization civil society organizations, the legislature, and religious (Chapter 3). Indonesian laws, policies and institutions organizations. Promoting public participation and increasing awareness are essential for any development 8. Energy and climate change is an emerging challenge partnership that seeks to build effective demand for (Chapter 8). In the future, fossil fuel emissions will be a environmental sustainability. greater concern than forest and land use emissions. With current energy subsidies, it will be more difficult to Climate Change is a New National Priority promote efficiency, cleaner technology or innovation for environmental and climate benefits. Indonesia uses 6. Adaptation is a priority because of Indonesia's fuel and electricity inefficiently and in excess. On the vulnerability to climate change (Chapter 6). Specific other hand, the country has the world's largest potential areas of Indonesia are highly vulnerable to multiple for developing geothermal power, sustainable biofuels climate change hazards (drought, floods, landslides, sea- and other renewables (hydropower, wind, solar, and level rise). While temperature may only increase modestly, biomass). While fossil fuel GHG emissions per capita more intense rainfall and sea-level rise will negatively and emissions intensity are low, they are increasing affect food security, water resources, coastal areas, farming rapidly. Industry is currently the largest source of carbon and coastal livelihoods, forests, marine biodiversity, and emissions, the transport sector is the largest user of liquid health. People and ecosystems are especially vulnerable fuels and petroleum is currently the main contributor to climate risks on Java, Bali, parts of Sumatra, and a large to CO2 emissions. Even assuming a decrease in energy area of Papua. Climate change will have the most impact intensity, emissions from energy consumption will triple on the poorest Indonesians who are more likely to be: by 2030 from 2005 levels. Mitigating these emissions will living in marginal areas that are susceptible to drought, require more realistic energy pricing, a more enabling flooding and/or landslides; dependent on climate-sensitive environment to develop renewable energy resources, and agriculture or fisheries for their livelihoods; and have fewer greater efficiency in the industrial, power, manufacturing assets to cope with the impacts of a changing climate. The and transport sectors. annual benefit of avoided damage from climate change is Country Environmental Analysis likely to exceed the annual cost by 2050 and, by 2100, the 9. Options for investing in a more sustainable Indonesia benefit could reach 1.6 percent of GDP, compared to the (Chapter 9). A more sustainable Indonesia is one where: cost at 0.12 percent of GDP. Many adaptation options exist to help reduce Indonesia's vulnerability to climate change · The costs of environmental degradation and climate which will need to be phased and prioritized according to change are lowered so that less wealth is diverted the magnitude of costs, benefits and risks. from growth 7. Land use and climate change constitute a recognized · Good environmental management contributes to sectoral challenge (Chapter 7). High rates of poverty alleviation by reducing impacts on the poor deforestation, illegal logging, forest fires, and peatland and better sharing of benefits degradation constitute the single largest source of Indonesia's greenhouse gas emissions and have made · Renewable resources are used sustainably while non- it one of the world's principal emitters. 10 provinces renewable ones are wisely developed for investment account for 78 percent of dry forest loss and 96 percent in human and physical capital xiii of swamp forest loss as well as related emissions, with just Riau, Central Kalimantan and South Sumatra accounting · Citizens are aware of and participating in for over half of all losses and emissions. Although there is environmental issues directly or through their uncertainty about the magnitude of such emissions, there representatives and other organizations. is consensus that forestry and land use are key priorities for mitigation. The policy and institutional issues, driving Options for moving toward this vision exist in both the forces, impacts, and development costs of forest and areas of environmental governance and climate change. land degradation have been well-known for many years These are summarized in the table below and key actors in Indonesia. "No regrets" options exist that should be are identified to move the agenda forward. The World pursued regardless of climate benefits, i.e. improved forest Bank has a long history of partnership with Indonesia on law enforcement, management and governance; realigned environmental and natural resource management issues. incentives for timber harvesting and processing firms to The ongoing engagement has centered on forestry improve sustainability; restructuring and revitalization of management and biodiversity conservation as well as forest sector industries, forest and land fire control, greater coastal and marine resources. Given the findings of the equity and transparency in forest/land use decisions, and CEA, there are opportunities for increased partnerships independent monitoring of legal compliance. Forest in the areas of environmental governance and climate climate finance such as REDD can provide an important change that are presented in the report's annex. incentive for implantation of these "no regrets" options. Options for a More Sustainable Indonesia Potential Partners Environmental Governance Ministry of Env., DPR, local govts. · Strengthen decentralized environmental governance through geography-based environmental management, local-level financial management and incentives, DPR, Ministry of Finance and a clarification of roles GoI, NGOs, DPR, media, religious orgs., Min. · Introduce more enabling policies by harmonizing laws and regulations, and of Env. undertaking an environmental fiscal reform agenda · Build constituencies by expanding awareness as well as access to environmental information, participation in policy and decision-making and justice Adaptation to Climate Change Relevant line ministries, Bappenas · Undertake reactive and proactive adaptation measures in the key areas of water resources, agriculture, forestry, coastal/marine, and health, including and in addi- Bappenas, line ministries, Ministry of Finance tion to what is currently contemplated Bappenas, Ministry of Finance, line minis- · Prioritize adaptation options by emphasizing "no regrets" actions that provide tries, local governments benefits even without climate change, buying safety margins for new invest- ments, and favoring reversible and flexible options · Implement a phased strategy to mainstream adaptation, including complemen- tary efforts to raise public awareness, undertake research, coordinate, strengthen local capacity, and increase the resilience of vulnerable groups Investing In a More Sustainable Indonesia Land Use and Climate Change Ministries of Forestry, Env., Agriculture, local · Implement "no regrets" options for forest law enforcement, management and govts., private sector governance, realigned incentives for timber harvesting, revitalization of forest sector industries on a more sustainable basis, control of forest fires, and greater Ministry of Forestry, DNPI, private sector accountability, equity and transparency in forest/land use decisions · Pursue new sources of forest carbon financing in order to support and accelerate the "no regrets" options Energy and Climate Change Ministry of Finance, DNPI · Be guided by high-level planning and coordination for a lower carbon develop- Ministry of Energy & Mineral Resources, PLN, ment scenario to reduce the emissions intensity of growth Pertamina, private sector · Go beyond existing plans to introduce more efficient energy pricing, encourage investment to develop renewable energy resources, accelerate energy efficiency in key emitting sectors, and take advantage of international financing mecha- nisms to offset the costs of some of these options xiv 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 Country Environmental Analysis CO2 emissions per capita (metric tons) 1.9 2.8 CO2 emissions growth (%, 1990-2005) 181.0 93.5 3 Particulate matter (urb wtd ave, ug/m ) 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 xv 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-five 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 Investing In a More Sustainable Indonesia xvi 1 Country En vi ro nm e n ta l An al ys is C o un t r Environmental Analysis al Co u n tr y E n v i r o n m en t a Anal s i s SECTION 1: Priorities for Sustainable Development SECTION 1: Priorities for Sustainable Development Investing In a More Sustainable Indonesia 2 Chapter 1: The Context for Analyzing Indonesia's Environment Fishermen (World Bank Collection) Photo: Curt Carnemark SECTION 1: Priorities for Sustainable Development 1.1 Key Characteristics of Indonesia's 1.2 A Tool for Investing in Indonesia's Environmental Challenges Institutions for Sustainability Inadequate environmental management is a challenge The new Country Partnership Strategy provides a window for Indonesia that hurts the poor and the economy. For of opportunity. The ongoing policy dialogue and operational example, total economic losses attributable to limited access engagement suggest that the World Bank could play a to safe water and sanitation are conservatively estimated at 2 fundamental role in advancing the environment and natural percent of GDP annually while the consequences of climate resources agenda in Indonesia by sustaining its efforts to change could cost the Indonesian economy between 2.5 and shift from a project-based approach to a programmatic one, 7 percent of GDP by the end of the century. The total cost of with a stronger focus on environment and natural resources environmental degradation, including climate change, is over management in the context of GoI decentralization, poverty 5 percent of GDP per year and likely to increase. These costs reduction and economic development programs. Therefore, are typically disproportionately borne by the lowest income the current phase of Bank engagement is intended to better groups because they are more likely to be exposed to pollution define the Country Partnership Strategy (CPS) core engagement and less likely to be able to afford mitigation measures. area on environmental sustainability, particularly in the context of a new GoI medium-term development plan and political Natural resource challenges have persisted and become administration. more complicated in the context of decentralization. As an example, the forest sector has long played a pivotal role in 1.2.1 Objectives Investing In a More Sustainable Indonesia supporting economic development, the livelihoods of rural people and the provision of environmental services. However, The initial objective of the CEA exercise was to influence these resources have not been managed in a sustainable or the CPS by mainstreaming environmental and NRM equitable manner. Turning this situation around will require concerns. As key messages from the CEA were included in the a new vision, led by the Government, of what a viable and CPS during preparation of this report, the CEA can now serve environmentally sound forestry sector might look like. as an instrument for further developing the core engagement area on environmental sustainability by embodying the CPS The country's administrative and regulatory framework philosophy of investing in Indonesia's institutions. In light of cannot yet meet the demands of sustainable development. this context and the approaching of significant milestones in This is in spite of a long history of support for policy and capacity the GoI business cycle, the CEA should strengthen and deepen development both from within the government and with the Bank's current understanding of environment and natural international donor support. Indonesia's ministries concerned resources management challenges, institutional and regulatory with environment and natural resources management have issues that bear directly on the sustainability of economic benefited from good national level leadership, and also from growth, their appropriateness and effectiveness in the context an active network of civil society organizations throughout of GoI policies priorities, and propose specific recommendations the country that are focused on environmental issues, with with short-to-medium term focus on how to achieve more significant advocacy experience. Yet, improving Indonesia's effective results on the ground. Thus, the revised objectives of 4 approach to environment and natural resources management the CEA are to support Indonesian policies and institutions for is difficult. more sustainable management of the environment and natural resources. Two immediate opportunities are to contribute to Implementation of policies and programs can mitigate the formulation of the new medium-term development plan progress towards more sustainable development. First, (2010-2014) and the policies of the new administration that will despite the substantial investment in environment and natural take office in the fourth quarter of 2009. resources policy and staff development, actual implementation of rules and procedures has been poor and slow due to weak 1.2.2 Phased Approach and Building Blocks commitment by sectoral agencies, low awareness in local departments and officials, and capacity challenges at all levels. The CEA is being carried out in three phases: scoping, Also, awareness about the expected negative environmental analysis and dissemination. The first phase of scoping the impacts of sustained economic growth and the mechanisms CEA was carried out between May and September 2007, and for stakeholders to hold government agencies accountable followed the preparation and review of the concept note for their performance are weak. Second, there is little which took place between February and April 2007. Phase integration of environmental considerations at the planning I was essentially a structured process for determining the and programmatic levels, especially in the public investment priority issues based on technical, economic, and societal rapid planning process and in regional plans for land and resource assessments. Also, it was meant to lay the foundation for more use. detailed stakeholder engagement and gap filling 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. SECTION 1: Priorities for Sustainable Development Consultative Process · Environmental degradation costs ­ a rapid assessment of the economic costs of environmental A series of consultative discussions with on environmental degradation was locally commissioned and upgraded issues and challenges in Indonesia were held between June with analysis by World Bank staff. and September 2007. These included meetings with key counterparts in Government, NGOs, and the donor community · Public awareness and perceptions ­ local working on environment and natural resources management consultants conducted a review of existing survey in Indonesia. The consultations involved a combination of data to assess public perceptions of environmental presentations and discussions particularly with civil society problems and priorities vis a vis GoI development and local and international NGOs, focused meetings with the priorities and strategies. Ministry of Environment, Ministry of Forestry, Ministry of Home Affairs, Ministry of Finance, Bappenas, and/or bilateral donors. · Decentralized environmental management ­ a review and analysis was prepared by an international The results of the ongoing consultation process signaled consultant to assess the context and consequences of strong interest issues related to environmental sustainability Indonesia's increasingly decentralized management in general. In particular, there was a focus on climate change of the environment. and its relevance for Indonesia, decentralized environmental management in terms of sharpening the definition of roles and Partnership and Dissemination responsibilities across tiers of government at national and local levels, and strengthening transparency and accountability The CEA involves a partnership with many stakeholders. for the implementation of laws and regulations pertaining The Ministry of Environment, Ministry of Forestry, Ministry to environment and natural resources management. It of Home Affairs, Ministry of Finance, Bappenas, and select also emerged that there is concern and interest for better local governments are among the lead counterparts for the Country Environmental Analysis public participation and a stronger voice for civil society in preparation the CEA. For some of these counterparts (e.g. environment and natural resources management. Ministry of Environment, Ministry of Forestry, Ministry of Home Affairs and local governments) the CEA will allow for In addition, the consultation process allowed for renewing and renewing and deepening existing partnerships. For others (e.g. deepening existing partnerships, and in the case of Ministry Ministry of Finance, Bappenas), the CEA serves as the basis for of Finance, and Bappenas, they are serving as the basis for strengthening the dialogue on governance in the environment strengthening the dialogue on governance in the environment and natural resources management sectors. This would and natural resources management sectors. In addition, the support and inform the capacity building efforts that GoI is ongoing consultative process is also serving the purpose of currently carrying out in collaboration with local governments, supporting and informing capacity building efforts that GoI is civil society and NGOs. 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 Building Blocks finalization and official release. In addition, the Indonesia 5 CEA exercise builds on the results and findings of ongoing Following the consultative process, a number of building programs of bilateral donors, particularly the work of DANIDA blocks were prepared or incorporated in order to construct and AusAID, to help strengthen the collaboration with other the overall analysis. Key building blocks included: donors active in Indonesia. A final consultation was held with GoI agency representatives in June 2009 to discuss the report's · Water and sanitation ­ following guidance from analysis and findings. management, the CEA team incorporated results from The Economic Impacts of Sanitation in Southeast Asia The third phase of the CEA will focus on dissemination of which was prepared by the EAP Water and Sanitation deliverables. This will include (but will not be limited to) a Program. dissemination workshop targeted on preparation of the new medium-term development plan and a public awareness · Climate change ­ the team was able to use workshop to disseminate information to a broader set of intermediate analyses being developed by the stakeholders. This document is being published in Indonesian Ministry of Finance, the National Climate Change and English. A series of policy notes are being prepared, based Council and the World Bank as part of the Indonesia on CEA findings, to share with the incoming government later Low Carbon Options Study. in 2009. A general brochure on the overall results of the CEA is also being published to summarize its main messages for a · Donor activities ­ a special report was commissioned broader audience. These documents will also be disseminated to review and assess donor activities related to the through other channels, including the Internet and the national environment and natural resources management, as well as local media to broaden accessibility of its analysis and to compare their support with GoI budgetary and conclusions. An effort is also being made to synchronize priorities. CEA preparation with the Asian Development Bank, with the opportunity for producing a joint CEA document in late 2009. SECTION 1: Priorities for Sustainable Development 1.3 Underlying Environmental Challenges Indonesia's environmental problems, from disaster risks to biodiversity conservation. Informed and The country's administrative and regulatory framework aware citizens can take individual action to address cannot yet meet the demands of sustainable development. environmental issues, and can form constituencies for This is in spite of a long history of support for policy and capacity improved efforts at the political and local government development both from within the government and with level. At a broader level, however, environmental international donor support. Indonesia's ministries concerned values are not deeply embedded in societal values with environment and natural resources management have and attitudes, leading to undervaluation of natural benefited from good national level leadership, and also from resources and environmental services. Participation an active network of civil society organizations throughout and voice in decision making is an essential element the country that are focused on environmental issues, with of good governance. Recent environmental disasters significant advocacy experience. Yet, improving Indonesia's (floods, mud, fires, erosion) have stimulated greater approach to environment and natural resources management environmental concern among the public at large, but is difficult. To date, issues that most seriously threaten progress further analysis of knowledge, attitudes and practices towards sustainable development in Indonesia include: would be needed to determine how far or deep this understanding goes outside of urban centers and · Gaps between policy and practice in decentralized what tools can best be used to build on this basic environmental management that could slow significant awareness. The importance of constituency, public improvement in environmental quality. Under awareness and critical partnerships is elaborated in Investing In a More Sustainable Indonesia decentralization, the extent to which sub-national Chapter 5. governments feel bound by national guidelines in more than a vague way is being put to the test; · Benefits, risks and costs (social, environmental and the civil service is no longer part of a unified chain economic) of alternative development paths in of command, regulatory bodies in many provinces a changing climate. Energy policy, forest sector and districts now fall directly under the command practices and climate change issues are intricately of the governor or district head, who is often also linked in Indonesia. Fossil fuels dominate energy the proponent of the projects or activities that must consumption in Indonesia both in rural and be regulated. Despite the substantial investment in urban areas and Indonesia is gradually increasing environmental policy and staff development, actual the proportion of energy produced from coal implementation of rules and procedures has been (approximately 40 percent in 2002). Indonesia is also poor. These problems are unlikely to get better under the second largest greenhouse gas emitter among decentralization unless a more effective approach to developing countries in the region; it generates regulation can be developed. Many provinces and nearly one-tenth of the world's greenhouse gases, districts are making new interpretations of existing mostly from logging and forest/peat swamp fires. rules, or else inventing entirely new regulatory National energy policies propose to increase reliance procedures. While some of these innovations on renewable energy sources, including biomass, 6 strengthen environmental controls, many relax geothermal, and hydropower. At the same time, them or bypass national standards entirely. These the GOI plans a large scale up in the use of coal to challenges are further developed in Chapter 3. reduce Indonesia's dependence on oil imports. Increased coal use would lead to significant negative · Perverse incentives that hinder the environmental environmental impacts associated with high sulfur sustainability. Natural resources are an important content and potential impacts on forests from land contributor to Indonesia's GDP and GOI budget. clearing. Alternative energy solutions are necessary Agriculture, forestry, and mining contribute about 25 for more remote areas that are appropriately priced percent of Indonesia's GDP and about 30 percent of and supported by the public sector. The relationship overall GOI budget revenue. Yet, Indonesia's economic between development and climate change is further policies appear to favor resource depletion over explored in Chapter 6 (adaptation to climate change), sustainable use as they reward district governments Chapter 7 (land use and climate change) and Chapter on resource revenue and not performance or 8 (energy and climate change). stewardship, subsidize fuel and electricity, and under-tax forestry and fisheries (relative to other To respond to these challenges, options for contributing to a natural resources). These fiscal and policy issues are more sustainable Indonesia through improving environmental assessed in Chapter 4. governance and responding to climate change are identified in Chapter 9, along with possible World Bank support. · Public perception of environmental issues and the Government's development priorities. Public awareness is an essential part of the effort to address Chapter 2: The Economics of Environmental Degradation Palm Oil Factory, Jambi Photo: Bayu Rizky SECTION 1: Priorities for Sustainable Development MAIN MESSAGES · Natural capital constitutes about one quarter of Indonesia's total wealth but this capital is being rapidly depleted while not being offset 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. · Significant economic losses are also caused by other types of environmental degradation, especially deforestation, soil depletion, and coastal/marine degradation. These have not been quantified due to lack of data. Investing In a More Sustainable Indonesia This chapter starts with an overview of the portfolio of wealth, Where is the Wealth of Nations? The approach is one of including natural wealth, available to Indonesia. It goes on to calculating the asset value across a portfolio, including the analyze the economic costs of environmental degradation, major natural assets1. to the extent that available data allows. In several cases, such data are not available and a more qualitative judgment The average Indonesian has a total wealth per capita of slightly about the significance of environmental degradation will below $14,000 (table 2.1). This measure includes natural wealth have to be made. A short section discusses the distributional in the form of land, forests and subsoil assets, and intangible consequences of environmental degradation, and in particular capital--such as human capital and institutional capital--in the impacts of climate change. The chapter concludes with a addition to produced assets such as buildings and machinery. ranking of environmental priorities from the perspective of the Natural capital constitutes a share of 25 percent of total wealth, World Bank. being even higher than the share of produced capital. This makes Indonesia different from the averages of its regional and 2.1 The Importance of Natural Capital for income group categories. Indonesia's Wealth A breakdown of the different types of natural capital ­ including This section provides an overview of the wealth of Indonesia, cropland and pastureland, timber and non-timber forest using the methodological approach of World Bank (2006c) resources, and protected areas ­ shows the critical importance 8 Table 2.1. Wealth Estimates for Indonesia Asset type Indonesia East Asia Lower & Pacific 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. 1 This section is an abridged and edited version of an unpublished note provided by Giovanni Ruta. SECTION 1: Priorities for Sustainable Development Figure 2.1. Natural Wealth Composition in Indonesia that fisheries are not included in the wealth estimates due to (percent, 2000) lack of data. Pasture land 1% Health damages from particulate matter emissions--a major Subsoil assets 45% 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 traffic increases. Economic growth, sectoral shifts in production, and technology changes will all impact the ultimate result in air pollution. Crop land 36% 2.2 The Significance and Costs of Environmental Degradation PA 5% NTFR 3% This section briefly discusses the available information about the Timber resources 10% magnitude of important environmental problems. Whenever possible, data on the costs of environmental degradation have Source: World Bank (2006c) and World Bank staff calculations. been included. of subsoil assets and crop land for Indonesia (Figure 2.1): 45 percent of natural wealth are subsoil assets while crop land 2.2.1 Climate Change accounts for 36 percent of natural wealth. Country Environmental Analysis As a tropical archipelago with a significant dependence on Natural wealth constitutes a potentially large pool of resources agriculture and natural resources, Indonesia is highly vulnerable where renewable resources can be managed to supply to the effects of climate change. The expected impacts of sustainable rents, and non-renewable resources can be climate change on Indonesia are many, and difficult to quantify channeled to create produced and human capital. The way at this stage (PEACE (2007) and ADB (2009)): natural capital is transformed into other forms of capital is therefore essential for Indonesia's development strategy. · Modest temperature increase: an increase in the annual mean of 0.30C has been observed since 1990. In order to develop policies for sustainable development, The annual mean temperature in the SE Asia region one must not only look at the composition of wealth but also is expected to rise by 4.80C by 2100 from the 1990 measure changes in its value. Broader measures of saving, level; which take into account capital accumulation as well as the depletion of natural resources, are useful in providing a clearer · More rainfall: an increase of about 2-3 percent is measure of a country's sustainability. expected, and coupled with a shorter rainy season, 9 the risk for flooding will increase; 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), · Crop production: soil fertility is expected to be once depreciation of produced capital, the depletion of natural reduced over time. Starting in 2020, rice yields are resources and damage from global and local air pollutants are expected to begin declining and could be 34 percent taken into account. There is reason to believe that even this is lower in 2100 as compared to 1990 levels. Other an underestimate, as the figure for net forest depletion does estimates (Cline, 2007) are less drastic, but point to not coincide with more credible estimates given elsewhere possible declines in agricultural productivity in the (see the more detailed discussion in Chapter 7). The driving order of 6-18 percent by 2080; forces behind this low adjusted net saving rate are high energy depletion and, to a lesser extent, mineral depletion that are not · Sea level rise: global mean sea level is projected to rise offset by higher savings in human capital or produced capital. by 28-43 cm (Nicholls et al in, 2007, in IPCC) or even Education expenditures are at 0.9 percent of GNI, which is 70 cm (ADB, 2009) by the end of this century relative very low compared to the relative income and regional group to the 1980-1999 and 1990 levels respectively. This averages. The policy message is that the current economic rise and storm surges coupled with land subsidence growth to a large extent is fueled by liquidating non-renewable is expected to increase damage to coastal areas; resources, but investing little in human capital, while inflicting sizable environmental costs. · Warming of the ocean will affect marine biodiversity: the 50,000 km2 of coral reefs represent almost one fifth Indonesia depends heavily on agricultural land resources, but of the global total, but only six percent are classified figures reported here do not include soil depletion, for which as "excellent" and further decline is expected; sufficient information is not available. It should also be noted SECTION 1: Priorities for Sustainable Development Table 2.2. Measures of Saving in Indonesia (% of GNI, 2006) National accounting aggregates, 2006 Indonesia East Asia & Pacific Lower middle income Gross saving 27.6 47.2 41.4 Consumption of fixed 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. · Public health: water-and vector-borne diseases are More than half of the total cost estimate above refers to Investing In a More Sustainable Indonesia expected to spread further and intensify. Meanwhile, impacts on health, which includes estimated of sanitation- public health management can be expected to related diseases (primarily diarrhea) converted into Disability- become more efficient in line with economic Adjusted-Life-Years (DALYs) and treatment costs. Impacts development. on water constitute about one quarter of the total cost, and includes household time spent treating drinking water, impacts The Asian Development Bank has recently estimated the on fish production, costs of flooding due to poor drainage, economy-wide cost of climate change in Indonesia as well impacts of the use of polluted water for irritation, and so forth. as three other SE Asian countries (ADB 2009). The results for The World Bank (2007a) study also includes estimates of time Indonesia indicate that, without global mitigation efforts, less in search of sanitation sites, impacts on land values, loss of the costs are relatively low in the medium term but rise tourist income and foreign direct investment. significantly in the longer run. By the end of this century, the annual economic cost for Indonesia could reach 2.5 percent While some of these estimates must be characterized as of GDP if only market impacts are considered; 6.0 percent of preliminary, it is clear that the magnitude of economic losses GDP if non-market impact is included; and 7.0 percent of GDP due to poor sanitation is quite significant. In a second phase, when catastrophic risks are taken into account. These figures the Economics of Sanitation Initiative intends to analyze the are much higher than the global averages due to the fact that costs and benefits of particular interventions. However, at this the country has relatively long coastlines, a high concentration stage, such data are not available specifically for Indonesia. 10 of people living along in coastal areas, a high dependence on agriculture and natural resources, a relatively low adaptive capacity, and a tropical climate. 2.2.3 Outdoor Air Pollution4 Available data on sources of outdoor air pollution are 2.2.2 Water, Sanitation and Hygiene2 somewhat dated, but the situation in 1998 showed a strong dominance of small particulate matter (PM10)5 and nitrogen Improved sanitation coverage is improving along with the oxide (NOx) emissions from vehicles, with some 70 percent in economic development, and has reached about 57 percent in both categories. Industry was responsible for about a quarter Indonesia in 2005. Focusing on human excreta management of emission of these two pollutants. For sulfur dioxide (SO2), and hygiene, a recent World Bank report (World Bank, 2007a) the situation was quite different, with industry responsible for has estimated the major health, water, tourism and other welfare more than 70 percent, and vehicles emitting about one fifth of costs associated with poor sanitation. The annual economic the total. 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 Air pollution monitoring is carried out in 10 cities in Indonesia. economic impacts are assigned to rural areas. Expressed in per This system provides information by way of an Air Pollution capita losses, the figure is about $29 per annum. Index (API) and ambient air concentrations. The development of the API is mixed across the nine cities for which data are 2 This section draws on World Bank (2007a) 3 This is recalculated from the source estimate of some $6 billion in 2005 using the inflation rates and GDP data from WDI (2009). 4 This section draws on ADB (2006), unless other sources are noted. 5 Particulate matter with a diameter of less than 10 m. SECTION 1: Priorities for Sustainable Development available, but five showed worsening air pollution in the early factor behind of indoor air pollution (IAP) (Desai et. al. 2004). In part of this decade. The concentration of PM10 in Jakarta Indonesia, approximately 44 percent of the households utilize shows levels of two to three times the WHO 2005 Air Quality firewood/straw for cooking (DHS, 2002/03). This percentage Guideline, but no clear trend from 2001 to 2005. Surabaya varies significantly between the rural (69 percent) and the shows a strongly increasing trend from 2000 and onwards, urban areas (16 percent). Similar percentage of households use reaching about five times the WHO Guideline level for PM10. On kerosene (44 percent), but the rural-urban gap is inverted. a more positive note, the removal of lead in gasoline beginning in 2006 is expected to strongly improve the situation with The most important health outcomes that have a strong respect to this pollutant. association with the use of solid fuels for cooking are acute respiratory infection (ARI) in children under 5 years of age and Outdoor air pollution, and particularly particulate matter, is chronic obstructive pulmonary disease (COPD) in adults. The strongly associated with several respiratory illnesses, resulting impacts will depend very much on the cooking environment, in increased morbidly as well as some premature mortality. For about which little is documented. Hence, Bojö and Nuñez the entire country, the Indonesia Environment Monitor 2003 (2008) use several different scenarios in their calculations of quotes an estimate of $400 million per year, but this figure is health impacts. not substantiated (World Bank, 2003)6. The cost of morbidity is estimated using a cost of illness An estimate of the cost of particulate emissions has been done approach (COI). This is composed of medical costs and the using the methodology of estimation of adjusted net savings value of time losses due to disease, but with no provision for (World Bank 2006c). Further detail on the derivation is given human suffering. The cost of premature mortality is estimated in WHO (2004) and in a forthcoming paper by Pandey et al. In using two different methods. One is based on the present value brief, a regression model is used that predicts the city-level of future income lost. The other is the VSL approach introduced concentration of PM10 based on information on population, in the previous section. Combining all these scenarios the result Country Environmental Analysis income level, economic activity, use of different types of energy is an estimated total cost (2007) for IAP of some $1.6 billion sources, climate and geomorphology. The model is developed with a lower bound of $0.5 billion and an upper bound of $2.7 from actual annual average PM10 and Total Suspended billion. The central estimate is equivalent to about 0.4 percent Particulates (TSP) measurements from population-oriented of Indonesia GDP in 2007. 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 2.2.5 Forests7 the contributions of three pollution-related diseases: mortality and morbidity from cardio-pulmonary causes in adults, from Forests in Indonesia are classified in four main groups: lung cancer, and from acute respiratory infections in children under 5 years old. Attributable numbers of deaths and years- · Production forest which is earmarked to be selectively of-life lost for adults and children have been estimated using harvested, but to retain a forest cover through risk coefficients from a large US cohort study of adults and a long periods of re-growth. However, by the turn meta-analytic summary of five time-series studies of mortality of the century about one third of this category was 11 in children. deforested. The burden of disease, calculated in DALYs is converted into · Conversion forest, i.e. areas slated for clearing of dollars using a Value of Statistical Life (VSL) measure. This is not forests for other purposes. About half of this was a value of anyone's particular life, but an expression of the value deforested by the year 2000. of marginal risk reduction. The derived figure is 0.9 percent of GDP, 2007. This amounts to about $3.9 billion per annum in · Protection forest: to maintain hydrological and soil environmental health damage. retention functions · Conservation forest: for biodiversity protection. The 2.2.4 Indoor Air Pollution latter two categories maintained about an 80 percent forest cover by 2000. Although outdoor sources often dominate air pollution emissions, indoor sources frequently dominate air pollution The distribution of these forests types, as well as other land exposures. Exposure is a function of both the pollutant covering a total of some 186 million ha is shown in the figure concentration in an environment, and the person-time spent in 2.2. the environment. The household combustion of biomass (such as dung, charcoal, wood or crop residues), or coal is the main 6 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 identified in any note, and the Monitor lacks a list of references. 7 This section draws strongly on World Bank (2006b) SECTION 1: Priorities for Sustainable Development Figure 2.2. Land and Forest Classifications fuel supply. However, sharply increasing costs of oil and its derivatives will increase the pressure on biomass a fuel. 30% 2.2.6 Crop Production and Land Degradation 33% Indonesian agriculture has maintained high levels of Production Forest productivity in the main categories of crops production, i.e. Conversion Forest lowland and upland rice, and maize. Rice is grown under intensive cropping with irrigation systems (lowland rice) and Protection Forest rainfed or upland conditions (upland rice). Under dependable Conservation Forest irrigation two crops per year are commonly grown by farmers, 8% 12% Other Land and occasionally up to five crops can be planted in a 2-year period. The production of lowland rice is highly concentrated 17% on Java, followed by Sumatera and Sulawesi. The share of Source: Adapted from World Bank (2006a) 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 Investing In a More Sustainable Indonesia Indonesia has the third largest area of tropical forest in the in the other regions (4 tons/ha). The total annual harvested world. Much of its impressive biodiversity is contained in area of lowland rice did not change much during the five-year those forests. It is also an economically significant sector, as period; it is about 11 million ha. forestry--defined here as including wood manufacturing and paper & printing industry-- accounts for 3-4 percent of GDP. There does not appear to be any comprehensive and recent study on the impact of land degradation in the country. Between 1990 and 2000, some 21 million ha of forest cover were Magrath and Arens (1989) conducted an analysis of the on- lost, but some 12 million ha was added because or re-growth site costs of soil erosion for mainly upland rainfed cropping and planting. The net loss in area ­ not value ­ amounts to systems on Java, using the change in productivity approach. about 10 percent of the 2006 forest categories reported above, As net profit falls for one crop, there will be adjustments. To after adjustment for deforestation. account for this, farm budgets for a variety of representative dryland cropping systems across Java were constructed, and The dynamics of forest areas are driven by a number of factors: used to estimate the effects the yield losses from erosion on net farm incomes. This was done comprehensively for a single · Transmigration from the 1970's to the 1990's moved year (1985). Assuming that the one-year loss in net income some 2.5 million people to sparsely populated recurs over each successive year, Magrath and Arens obtain a areas where they often cleared forests to provide a total present value of current and future losses. The latter figure 12 homestead and a couple of hectares of agricultural is their estimate of the on-site costs of soil erosion on Java. For land for each family. However, this program is now Java as a whole, this on-site cost of soil erosion in 1985 was discontinued. estimated to be approximately $ 327 million in 1985 or $562 million in 2007 dollars). This amounted to around 4 percent of · Roads provide better access to forested areas, and the total value of dryland crops on Java in 1985. can have important knock-on effects on habitation and forest harvesting. New roads require an EIA, but An important limitation of this type of calculations is that it upgrading old roads do not. omits any off-site impacts from downstream siltation. They could be strongly negative for hydropower plants and irrigation · Mining is sometimes taking place inside protection systems downstream. But enriched siltation also contributes forests. According to a Presidential decree (no. 41 of as natural fertilizer to downstream cultivation, so the impact is 2004) 13 mining companies are allowed to continue mixed. such activities. Efforts to diminish oil dependence by relying more on coal may also induce extensive strip A later analysis by Lindert (2000) finds no evidence that mining. chemical land degradation of agricultural land in Indonesia has been a significant problem. Reviewing the period 1940 · Forest fires are sometimes quite widespread, and in to 1990, his overall estimate is that the average soil chemical 1997-98 some 10 million hectares burned. Controlled quality declined by 4 to nearly 6 percent. This decline was due burning is regularly used for land clearing. Fuelwood primarily to bringing new lands into cultivation in the outlying collection is not seen as a major driver behind islands--the soil quality index for the established agricultural deforestation as it often uses waste from tree clearing areas in Java and Madura may have increased by as much as and harvest, or wood from private lots designed for 10 percent. The area under cultivation more than doubled SECTION 1: Priorities for Sustainable Development between 1940 and 1990. Lindert concludes that overall there Pet-Soede et al (1999) undertook a cost-benefit analysis of blast has been a strong increase in the soil quality index during the fishing showing a significant net loss over 20 years. The main time period studied. quantifiable costs are through loss of the coastal protection function, foregone benefits of tourism, and foregone benefits of non-destructive fisheries. The economic costs to society 2.2.7 Coastal & Marine Environment8 are four times higher than the total net private benefits from blast fishing in areas with high potential value of tourism and The Indonesian Archipelago consists of about 17,500 islands coastal protection. Mous et al (2000) reviewed the damage and has a coastline of about 81.000 km. Of its population of from cyanide fishing, and concluded that this may not be as about 225 million, 60 percent live within 60 km of the sea. threatening to Indonesia's coral reefs as blast fishing or coral Indonesia has at least 50,000 km2 of coral reefs. This is roughly bleaching caused by global climate change. 18 percent of the world's coral reefs. The Indonesian coastal and marine sector, and in particular the small-scale fisheries supported by coral reef ecosystems, is a significant productive 2.3 Summary of Degradation Costs asset for the country and the millions of poor., Healthy coral reef ecosystems can annually produce marine products worth on Natural capital constitutes about one quarter of total wealth average US$15,000 per square kilometer, and are an important in Indonesia--an even higher share than produced capital. source of food and livelihoods for about 10 thousand coastal This underlines the importance of sustainable management villages across the country. of natural resources as well as the need to offset depletion of natural capital with increased savings of human and produced Pervasive poverty in coastal communities is coupled with capital. extensive degradation of coastal resources. In the past 50 years, the proportion of degraded coral reefs in Indonesia has Climate change will result in a number of negative impacts Country Environmental Analysis increased from 10 to 50 percent. As a result, many of the small- on Indonesia, including reduced crop production, sea-level scale coral reef fisheries in Indonesia have reached a level of rise, greater risks of flooding, coral reef bleaching, and further exploitation where the only way to increase future production spread of vector-borne diseases. The economic costs of these and local incomes is to protect critical coral reef habitats and impacts are projected to reach 2.5-7.0 percent of GDP by 2100. reduce destructive fishing efforts. Capacity at the district level to assist coastal fishing communities to sustainably manage The major health, water, tourism and other welfare costs this important resource is limited. associated with poor sanitation have been estimated more than $6 billion in 2005, or more than 2 percent of GDP that Indonesia's coral reefs are currently undergoing rapid year. destruction from human activities including: poison fishing; blast fishing; coral mining; sedimentation; pollution and The health impacts of outdoor and indoor air pollution have overfishing. In a paper by Cesar et al (1997), these destructive been estimated to about $5.5 billion per annum or about figure activities are described and the private gains from these is 1.3 percent of GDP (2007). activities are compared with the costs to society. It is shown 13 that the social costs by far outweigh the short-term private With respect to forestry, the rate of deforestation from 1990 to gains. However, private incentives for short-term profit remain 2000 has been estimated to about 21 million ha, but with some strong. 12 million ha as a balance by way of re-growth and plantations. Natural growth in standing forests contributes further to an increase in volume. Table 2.3. Summary of Economic Costs from Environmental Degradation SOURCE OF DEGRADATION ECONOMIC COST ($ bn 2007) ANNUAL GDP LOSS (%) Climate change Increasing over time 2.5­7.0 (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 deflator of 172 (1985 = 100) 8 This section draws on World Bank (2004) and http://www.zmt-bremen.de/files/Downlods/SPICE_Flyer.pdf. SECTION 1: Priorities for Sustainable Development Estimates of the cost of land degradation--particularly water- · Low-income households are more vulnerable to induced erosion in uplands and salinization and waterlogging natural and anthropogenic disasters because they of irrigated areas-- are not easily available, and the wealth are often located in higher-risk areas estimates quoted above do not include them. A partial estimate for Java is included below for comparison. · Poor people cannot afford to cope with environmental degradation as effectively as can wealthier segments Coastal zone and marine degradation is a major concern in of society. Indonesia, with it rich marine biodiversity. Some economic data are available with respect to coral reef degradation, For example, the livelihoods of 10 million of Indonesia's 36 showing significant losses per km2. However, further work is million poor are linked to the country's forests; forest loss needed to assess how these localized estimates can be scaled undermines these livelihoods, ecosystem services and the up to a national perspective. ability to meet poverty alleviation goals (World Bank, 2006a). As another example, the effects of climate change will be felt most 2.4 Distributional Consequences of by the poorest Indonesians who are more likely to be: living in Environmental Degradation marginal areas that are susceptible to drought, flooding and/ or landslides; dependent on climate-sensitive agriculture or It is widely known that the poor suffer the greatest consequences fisheries for their livelihoods; and have fewer assets to cope from environmental degradation for a variety of reasons: with the impacts of a changing climate (UNDP, 2007). Some of the poverty impacts of climate change in Indonesia, viewed Investing In a More Sustainable Indonesia · Livelihoods of many rural poor are directly tied to the through the lens of the Millennium Development Goals, are quality and productivity of natural resources (water, presented in Table 2.4. soil, forests, fisheries) 2.5 Selecting a Focus for the Country · Poor families have the lowest rate of access to Environmental Analysis environmental services and benefits such as drinking water, sanitation and clean energy 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 1. Eradicate extreme · Degradation of forests, fisheries, pastures, and cropland that many poor families depend on poverty and hunger for their food and livelihoods · Damage to poor people's homes, water supply and health, which will undermine their ability to earn a living · Increased social tensions over resource use which can lead to conflict, destabilized livelihoods and migration 14 2. Achieve universal · More children likely to be taken out of school to help fetch water, care for ill relatives or help primary education earn an income · Malnourishment and illness among children could reduce their school attendance and impair their learning while in class · Floods and storms destroy buildings 3. Promote gender equity · Greater vulnerability of women who are more dependent on the natural environment for and empower women their livelihoods · Women and girls will face a greater workload fetching water, fodder, firewood, and producing food during climate stress · Female-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, floods, 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 · Deterioration in quality and productivity of natural resources and ecosystems upon which sustainability the poor depend Source: adapted from Oxfam, 2007 SECTION 1: Priorities for Sustainable Development Table 2.5. A Preliminary Ranking of Environmental Challenges Problem Economic Cost Comparative Already Addressed Impact Potential Financial Resources Advantage Climate change +++ ++ + +++ +++ Water, sanitation and +++ ++ + +++ ++ hygiene Outdoor air pollution ++ ++ ++ ++ + Indoor air pollution ++ + + ++ + Forest degradation + ++ ++ ++ ++ Soil degradation + ++ + ++ + Coastal and marine + ++ ++ ++ ++ compares them with the Government of Indonesia's priorities increasing donor and market resources available to tackle the in the same sectors. The main finding is that the top three climate challenge. Similarly, water, sanitation and hygiene categories in the donor list and the GOI list are identical, namely represent the highest short-term economic costs, the World (i) pollution and urban environment; (ii) forest, biodiversity, Bank has a long history of involvement in the sector, especially land and water; and (iii) coastal and marine. The top category sanitation has not been adequately addressed in Indonesia, alone covers about 40 percent of the funding from both donors the potential health and economic impacts of addressing the and GOI. Conversely, the bottom three--of six--categories in problem are tremendous, and relatively significant financial terms of revealed priorities are also identical in ranking, namely resources are available to address the problem. However, Country Environmental Analysis (iv) transportation, energy & mining; (v) global environment; water and sanitation have been the focus of many separate and (vi) national cross-cutting issues. The background report analyses that do not have to be repeated here and are already for the chapter concludes that "...there is no significant incorporated in the work of the World Bank in Indonesia discrepancy in the prioritization of ENRM resources" (Ibid, p.15). through its infrastructure program as well as its Regional Water But what should be the priorities for the CEA's focus? and Sanitation Program. This chapter provides one basis for prioritization ­ the The other environmental challenges are still very important magnitude of the economic cost of degradation. This should for Indonesia's sustainable development. However, for various be of overriding concern from an Indonesian perspective. reasons, they do not merit the same attention for a Country From the viewpoint of a development partner like the World Environmental Analysis, e.g. economic costs are an order of Bank, other selection criteria would include: the World Bank's magnitude lower, the World Bank does not have a comparative comparative advantage to work on a particular problem, advantage to work on the issue, the problem is already being whether the problem is already being adequately addressed adequately addressed, the potential for achieving an impact by one or development partners, the potential for achieving in the short-term is constrained, and/or financial resources to 15 significant impact, and opportunities for mobilizing financial address the problem are not readily available. It should also resources for change. Table 2.5 represents an attempt at be noted that an upcoming CEA to be prepared by the Asian applying these criteria to the environmental challenges that Development Bank will nicely complement the World Bank's have been discussed in this chapter. analysis by focusing on water resource management and coastal/marine issues. Indoor and outdoor air pollution issues From this cursory analysis, the two highest-priority have also been a focus of the ADB and the World Bank does not environmental challenges would be climate change and water/ have a comparative advantage in lending to local governments sanitation. Climate change constitutes the biggest long-term where this pollution needs to be better managed. Soil environmental threat to the Indonesian economy. It is also an depletion has been a focus of previous World Bank and other area where the World Bank has a comparative advantage in donor initiatives, as has forestry (EC, 2005; World Bank, 2006). working, it has only recently drawn the attention of the GOI Thus, this report chooses to focus on the emerging challenge and development partners in Indonesia, there is significant of climate change as related to adaptation (Chapter 6), land use potential for both mitigation and adaptation, and there are (Chapter 7) and energy (Chapter 8). SECTION 1: Priorities for Sustainable Development Investing In a More Sustainable Indonesia 16 17 17 Co u n tr y E n v i r o n m en t a Anal s i s Country En vi ro nm e n ta l An al ys is C o un t r Environmental Analysis al Challenges of Environmental SECTION 2: Governance SECTION 2: Challenges of Environmental Governance Investing In a More Sustainable Indonesia 18 Chapter 3: Institutional Setting: Decentralized Environmental Management Prambanan Temple, Central Java Photo: Winarko Hadi SECTION 2: Challenges of Environmental Governance 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 insufficient capacity; and specific issues with forestry, fisheries and environmental impact assessment. · Options for improvement exist, including geography-based environmental management, improved governance, financial management and incentives, and clarification of central-local roles. Investing In a More Sustainable Indonesia 3.1 Environmental Law and Policy three broad goals of promoting economic growth, Framework providing widespread an equitable benefits to society (livelihoods and poverty reduction), and sustaining Indonesia made a commitment to sustainable development environmental services/benefits in its National Concord for Sustainable Development on 2 January 2004, as part of a Sustainable Development Action · Law on Marine & Coastal Resources 2007 ­ this law Plan containing the country's Millennium Development creates the right to formally commercialize coastal Goals. Therein Indonesia's development philosophy reflected water zones. a combination of economic, social, and environmental components to achieve sustainable development. This · Law on Energy (No 30/2007) ­ creates a body to commitment is reflected in a set of laws and policies. oversee energy policies and contribute to achieving development objectives. Does not solve the problem 3.1.1 Relevant Legislation of an uncoordinated legal and policy framework in the energy sector. 20 Although Indonesian legislation related to environment and natural resources management is both detailed and extensive, · Law on Mining 2009 ­ sets clear rules on mining it lacks common vision or coherency, with the legislative permits, financial responsibilities of mine operators, framework often overlapping and contradictory. These while also requiring mine investors to commit to problems have been exacerbated by the independent and often downstream mineral processing. spurious interpretations and subsequent implementations of decentralized authorities, where provinces and districts often · Law on Fisheries (No. 31/2004) ­ provides a issue regulations which at times directly contradict central broad framework for governing the industry, national legislation or nationally-issued regulations. Key with comprehensive permitting and harmonized legislation includes: regulations, but does not resolve conflicts between local and central authorities for management. · Constitution, 1945 - in 2002, Indonesia's Constitution of 1945 was amended to emphasize balanced · Law on Management of Water Resources - focuses development through environmental sustainability on decentralized resource management, control of pollution, exploitation, conservation, and disaster · Law on the Environment (No. 23/1997) - authorizes the control. Minister of Environment to issue national standards and other minimum requirements over a wide · Law on Toxic Wastes 1997 ­ lifecycle control of toxics range of areas that legally fall under other ministries' and prohibition of the transboundary transfer of jurisdictions, but nonetheless affect the environment. hazardous and toxic waste. · Basic Forestry Law (No 41/1999) - Indonesia's legal · International Agreements ­ Indonesia has ratified the framework for Forest management is based on Convention on Biological Biodiversity; Convention SECTION 2: Challenges of Environmental Governance on International Trade in Endangered Species; · Agriculture - Priority in agrarian policies and International Tropical Timber Agreement; Ramsar development plans is to increase production of Convention on Wetlands; Climate Change Convention several crops, especially of rice, in hopes of regaining and the Kyoto Protocol; Vienna Convention for self sufficiency, but these efforts are hindered by the the Protection of the Ozone Layer; Convention to very small size of agricultural holdings and conversion Combat Desertification; Basel Convention; Nuclear of especially wetland rice to non-agricultural land Test Ban Treaty; Convention on the Law of the Sea; uses. New rice varieties, and the application of new and International Convention for the Prevention of agrochemicals, have been introduced, but with mixed Pollution from Ships. results. Moreover, the use of agrochemicals remains uncontrolled, and there is ongoing excessive use of 3.1.2 Sectoral Policies & Programs both legal and illegal chemicals at the local level, resulting in pollution and soil fertility problems. Many sectors engage in environmental management. The key sectoral policies and programs are as follows: · Fisheries - The Ministry of Maritime and Fisheries (DKP) current development plan identifies areas · Forestry ­ the Ministry of Forestry's current strategy requiring urgent action in order to manage the consists of five priorities, including fighting illegal resources sustainably, with recommendations logging, controlling forest fires, rehabilitation directed at the management of Indonesian fisheries and conservation of forest resources, and both including: fish catch management strategies, fish restructuring as well as decentralization of the cultivation management strategies; improved forestry sector.9 However, effective action on these fishery resource supervision and research; and priorities is limited by lack of coordination and improved internal management, internal control cooperation between those national departments and administration. They have recognized the Country Environmental Analysis responsible as well as between levels of government. need for better planning and integration with other It has happened that even local governments have ministries and organizations, and in this vein have rejected central government environmental policies made substantive collaborative agreements with the and decrees when they are too deemed unsound or Ministries of Public Works, Communications, Labor, unwise. and Transmigration, as well as the Navy, and the Police. · Biodiversity - Over 11 percent of the Republic's land area (about 21.5 million hectares) has been declared · Transport and Energy - The current transport and protected areas, either in the form of nature reserves, energy policies include a high level of fuel subsidy wildlife reserves, national parks, nature recreational which consumes a significant part of the national parks, grand forest parks and game reserves, which budget, and removal of these subsidies is the object are managed by the Ministry of Forestry. Moreover, of intense debate. Indonesia's national energy policy Indonesia boasts an additional 6.3 million hectares of (2003-2020) calls for: conserving crude oil reserves and marine parks.10 Additional biodiversity management natural gas reserves to maximize their lifespan; use of 21 efforts are also undertaken in botanical gardens, CNG and LPG in the transport sector; promoting coal zoological gardens, safari parks, breeding and by small and medium sized industries; expanding cultivation centers and arboretums. The Forestry exploration for coal resources; developing coal Ministry has also established a "genetic bank" for household use; exploring coal gasification, coal bed food crops, while the Department of Agriculture methane energy sources, small scale hydro-electricity maintains a cell and plasma collection for cattle and schemes, solar energy power plants; increasing geo- agricultural plants. The Ministry of Environment has thermal energy sources in small scale power plants, as formulated the Indonesia Biodiversity Strategy and well as hydro-electricity; and utilizing nuclear energy Action Plan (IBSAP) to guide implementation of the in a manner that is economical, environmentally national biodiversity program up through 2020. friendly, reliable and safe. IBSAP includes five goals, four of which concern creating greater public awareness, developing · Education - While Indonesia's schools are free to conservation-oriented attitudes, and engaging the allocate time for field trips, specific courses and nation's citizenry in governance issues. At the same educational material related to the environment, time, IBSAP is not a legally binding document, and the national curriculum for primary and secondary consequently the Ministry of Environment cannot education does not specifically include environmental enforce the Action Plan. studies, as they are considered to be already included in other subjects such as biology, physics, 9 Country Environmental Profile: 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. 10 Mr. Agus Dermawan, Director for Conservation and Marine National Parks, Ministry of Marine Affairs and Fisheries, Indonesia. April 2009 SECTION 2: Challenges of Environmental Governance and so forth. Currently several Indonesian NGOs are · The Ministry of Forestry manages a forest estate advocating for an improved national curriculum that technically encompasses nearly 70 percent of that incorporates a greater emphasis and depth in Indonesia's land mass, though a third of this area is no environmental studies. Universities offer B.Sc. level longer forested. It is responsible for forest production, degrees in agriculture, biology, forestry, and other conservation, watershed and riverbank protection, traditional sectors educations. Some universities conversion to non-forest use, and development of the are developing master's level courses, while master forest industry as well as forest-based communities. degree programs in environmental management are The Ministry of Forestry's regional offices were increasingly popular. dissolved with the decentralization, and staff mostly absorbed into the local governments' provincial and 3.2 Institutional Framework for district forestry agencies. Environmental Management · The Ministry of Home Affairs facilitates and monitors In Indonesia, the government plays a central role in the development policies of local governments. The environmental management processes, with interventions Ministry has a directorate specifically for providing taking the form of either regulation or funding for environmental support and facilitation for spatial planning and quality management activities, or the application of environment in the context of regional development. environment-friendly technologies or methods. Since 1983, It is also responsible for improving the effectiveness GOI has financed environment-related programs through the of local government organizations responsible for Investing In a More Sustainable Indonesia state budget targeting a) inventory and evaluation of natural environmental management. resources in the environment; b) preservation of forests, land, and water; c) oversight of natural resources and environment, Clearly, many other ministries have a direct impact on the and d) development of meteorology and geophysics. 11 management and quality of Indonesia's environment, including Finance, Trade, Maritime and Fisheries, Energy and Mines, Agriculture, Industry, and Transport 3.2.1 Role of Central Institutions 3.2.2 Role of Local Governments The central government institutions with perhaps the most visible role for environment concerns include the National The empowerment of local governments has been one of Development Planning Agency (BAPPENAS), the Ministry of Indonesia's most remarkable achievements in the past 10 years. Environment, the Ministry of Forestry, and to some extent, the As a result, Indonesia has almost 500 subnational governments Ministry of Home Affairs: that have become crucial players in the country's development and, specifically for environmental management. Provinces · National Development Planning Agency and districts/cities are now headed by officials directly (BAPPENAS) is responsible for developing long- accountable to their electorates. Relevant local institutions for range plans and associated budgets and increasingly the environment include: 22 seeks to augment mechanisms for greater integration between the work and efforts of the government · Provincial government ­ the role of the province agencies in order to mainstream environmental under regional autonomy is a fairly minor one. It management policy and practice. The current essentially coordinates across local governments in National Medium-Term Development Plan 2004- carry out the functions that involve more than one 2009 stresses the improvement of natural resources local government, such as managing environmental management and redirection of environmental externalities. In practice though, provinces have to conservation to give greater economic benefit, be invited to do so. Provinces are also financially environmental services and preservation. 12 constrained due to the decline in central government resources in favor of transfers to district and city · The Ministry of Environment is a coordinating governments. ministry, which means that it has no responsibility for implementation. The Ministry sets standards, · Regional Planning and Development Boards establishes policies, regulates the environmental (BAPPEDA) ­ BAPPEDA is responsible for regional impact assessment (AMDAL) process, operates development planning, including integration environmental ranking programs, and collects of development programs across different local environmental data. However, it has no direct government agencies..This includes integration of control over the provincial or district agencies, the environment in regional spatial plans, budgeting and consequently these local institutions are not for environmental management and montioring compelled to implement the Ministry's standards environmental quality. and policies. 11 Indonesia Country Natural Resource Environment Analysis. BAPPENAS. 2007. Pg 27. 12 The State of the Environment Report in Indonesia 2007. The State Ministry of Environment. 2008. Pg 11. SECTION 2: Challenges of Environmental Governance · Local environmental bodies - The environmental context of environmental carrying capacities . management structures created by each district or city may take the form of either an Environmental Service · Monitoring and controlling for all types of pollution Agency (Dinas Lingkungan Hidup) or Environmental and environmental degradation (water, air, hazardous Office (Kantor Lingkungan Hidup). Environmental wastes, climate change) service agencies develop technical and operational policies in the field of environment including · Development and implementation of law prevention, conservation and rehabilitation of natural enforcement strategies, including coordination with resources, pollution control, and environmental and other government to effect law enforcement mining laws and regulations. Environmental offices assist the head of the local government to manage · Performing environmental impact assessments (EIAs) environmental impact analysis. to effect environmental impact control in the context of national standards 3.3 Decentralization and the Environment · Achieve national standards of environmental services Indonesia introduced its decentralization law in 1999 which for by strengthening capacity of local environmental the first time empowered local government to have significant institutions, including observance of national decision-making authority and jurisdiction over their local personnel and laboratory competency standards governance processes, and to a significant extent, local natural resources. Five years later the country revised these laws in an · Develop economic instruments to support attempt to correct some of the weaknesses. However even with environmental conservation; apply environmental these revisions, local environmental management remained management systems (e.g., eco-labeling, weak, so subsequent laws were passed in 2007 specifically environmentally-friendly technologies; economic Country Environmental Analysis targeting strengthening local environmental management tools); develop and apply incentive/disincentive institutions. These laws have been augmented by other schemes, such as Adupura, Towards Green Indonesia, policies that provide financial incentives to local government and PROPER. to more closely follow central government policies. · Increase environmental governance by promoting 3.3.1 Recent Laws to Strengthen Local community participation and engaging NGOs and Environmental Management the private sector After refinement of the decentralization law in 2004, it became · Undertake additional activities including apparent that there were still important gaps in the operation implementation of both de-concentration and of environmental management agencies at the provincial and special allocation funds, district level. Consequently in 2007, the central government stipulated policy on the delegation of authority to both In short, local environmental agencies have received a provincial and regency/municipality governments for the comprehensive mandate to dramatically upgrade the scope 23 purpose of environmental development implementation and quality of their services and performance. through Law 38, regarding the distribution of government affairs, and Law 41, regarding regional apparatus organizations. In support of this goal, the new Law 41 sets out basic principles As stated jointly by the Minister of Home Affairs and the State for establishing environmental institutions, distinguishing Minister of Environment, these new laws help to mainstream between the function of Boards and Offices based on workload, environmental development, providing basic principles for and providing guidelines for internal structure to boards establishing environmental institutions, clarifying their tasks and offices, as well as formalizes terminology so that local and functions, and providing guidelines for internal structure, environmental institutions either bear the title of Environmental staffing, and inter-regional cooperation13. Board (Badan Lingkungan Hidup) or Environmental Office (Kantor Lingkungan Hidup). The law spells out specific Specific functions of local government environmental qualifications and educational levels for staff of environment institutions now include: agencies, with heads of environmental management board required to have a minimum of a graduate degree in a relevant · Policy development, planning, control, and field, basic environmental training, and at least five years of monitoring for environmental impacts (including relevant experience. The law also emphasizes the importance biodiversity conservation); this includes effecting of interregional cooperation, citing that environmental issues spatial plans to coordination improvement of often cross administrative boundaries and therefore require integrated planning, control, and evaluation of an ecosystem approach to address them, urging cooperation environmental management, particularly in the between and among local government entities to address 13 Joint Circular Letter Between Minister of Home Affairs 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 SECTION 2: Challenges of Environmental Governance transboundary issues, and mandating the intervention of the · Inter-agency collaboration local governor, through the Provincial Environmental Board, when environmental issues involve two or more districts or · Green community empowerment program cities. · Spatial planning 3.3.2 Deconcentration & Special Allocation Funds 3.4.1 Reputational Programs Other mechanisms for encouraging local governments The Ministry of Environment, has demonstrated considerable to comply with national environmental policies are the creativity inf finding ways to encourage participation of local introduction of fund allocations through environmental actors in environmental management programs through deconcentration funds provided to 33 provinces, and special voluntary programs that reward compliance with national allocation funds in the environment sector to 468 regencies/ standards and goals. Some examples of these programs municipalities14. include: Deconcentration funds create incentives for district and · Industrial Performance Rating Program (PROPER) provincial governments to incorporate national policies into - PROPER is a national-level public environmental local practice, proving resources which strengthen provincial reporting initiative with an objective of to promoting and district level environmental management capacity to industrial compliance with pollution control Investing In a More Sustainable Indonesia represent central government policies. Regulation 14 issued regulations, to facilitate and enforce the adoption of in 2007 by the State Minister of Environment lays out the practices contributing to "clean technology," and to guidelines for the use of deconcentration funds, including ensure a better environmental management system. for improving capacity for planning at the regional level The program is built on the idea that the mechanisms for managing regency/municipality environmental issues; of public disclosure and accountability, transparency coordinating implementation and monitoring of Special in operations, and community participation will Allocation Funds; monitoring and reporting on river water empower local communities to achieve effective and quality for at least one river; capacity building in hazardous sustained pollution control practices. waste management: developing EIA systems; improving law enforcement to managing disputes and complaints related to · Clean River Programs - Program Kali Bersih environmental issues. (PROKASIH) or "Clean River Program" is a voluntary program for (1) identifying specific firms in highly The Government's Special Allocation Fund enable regency/ polluting industries; (2) getting those firms to sign municipality governments to upgrade their roles and voluntary letters of commitment to reduce pollution responsibilities in environmental management by developing loads by 50 percent within an agreed timeframe; better physical facilities and infrastructure for these purposes, (3) monitoring subsequent results; and (4) applying especially in the area of water quality improvement. The fund pressure on those industries who do not comply 24 is especially targeted towards regions with below average with their own commitments. The implementation of financial capacity in order to help bring them up to minimum PROKASIH is carried out by provincial authorities with standards of service in the environmental sector. It is also helps the support of central agencies as needed, and with local governments accelerate their handling of local regional media, NGOs and community groups encouraged environmental problems, as well as generally to strengthen to participate.15 A similar program is the Superkasih institutional capacity in environmental management. The fund Program (Clean River Statement Letter), which has special emphasis on facilities and infrastructure for water acknowledges industries and businesses for their quality improvement, particularly in areas of water quality efforts to comply with environmental management monitoring, pollution control, and water resource protection. considering technical and administrative factors. 3.4 Advances in Environmental · Clean Cities Program (Adipura) ­ This program is Management at the Local Level an annual voluntary evaluation and ranking of the environmental performance. It has attracted the This section covers some important developments and participation of over 300 local governments who characteristics that affect decentralized environmental compete for recognition in categories according management in Indonesia including: to population size. Awards are given to local government leaders by the President in a highly- · Reputational programs publicized annual ceremony. · Political will 14 State of the Environment Report in Indonesia. Pg12 15 Indonesia Environment Monitor 2003, World Bank, http://wbln0018.worldbank.org/eap/eap.nsf/Attachments/062403-EnvMonitor2003/$File/indo+monitor.pdf SECTION 2: Challenges of Environmental Governance 3.4.2 Political Will at the Local Level conducted by an independent local academic institution. The district is not particularly wealthy, but it demonstrates In Indonesia, local governments may not conform to national a high commitment to the environment. Yet, when the environmental laws and regulations without financial incentives district's leadership changes, all the progressive environmental or the threat of enforcement. However, some governors, management could evaporate with the departure of the existing bupatis, mayors, and local parliamentarians have demonstrated district head. At the same time, it was the recent advent of local considerable responsibility and political will to support elections that has allowed these leaders to come to power. good practices in environmental management. Whether because of inherent wisdom, or in response to an enlightened 3.4.3 Towards Inter-Agency Collaboration constituency, some local leaders have placed environmental management concerns at the top of their priorities, integrating Most environmental issues transcend the administrative related concerns into planning and implementation of local jurisdictions of any government agency, whether at the inititiaves. national, regional, or local level. However, there are few formal structures to ensure close collaboration between jurisdictional Some examples of political will at the provincial level that entities. Nonetheless, as Indonesia's environmental problems benefits the environment are: the "Green Vision", logging increase in number and magnitude, there is a growing trend moratorium and forest sector restructuring being undertaken towards inter-agency collaboration. by the Governor of Aceh; the plans and programs of the Governor of Central Kalimantan to rehabilitate degraded Perhaps predictably, inter-agency collaboration has emerged peatlands and reduce carbon emissions; and the efforts of more frequently around environmental issues that cross the Governor of Papua to improve forest management for geographic boundaries, typically forcing the need for both inter- sustainable local benefits. governmental and inter-agency and collaboration. It is still not a common practice, and for the most part transboundary issues Country Environmental Analysis At the district level, Jimbrana, in West Bali has a district head with still lack the benefit of coordinated collaboration between a strong commitment to the environment. He makes regular relevant stakeholder agencies. By law, transboundary issues are and active use of environmental impact assessments, usually 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 different 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-Pacific 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: 25 · 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 benefit 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 significant difference in economic benefits is due to the fact that the sustainable scenario preserves forests that provide important benefits to society (clean water, carbon sinks, biodiversity) and because of the lower overall cost of the scenario. SOURCE: World Bank, 2008 SECTION 2: Challenges of Environmental Governance such that transboundary issues between two districts are to be Indonesia must by definition lack efficiency because they addressed by the provincial administration where the districts cannot possibly hope to cope with the variation in social and reside. However, provincial agencies lack the authority to insert environmental conditions that exist between regions. themselves into inter-district disputes, and typically must wait until they are invited into the dialogue by the districts. The challenges of reforming environmental management under regional autonomy are germane to all areas of public Effective water management is a frequent motivator for administration. The obstacles include continuing lack of clarity collaboration, with examples including the Brantas River over the functions of local government, lack of capacity that Basin Management initiative in East Java, the Balikpapan Bay exist within local governments to administer new functions, Management Authority, and the Ciliwung River Basin Plan in and ensuring that proposed reforms have the effect of and around Jakarta. In other areas, there is now a National contributing to and deepening local level transparency and Climate Change Council, a National Disaster Management accountability. These more generalized issues are exaggerated Agency, a National Energy Council, and a National Forestry by deeper concerns relating to the environment's often weak Council, all of which allow for discussion and response to position relative to other political and economic interests, and environmental issues across government agencies and with to the prospect of regions increasingly detaching themselves a wide range of stakeholders. At the local level, solid waste from the central government through their interpretation of management agencies have been planned for metropolitan existing rules. Jakarta and Bandung while a Greater Jakarta Coordination Board (BKSP) has been set up as an intergovernmental forum Despite the progress in developing laws and regulations Investing In a More Sustainable Indonesia to address transboundary issues. for the environment, not only does there continue to be conflicts and overlaps between laws, but by and large there 3.4.4 Green Community Empowerment are still few mechanisms to effect enforcement. Moreover, the Program decentralization policies have created disconnects with line ministries so that many district leaders remain unresponsive Indonesia's community-driven development program (PNPM) to laws and policies. Since districts are now more significantly has a green component in rural areas to raise environmental left to their own devices for fund raising, and given their awareness, build local capacity and finance block grants for control over managing local natural resources, district heads environmental management. The rural program, which has frequently make use of these resources for generating income nearly USD70 million in donor grant financing, is operated by for the districts through concessions and other transactions. the Ministry of Home Affairs in 27 sub-districts in Sulawesi and Indeed, environmental management at the local level overall is now expanding to Sumatra and Papua islands. It has a special remains very inconsistent, and tends to be effective primarily emphasis on financing development of microhydro power if and when the central government has created sufficient systems but also supports natural resource management incentive to encourage conformity with national policies, activities. A similar program for urban neighborhoods is now such as through deconcentration- or special allocation funds, being developed for the PNPM activities that are managed by or when the local district leader is conscientious about sound the Ministry of Public Works. environmental management practices. In the meantime, efforts 26 to effect national environment goals often fail to reach down to 3.4.5 Spatial Planning the local level because of the disruption in the line of authority and accountability between central and local government. Indonesia is increasingly using the spatial planning process to address environmental issues. WWF, 10 governors, the Ministry 3.5.1 Systemic Obstacles of Environment, and many other stakeholders committed themselves to undertake island-wide spatial planning in Most commentaries on Indonesian decentralization focus on the Sumatra to conserve forests and protect biodiversity. The Aceh need for greater clarity in the assignment of functions between Forest and Environment Project has supported the integration levels of government. The main culprits include weaknesses in of environmental management in district-level spatial plans decentralization laws that fail to provide a positive definition of in Aceh province. The planning agency (Bappeda) in Papua local government functions in the slow pace of harmonization has undertaken a comparison of business-as-usual and more of sectoral and decentralization laws. The central government sustainable spatial planning options, and is now in the process is now responsible for making adjustments to sectoral laws of translating the results into legislation (see Box 3.1). and for setting minimum standards of service for the 11 obligatory local government functions. In the environment 3.5 Obstacles to Decentralized sector there is a clear recognition of the need for adjustment Environmental Management to the Environmental Management Act (23/1997) and its implementing regulations. One of the principal benefits of decentralization should be more efficient service delivery that includes environmental services, such as pollution control and environmental impact assessment. Centralized systems in a country the size of SECTION 2: Challenges of Environmental Governance National: Standards & Enforcement international focus. With perpetrators often in a position to swing justice their way with unofficial contributions, foreign One of the greatest obstacles to effective environmental investors are wary, while environmental values remain management in Indonesia is that there are no formal unprotected. standards for local government performance in environmental management. BAPPENAS, the central planning board, The Indonesian Center for Environmental Law (ICEL), a local has examined the prospect of establishing environmental NGO, conducts training courses for members of the Indonesian performance indicators, but to date this as has yet to be judiciary in environmental law, class action processes and formalized into policy. The Adipura program mentioned above other relevant issues. The head of Indonesia's Supreme Court establishes indicators for cities based on standards of cleanliness has since indicated to the High Court that he recommends and good management but these are voluntary If national only judges with this ICEL training be appointed to hear environmental management is to improve, ideally indicators environmental cases. could not only be based on performance standards, but also measure rates of change towards or away from performance Another problem cited with the judicial system is that neither measures. Without established performance standards or the courts, nor the Ministry of the Environment are authorized monitoring, local governments must simply improvise. to cancel an operational license, even for a company convicted of breaking environmental regulations. The courts may mete Another problem with the current government configuration out traditional punishments such as fines or jail, but it is only is that none of the central government agencies, and especially the ministry responsible for issuing the license in question that the Ministry of Environment, are empowered to enforce can withdraw concession rights. standards of environmental protection. For example, the Ministry of Environment has pollution monitoring stations Local: Incentives, Empowerment & Capacity on several major rivers to document effluents from upstream Country Environmental Analysis polluters. But the Ministry of Environment has no enforcement One of the biggest issues is that district governments have few capacity so even if there is a violation of performance standards, incentives for sustainable environmental management, what it has no basis for enforcement. All they can do is observed and with inadequate enforcement from the center and inadequate monitor. The monitoring has no way to link to improvements financing to achieve environmental objectives at the local level. in the practices of the businesses that are dumping effluents Rather, they have an incentive to issue concession licenses (with into the river. limited capacity to monitor and enforce good behavior) and stimulate short-term economic activity to generate fees and In Indonesia, the legal instruments are generally deemed taxes. There is a general perception that with decentralization, to be sufficiently adequate for sustainable environmental bribery and corruption has shifted from being centralized in management, yet there remains a serious weakness in Jakarta to being decentralized to the provinces and districts. enforcement of the laws. Government agencies and departments generally are responsible for basic law Without strong enforcement from the central government, or enforcement and prosecution, but the inherited tradition of strong incentives driving local leadership to take a proactive on-the-spot settlement of offences has given government role in conforming to national environmental legislation and 27 agencies the reputation for being involved in corruption and regulation, success in environmental management at the local extortion. This is exacerbated by the observation that the level depends largely on the level of commitment or political authority to issue permits and licenses creates the opportunity will of the individual leadership. Local leadership without to receive gratuities in exchange for a waiver of environmental a commitment to sound environmental management will obligations. inevitably lead to a situation where economic opportunism rules most decisions, while local environmental management Moreover, although laws are effective in establishing what is agencies lack authority, capacity, or both to do their jobs and is not legal, both legislation and tradition generally requires effectively. In the district of Bogor, for example, the local substantial amounts of actual physical evidence be brought government recently allocated only Rp 100 million for before the court, a logistical complication which often causes environmental management activities, while simultaneously prosecutions to fail. Also the police, under the jurisdiction of allocating 20 times that amount (Rp 2 billion) to support sports the Ministry of Home Affairs, have a reputation for siding with related activities in that same year. those who can make financial contributions to causes that are in their interest. Also, since the police report to a central There are other factors, in addition to political will, that affect government ministry, provincial and district authorities can capacity and empowerment of environmental management only request police to investigate specific cases: local authorities at the local level. Uncertainty about mandates and funding have no power to require police action or support, whether for in the decentralization process has limited capacity building raids, road blocks or other means of law enforcement. of local governmental institutions. Government capacity is partly limited by the fact that government salaries are very low Indonesia's judiciary also has a reputation for failing to uphold relative to the private sector, making it very difficult to attract the law in such cases, a fact that has increasing come under the highest-performing people available in the workforce. SECTION 2: Challenges of Environmental Governance Also, government employee training is managed centrally, conflicts caused by these licenses, leaving concessionaires while local institutions generally do not have budgets or to solve them as they may. Some concessionaires revert to even mandates to take responsibility for staff improvement. making either payment to the affected communities, though Another problem for environmental management at the local increasingly, concessionaires are making arrangements for level is that environmental management organizations lack the joint management in the areas of conflicting claims. Box 3.2 authority to do any real environmental development planning. presents a picture of the current chaotic situation. Instead, planning entirely falls within the domain of BAPPENAS, and their provincial counterparts, the BAPPEDA. BAPPEDA Likewise, Indonesia's fishery sector is increasingly a subject of is seen to be effective for planning development, but lack public debate with national and regional NGOs raising concerns necessary experience and understanding of environmental with the unsustainable fishing practices and concern for specific issues for environmental planning. regional and fish species. Current threats to freshwater and reef fisheries include both degradation of the environment by 3.5.2 Specific Obstacles pollution and siltation, as well as destructive fishing practices such as bombing or poisoning. Forestry issues remain among the most publicized environment-related issues facing Indonesia, as forest rapidly With regard to environmental impact assessments, national disappear because of unsustainable management practices. guidelines and standards for have been established by Increasingly, Indonesia's national government is responding the Ministry of Environment, yet the implementation of to this issue, introducing such measures as using independent environmental impact assessments are under the jurisdiction of Investing In a More Sustainable Indonesia consultants to conduct compulsory screening of concessions the regional agencies (provincial and district) for environmental for sustainable practices, supporting certification schemes impact assessments. As noted previously, these local agencies introduced by NGOs, and attempting to make the level of forest are directly responsible to the governors and district heads, harvests more sustainable. Unfortunately these efforts are respectively, and not to any of the ministries of the central constrained by rigid legislation, weak enforcement, unwieldy government. Even though the law and accompanying planning and management procedures, and a general lack of regulations include a list of prescribed activities where ethics among key actors. environmental impact assessments are required, assessments are still not consistently conducted. Another continuing threat to the development of rural communities is limited access to land and natural resources. Currently environmental impact assessments are generally With cadastral records not centralized, and with concurrent conducted by external consultants who have completed a lack of coordination between government agencies, it is not course taught through the Ministry of Environment, with uncommon for unrelated government authorities to issue assessments presented to a review commission for approval. overlapping licenses. With no clear boundaries around forestry The Ministry of Environment is sometimes a member or an or mining concessions, traditional land use patterns are often observer at these reviews. The overall process continues to be interrupted by competition and conflict with concessionaires, viewed as ineffective, and to date several bi- and multi-lateral usually with the traditional users losing their livelihoods development agencies have provided support in attempts to 28 in the process. The government has generally ignored the 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 fill their coffers. 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 firms 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 SECTION 2: Challenges of Environmental Governance 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 benefit higher income groups, while making it difficult for renewable energy to compete and energy to be conserved. · Legal and financial incentive structures have not been effective in curbing illegal logging and slowing down deforestation as well as degradation. · Policy distortions in fishing and mining have contributed to unsustainable harvesting patterns and illegal mining activities. · In all sectors, policy distortions arise from conflicting sector-based regulations and national laws, especially those involving decentralization. · These policy distortions could be overcome through an environmental fiscal policy reform that uses taxation and pricing instruments to raise revenues but also to provide incentives for more sustainable behavior. Investing In a More Sustainable Indonesia 4.1 Main Revenue and Expenditure Trends pricing instruments to raise revenues, but also provides incentives to change behavior. Indonesia's spending for environmental purposes has been relatively low for most of the decade. Two reasons account 4.1.1 Revenue & Expenditure Trends for this trend. First, traditionally the government prioritizes other sectors under its national development plans. Second, Revenues from total natural resource based or the low level of environmental spending points to inadequate environmental revenues exceeded total expenditures environmental revenue collection and underpricing of between 2001 and 200816 , but have narrowed and possibly environmental resources. reversed the trend in the past two years. Based on an annual average, environmental revenues have exceeded expenditures While government spending priorities are a matter of the by an average 2.3 trillion IDR (constant 2001 prices) per year. national development planning framework, this chapter However, preliminary and projected figures for the 2007-2008 argues that it is the existing sub-optimal fiscal structure which budgets indicate that expenditures might have increased diminishes the capacity of the government to invest in better 30 environmental infrastructure, services and utilization of natural Figure 4.1. Environmental Revenues and Expenditures resources. (billion IDR, constant prices, 2001=100) A distorted fiscal policy regime does not provide the right incentives for efficient natural resource management. In the 8,000 180,000 energy sector, fuel and electricity subsidies constitute the 160,000 biggest distortions, as both policies enhance over-consumption, 140,000 6,000 burden the budget and benefit the higher income groups. On 120,000 the forestry side, existing legal and incentive structures have 100,000 not been effective to curb illegal logging and to slow down 4,000 8 80,000 deforestation. In other sectors - notably fishing and mining ­ 6 60,000 policy distortions have contributed to unsustainable harvesting 2,000 patterns and illegal mining activities. In all sectors, policy 4 40,000 distortions arise from conflicting sector ­ based regulations 2 20,000 and national laws ­ notably decentralization laws. This reduces 0 0 20 2001 2002 2003* 2004 2005 2006 20 001 20 200 20 002 003* 2004 2005 0 0 0 0 007 2008** 2007 2008** the effectiveness of institutions to apply environmentally sustainable policies. To Total environmental expenditures (LHS) To environmental revenues (LHS) Total Overcoming these policy distortions requires a comprehensive Total environmental revenues incl oil/gas (RHS) o ot To environmental fiscal policy reform, which uses taxation and Tot environmental expenditures incl. fuel subsidies (RHS) Total o ot 16 2001 was chosen, because of the start of decentralization reforms SECTION 2: Challenges of Environmental Governance significantly, possibly reversing that trend. If one includes fuel Environmental expenditures remain a minor item in the subsidies on the expenditures side and oil/gas on the revenue overall economy, but have increased the share in recent side, then revenues continue to be larger. But here, too, years. Environmental expenditures as part of total government revenue patterns fluctuate significantly, peaking in 2005 and spending are relatively small, moving in the range of 0.6-1.2 declining since then, while expenditures are moving in parallel percent of GDP in 2001-2008. When compared to overall GDP, with revenue trends. Annual revenues averaged around 107 the share is even smaller at 0.24 percent in 2008. In real terms, trillion IDR per year, while expenditures averaged at 55 trillion, environmental expenditures grew by around 30 percent on an leaving a positive gap of around 52 trillion annually in 2001- annual average basis between 2001 and 2008 2008. Despite economic growth and increased government Revenue streams from natural resources use fluctuated expenditures, spending on environmental purposes considerably in 2001 ­ 2008 raising doubts on the validity remains comparatively low compared to other sectors, of some of the data. On average, total natural resource-based with interest payments and subsidies crowding out revenues amounted to 107 billion IDR annually during this other spending items. Indonesia's modest allocations of period. Oil and gas revenues constitute the biggest chunk, resources to the environmental sector have taken place contributing 94 percent to total natural resource revenues. within a favorable economic context. Between 2001 and 2008, In relation to overall central government revenues, natural Indonesia experienced economic growth in real terms, while resource based revenues make up an average 24 percent per total government spending as a share of GDP also increased. year in 2001-2008. The high share of oil and gas based revenues A breakdown into other spending categories shows that the indicate that revenue collection in other sectors could be government has prioritized increased budget allocation to significantly improved (see Figure 4.1) education and government, which increased their budget share significantly. The former increased its share by 5.4 percent, On average, revenues grew 8 percent annually, but this while the latter by a hefty 11.8 percent. In comparison, the Country Environmental Analysis masks an extremely erratic pattern of growth between expenditure share allocated to the environment was only 0.6 individual years. For instance, forestry revenues grew by 55 percent during the same period. Overall, total expenditures are percent in 2001, but then declined dramatically by 46 percent dominated by the government's commitment to pay interest the following year. The following years showed a similar erratic on domestic debt and to subsidies: the central government pattern, with the other sectors, notably fisheries, also exhibiting budget allocates an average 30 percent of total expenditures the same extreme fluctuations. The poor data quality can be to fuel subsidies per year. partly explained by the fact that information on environmental revenues that are earmarked for environmental spending is not 4.1.2 Revenue-sharing collected systematically at the Ministry of Environment. Revenue-sharing from natural resources provides a Nominal environmental expenditure has increased strong incentive for local governments to accelerate substantially during the period 2001-2008 (see Figure 4.2). In depletion. For natural resources other than oil and gas, sub- 2008, national nominal environmental expenditures amounted national governments typically retain 80 percent of revenues to 10.3 trillion IDR up from 1.9 trillion IDR in 2001. The increase from resource sales and taxation (40 percent in the case of 31 was not steady, showing fluctuations between 2003 and 2005, the Reforestation Fund). This provides an incentive for local with environmental expenditures actually decreasing in 2004. governments to accelerate depletion of renewable resources In 2006, there was a very significant jump from 6.1 trillion to 9.3 (forestry, fisheries) and non-renewable resources (mining, trillion IDR. 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 Figure 4.2. Environmental Expenditures 2001-2008 is usually beyond the scope of the electoral cycle. bn IDR 4.2 Key Fiscal Policies Affecting 12,000 1.4% 1.2% Environmental Sustainability 10,000 1.0% 8,000 4.2.1 Macroeconomic and energy policy 0.8% 6,000 0.6% distortions: fuel and electricity 4,000 0.4% subsidies 2,000 0.2% 0 0% Indonesia's economic growth path became increasingly 2001 2002 2003 2004 2005 2 001 0 2003 20 0 2004 20 2005 2006 2 2008 2007 2 carbon-intensive. Figure 4.4 shows that from 1980 to 2004 CO2 emissions grew faster than energy use and energy use National environmental expenditures Na grew faster than GDP (Resosudarmo and Jotzko 2008). In other Environmental expenditures as % of total expenditures nv n En words, as the economy grew, energy intensity (energy/capita) SECTION 2: Challenges of Environmental Governance also grew but CO2 emissions grew even faster. This points to Fuel subsidies remain high, despite adjustments in 2005. a lack of investment in cleaner technologies in the energy The share of fuel subsidies in the budget has fluctuated widely sector. in the past 10 years. These fluctuations are mainly caused by international oil prices and the exchange rate. Fuel subsidies Domestic policies create disincentives to use energy more peaked in 2000, accounting for 28.6 percent of total spending, efficiently. Current fiscal policies rely heavily on subsidies and and decreased again in 2001 as the government executed a provide wrong price signals. Fuel and electricity subsidies are slight fuel price increase in October 2000. Subsidies decreased the prime fiscal policy instruments the GOI uses to ensure markedly in 2002 and 2003, as a combined result of appreciation price stability for domestic consumers. Many false economies of the IDR and a slight decrease of the international prices of oil. and disincentives can be traced to these subsidies that are In 2004 and 2005, fuel subsidies increased sharply following a mandated by the "public service obligation." Upstream hike in international oil prices (increase of 97 percent in 2004 policies on pricing and incentives influence downstream relative to 2003), and decreased again after the reduction of investment and environmental outcomes, as illustrated in the fuel subsidy in March and October 200517. Figure 4.3. Issues of concern include inefficient use of energy resources, over-consumption, compromised GOI fiscal position, Fuel subsidy reductions in 2005 freed up around $10 billion unpredictable budget outlays, ineffective targeting of subsidies (World Bank 2007). However, fuel subsidies in 2008 were towards poor consumers, under-development of alternative projected to have increased again to 13 percent of total energy subsectors, leakages and smuggling, and adverse government expenditures or around USD2 billion. Furthermore, environmental and health effects. in response to the global financial crisis and lower global Investing In a More Sustainable Indonesia fuel prices, the government decreased the regulated price These complexities and inter-linkages illustrate the challenges of gasoline from IDR 6,000 to IDR 5,000 in December 2008. ahead in making progress on environmental and climate change Transport diesel prices were cut from IDR 5,500 to IDR 4,800 issues at the downstream end of the policy distortions. Analysts per liter. In January 2009, the government continued to cut have suggested some parallel actions that would help with a gasoline and transport diesel to 4500 IDR per liter. transition to a more sustainable fuel sector policy framework (WB, 2007). For example, the GOI could move toward petroleum The environmental impacts of the fuel subsidies have not pricing aligned with international benchmarks, better targeted been quantified yet, but are very likely to be significant. poor protection efforts, and more widely available alternative International evidence suggests that distorted price signals energy sources. often lead to wasteful consumption of petroleum products with dire environmental effects. Higher oil prices mean that the Figure 4.3. Key Policy Distortions Impede Potential for Low Carbon Options in Energy Sector 32 Summarized and Adapted from WB IDPL (2007) and from WB CEA (2009) SECTION 2: Challenges of Environmental Governance Figure 4.4. Annual Growth Rates of GDP, Energy Use and which relies heavily on subsidies and thus provides no Emission per Capita incentives to promote renewable energy supply. Subsidies Emissions per capita Em to the electricity sector accounted for 28 percent of total 3.0 subsidies in 2006. Electricity subsidies comprise of a direct subsidy to PLN (11 percent) and an indirect subsidy through 2.5 the provision of oil derivatives at subsidized prices (17 percent) GDP per capita GD 2.0 Energy per capita n En (World Bank 2007). 1.5 The key problem is that PLN applies a national subsidized 1.0 electricity tariff, but faces different supply costs throughout the country. The removal of the fuel subsidy to PLN in 2005 0.5 pushed the supply costs up, plunging PLN into near insolvency. 0 The government expanded the PSO to include all consumers, 1980 1984 1988 1992 1996 2000 2004 pushing up the cost of subsidies further up. PSO payments increased from USD 400 million in 2004 to USD 3.5 billion in Source: International Energy Agency (2007) [http://www.iea.org/] quoted 2007. The combination of fixed electricity tariffs and higher in Resosudarmo and Jotzo (2008) production costs ­ due to higher fuel prices ­ will keep pushing up the cost of the subsidy for the government (World Bank 2007). gap between domestic subsidized fuel prices and international Moroever, it leaves the government with a limited capacity to prices becomes larger, increasing the budget share of fuel invest in the much needed expansion of the country's power subsidies. Moreover, subsidized fuel prices present an incentive infrastructure. for smuggling and corruption (Granado, Cut Dian and Fengler 2008). These energy price distortions hamper the development Country Environmental Analysis of alternative renewable energy production. Under the In Indonesia, oil-based production and consumption is still government's energy blueprint 2005 ­ 2025 the share of the largest source of energy-based CO2 emissions, although it renewable energy production is targeted to rise from 4.3 decreased in the past two decades: in 1984 the share of oil in percent to 17 percent. However, this target is only achievable, if total emissions was 99 percent, but in 2004 it fell to 31 percent. the government provides the price incentives to make options This reduction is caused by depleting domestic oil reserves and like geothermal energy production more competitive (see higher international oil prices. However, as oil reserves deplete, Box 4.1). Currently, the government favors the expansion of the economy switches to even more polluting coal: emissions cheaper, but more emissions-intensive coal fired power plants from coal ­ based sources increased from 1 to 53 percent during under its 10,000 MW Electricity Fast Track Program. But if fuel the same period (Resosudarmo and Jotzo 2008). and electricity subsidies would be removed and environmental externalities associated with coal-fired electricity production The increasing carbon intensity of electricity production is would be accounted for, geothermal and other low-emissions to a significant extent a result of the current pricing regime, technology options would be commercially more viable.. 33 Box 4.1. Barriers to Geothermal Energy Supply Geothermal power development in Indonesia provides one of the best alternative options for a more efficient and sustainable expansion in an environmentally friendly manner. With nearly 40 percent of the world's potential, Indonesia has a significant 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 significant 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 reflect 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 efficiently 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 benefits associated with geothermal energy production. Recent estimates suggest that electricity from a 600 MW coal-fired 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 benefits 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). SECTION 2: Challenges of Environmental Governance Figure 4.5. Incidence of Fuel Subsidies 27 percent on average. Licensing fees for the rights allocated to industries to use huge areas of state claimed land generate Subsidies go mostly to the richest less than 2 percent of total revenues, and this amount has been Share of fuel subsidy received by households in each consumption decile declining. 50% But implementation of the decentralized revenue sharing scheme has been difficult, owing to an unclear relationship 40% between the regional autonomy and decentralization laws and the forestry laws. The forestry law (41/1999) gives 30% the central government control over forestry issues, while regional autonomy laws (22/1999) transferred authority to 20% local governments. This has caused disputes between central and local government authorities, particularly in the initial 10% phases of the decentralization process. As a result, there was a proliferation of local fees and taxes to raise revenues and the 0% 1 2 3 4 5 6 7 8 9 10 issuance of local logging rights, speeding up deforestation. Poor Household consumption decile Rich The process of re-distributing revenues has been slow and Source: Agustina, Granado, Bulman, Fengler, and Ikhsan (2008) sometimes not transparent. This is mainly due to a cumbersome Investing In a More Sustainable Indonesia process within the Ministry of Forestry to reconcile data from Specifically in the power sector, the government needs to the regions. The Ministry of Finance then allocates the revenues recognize that it needs to implement cost-reflective electricity of forest concession license fees and the reforestation fund back tariffs in the long run. Without these, the private firms will not to the regions. As Fox, Adhuri and Resosudarmo (2005) report, undertake investment in the power sector, unless they receive some local governments have instructed logging companies guarantees or other forms of support from the government not to submit their contributions to the central government (IEA 2008). but to pay them directly to the district governments. This has prompted central authorities to monitor revenue flows closely Fuel and electricity subsidies are socially regressive, and to issue warnings to several districts. benefiting the higher income quintiles. Results from benefit incidence analysis suggest that 89 percent of the fuel subsidy An added complication of the revenue-sharing scheme is absorbed directly by households (an equivalent of 5 percent of that 40 percent of the DR revenues should be allocated to the total budget) benefits the technically non-poor. Electricity "producing regions". There is a lack of clarity on the definition subsidies are also regressive, although not as much as fuel of a `producing region', leading to some districts arguing subsidies. (Granado, Cut Dian and Fengler 2007). that `producing districts' should receive these proceeds. In 4.2.2 Forestry and Land Policies18 Figure 4.6. Ministry of Forestry Revenue by Source 34 Ministry of Forestry Revenues by Source (1999-2003) The GOI earns substantial revenues from the forestry sector through three main types of fees (non-tax revenue). The HPH & HTI License Fees 1% main forestry fees are for the licensing of forest concessions (fee paid for the right to harvest timber on both natural forest Fines, Wildlife, &Tourism 0% Forest Resource Levy 27% 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 Reforestation Fund 62% contribution to forest sector revenues, by far (>70 percent Interest on RF (DR) 10% using combined figures for the period 1999-2003). The forest resource harvesting levy (royalty) also contributes an additional Source: World Bank (2006) 18 The following section draws heavily from World Bank (2006) SECTION 2: Challenges of Environmental Governance practice, the producing province gets the 40 percent share, 4.2.3 Mining causing frustrations among several districts (Fox, Adhuri and Resosudarmo 2005). The key policy distortion in the mining sector is the legal uncertainty arising from conflicting interpretations of Earnings from illegal logging are huge and are not captured the decentralization, mining and forestry laws which by the government. Using simple estimates by assuming that undermines the long-term certainty in the Contract of illegal logging is as high as 30 million m3/year, then unreported, Work (CoW) system. Before 1999, Law 11/1967 on Mining illegal revenue is at least equal to $3 Billion (based on $100/ and the accompanying implementing regulations established m3) and uncollected taxes are at least equal to $ 600 million, a system of individual contracts of work (CoWs) based on each year (based on tax revenue of $20/m3). Using a more direct negotiations between mining companies and the complex and complete procedure, BAPPENAS-NRM-MFP (2004) central government. The decentralization laws with more estimated that annual profits to illegal logging were about $1.5 revenue-raising power delegated to local governments billion per year and excess profits to industry are about $350- undermined the existing CoWs. The government then issued $400 million per year due to the modest levels of taxes and Law 22/2001 on mining, which has confirmed the right of the royalties set by the GOI (World Bank 2006). central government to award mining contracts and to set the conditions for revenue sharing among different stakeholders The current system of taxes and incentives is insufficient to (Fox, Adhuri, Resosudarmo 2005). However, real investment reduce illegal logging and increase economic rent capture. flows to mining operations has been stagnant since 2000, with Fees, levies and fines for forestry infractions, authorized wildlife global mining companies rating investment conditions and exports, and tourism all together account for less than hundreds legal issues as main worries (PricewaterhouseCoopers 2006). of thousands in earnings in most years. In particular, fines for infractions are very small relative to the level of illicit earnings. Relatively complex revenue-sharing formula is cause This highlights the need to strengthen enforcement measures for disputes between central government and regional Country Environmental Analysis as well as the means to recover the costs of illegal activity. governments. The revenue-sharing formula for general mining distinguishes between different regional units Addressing policy distortions should start by viewing (producing areas/daerah penghasil) within same province. The taxes and fees as incentive instruments, not merely as lack of clear guidelines on how to distinguish between these means for revenue collection. Indonesia's forests are being regional units and the long, complex procedures to make depleted: their long term potential to produce timber is these revenues flow from the centre to the regions makes being damaged, along with the environmental benefits they it difficult for district governments, sub-districts and village provide. Some argue that all or most "excess profit" should be heads to benefit from lucrative resource extraction. This creates taxed away ("captured"). Others argue that earnings due to investment uncertainties for mining operations on the ground, forest depletion may not be a sustainable or socially desirable as local frustration provides an incentive to local governments source of government revenue. To reduce forest depletion, to increasing rely on imposing local taxes and fees to raise environmental damage should be made expensive (taxed), not revenues (Fox, Adhuri and Resosudarmo 2005). timber harvesting. An appropriate tax and incentive regime should protect the land's environmental services and future As a result, since the beginning of decentralization process 35 productivity (next tree crop), not simply capture profit from in 2001 there was a proliferation of local additional taxes and short-run forest depletion (World Bank 2006). levies on mining companies which has increased investment uncertainty. Local governments have devised an array of local Specific incentive instruments could include performance taxes and fees on top of payment requirements in individual bonds, tenure arrangements, auctions, and better contract of work (CoW). For example, regional governments inspection and enforcement. Both forest sector taxes and issue new local mining rights on areas already covered by environmental bonds should be set and managed in a way existing CoWs. that promotes long term logging behavior and sustainable forest management. Similarly, any auction, transfer, or long Conflicts between mining and forestry regulations have term licensing rules should be designed to provide incentives added another layer of uncertainty. Law No.19/2000 allows to manage the land as a sustainable resource, not a short run for mining in protected forests and the status was confirmed by windfall. If there is a desire to capture "rent" or "excess profit," the Constitutional Court in 2005, followed up by a Presidential these taxes should be linked to earnings after long term forest Decree in 2004 which allowed 13 existing concessions to management investments are made and environmental operate in protected forests. Recently, the Ministry of Mines damage prevented (rather than linked directly to revenue and Energy has announced a plan to issue a Presidential Decree or short-run profit). If there are distributional objectives, to allow more mining companies to operate in protected "excess profits" could be taxed at a rate higher than the normal forests against an annual fee of 3 million IDR/ha (Jakarta Post, corporate tax rate. Applying these instruments effectively will 3/1/2008). However, the efforts to open up protected forests for of course depend on whether GOI is capable of enforcing basic mining has been opposed by many CSOs and the Ministry of tax and payment rules (World Bank 2006). Forestry. The Ministry of Forestry has also issued government regulation 14/2006 which adds several requirements on mining SECTION 2: Challenges of Environmental Governance companies, including the possibility of new additional royalties. fleet and now represent more than half the motorized fleet. A draft of the new mining law is now currently being discussed Fishing capacity measured in "boat tons" increased six times in in the parliament. Investors are concerned that the law will the same period, indicating an enormous increase in pressure contain provisions to replace existing CoWs with shorter-term on Indonesia's fishery resources. Estimates of maximum mining licenses (Reuters, Feb 27, 2008). sustainable yields (MSY) vary, ranging roughly between 5 and 6 million tons per years. However, taking account of the over- A new mining law has been passed by the Parliament, leaving capacity of the domestic fishing industry and illegal fishing investors in a state of uncertainty. The key feature of the new operations, actually catches are vastly under-reported and are Mining law is that the current existing work licensing schemes more likely to be in the 8 million tons and above region. This (or contract of work agreements) are to be replaced with permits vastly exceeds MSY estimates (Patlis 2007). Increasing conflicts with shorter time frames. Previously, the maximum length of involving disputes between fishery communities coming from a lease was 30 years. The new law allows for a maximum of different regions, as reported in Fox et al (2005) are an indication 20 years, with an option to extend for another 20 years. This that stocks are approaching limits. Additional increases in effort provision will raise some uncertainties from the point of view will likely lead to declines in fish catch. of investors in large ­ scale mining operations, looking for a secure guarantee in tenure. However, the government will The key policy challenge is to increase the value added of spell out details of the law in issuing implementing regulations fishery production, while limiting harvest growth. Brown, and consulting stakeholders in the the process (Jakarta Globe, Bengen and Knight (2005) argue that this can be done in several 2009). ways. To increase GDP, fisheries sector planners and mangers Investing In a More Sustainable Indonesia can increase value added through improved processing and 4.2.4 Fisheries storage. These improvements would also increase linkages to the rest of the economy, which results in `multiplier' benefits Economically, the fisheries sector accounts for 2.4 percent beyond the contributions of the individual sector. of total GDP in 2007 (constant 2000 prices), making it the second largest sector in agriculture after non-food crops Increasing the value of the existing catch would include finding (6.8 percent). The fisheries sector employs around 3 million ways to preserve more the catch and reduce spoilage through ­ people or percent of the total workforce, according to the for example - cold chains and processing. Finding new markets latest available data from the labor force survey in August 2007. and investing in value added processing would also increase Fish and shrimp account for 30 - 40 percent of food export the value of the catch without increasing the pressure on the value, which is only 5percent of total export values. The marine limited resource. capture fishery is the most important component of the fishery sector. Fish culture is growing quickly, too, but inland fisheries Increases in tax revenue contributions can be achieved without are stagnant or declining. Most fisheries production is used increases in harvest. Tax and non-tax revenue contribution from directly as food, not exported. This has important implications fisheries is quite low. This may indicate that increased effort on for the livelihoods and nutritional status of Indonesians, as tax administration and collection effort for this sector could well as the prospects for increasing value or growth in exports yield high returns in terms of revenue collected. However, one 36 (Brown, Bengen and Knight 2005). has to bear in mind that fishing is a diffuse activity and landings take place across Indonesia, so tax collection is relatively Recent estimates suggest that that Indonesia may rapidly difficult. Still, tax and non-tax revenues figures seem to show approach the limits to harvest growth in the fishery that tax revenue from fisheries is not commensurate with its sector. The rising numbers of boats and industrial vessels has economic contribution and its contribution to export value. significantly increased the industry's capacity to harvest fish Indonesian planners could increase tax revenue by raising the stocks. The marine fishing fleet tripled in numbers in the last 20 marginal tax rate or by increasing the efficiency with which years and now amounts to an estimated total of 460,000 vessels. taxes are collected (Brown, Bengen and Knight, 2007). Larger motorized boats are the fastest growing segment of the Chapter 5: Constituency, Awareness and Critical Partnerships Children playing (World Bank Collection) Photo: Curt Carnemark SECTION 2: Challenges of Environmental Governance MAIN MESSAGES · The environment is on the radar screen of the Indonesian population, especially issues concerning water (pollution, floods, droughts), cities (cleanliness, solid waste, air quality) and forests (degradation, illegal logging, fires). · 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 effective demand for environmental sustainability. Investing In a More Sustainable Indonesia · Local view on environmental perception: surveys 5.1 Public Perceptions of the Environment designed to gauge the public awareness or attitude towards particular environmental or natural resources A search was conducted to identify past surveys on public issues of one or more areas (provinces). The remaining perception on environment. An attempt was made to locate surveys in the above list fall into this category. Most surveys that were generic in nature, i.e. not specifically of the surveys were conducted in relation to a donor- designed to support a particular program or project. The search funded program, with the exception of the WALHI combined internet search with inquiries to contacts in various and Papua surveys. organizations, and a visit to the Ministry of Environment's library. A total of 24 surveys were found, covering a period between Based on the above surveys, a composite picture of the 1998 and 2007. The surveys were examined and only relevant Indonesian public's perception on environment was pieced surveys were selected. Some surveys were considered too together. Although a full and comprehensive picture was not specific (and program-oriented) for the purposes of this study19. obtained, the following attempts to summarize the findings The selected surveys were studied to compose a picture on the of the various surveys examined, and to make a statement on perception held by the general public on environmental issues. public perception on environment. Table 5.1 describes the surveys selected for this study. The surveys that fall into the `birds-eye view' category does not 38 The nature of the surveys varies significantly. In this study they provide a strong sense that environment is a top priority for are differentiated based on their treatment of environmental Indonesians, nor does it show the reverse, that Indonesians do issues and their geographic scope. The surveys thus are not at all care about the environment. The two surveys show classified into 3 categories: that environment does appear on the radar of the Indonesian public, but does not appear to be the most pressing issue they · Birds-eye view: surveys not specifically designed to face. capture environmental views, but include a general question on environment. The Pew Global Attitude · The Pew Global Attitude Survey found that only survey and the CLSA "Mr. and Mrs. Indonesia" fall about 30 percent of Indonesian respondents into this category. In terms of geographic span, the identified that "pollution /environment" is the first Pew survey covered 47 countries around the world, or second greatest dangers in the world today. The including Indonesia. While the CLSA survey was Indonesian respondents largely identified the "gap specifically designed for Indonesia. between rich and poor" and "religious/ ethnic hatred" as the greatest threats. When asked specifically about · National view on environment perception: surveys global warming, 44 percent Indonesian respondents designed specifically to obtain the public's opinion on said it was a "less serious" problem, compared to 43 environment. Only one survey falls into this category, percent who said it was "very serious". namely the KLH survey. However, not all environment and natural resources issues were covered; only those · A market survey of middle-class Indonesians (CLSA issues of relevance to KLH's portfolio were surveyed. Indonesia, 2007) with a much larger sample size 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 SECTION 2: Challenges of Environmental Governance (21,000) gives a more positive outlook. In this survey Kalimantan. The study concluded that the "public `Environment' was identified as the third topic of was already quite well aware of forestry issues", such "biggest concern" among Indonesian middle- as on forest degradation, impact on natural disasters class (reaching 79 percent of respondents), after such as flooding, landslides, drought, the demand for `Corruption' (81 percent) and `Job Security' (80 wood exceeding legally produced wood. However, percent). `Environment' even ranked higher than this study also states that "knowledge of particulars `Kid's Education' (55 percent) and `Crime' (46 percent). was limited" among the respondents. Examples of The sample was largely urban. particulars that are not well known are: amount of wood needed, rate of forest destruction and the The national view gives a closer look at the environment in actual meaning of `sustainable forest management'. the eyes of the public. With a sample size of 5000 respondents in urban and rural locations, the KLH survey found that the · Swisscontact conducted 2 surveys in DKI Jakarta on air majority of respondents consider their cities, rivers and air to be pollution, particularly caused by vehicular emissions. moderately to severely polluted. Only a small percentage have The study shows that the Jakarta public has "high a positive perception of their environmental conditions. Only cognition and affective results on air pollution, but is 22 percent say their cities are clean and green; only 14 percent generally reluctant to practice air pollution reduction" say their rivers are clean; only 33 percent of respondents feel (Swisscontact, 2003). A similar study in 2004 gave a the air quality is good. mixed picture. About 70 percent of respondents say they are not aware of the negative impact of emission The local-view surveys, which addressed environmental issues towards human health and productivity, but felt that specific to the region, seem to indicate that Indonesians were air pollution should be a main priority (66 percent). able to respond or give an opinion on certain environment/ natural resource issues raised in the survey. · A survey conducted in Jakarta by WALHI also indicates Country Environmental Analysis that a random set of people are able to identify issues · The KAP survey showed that about 30 percent of they felt are at `crisis' level in Jabodetabek. The survey respondents in East Kalimantan and North Sulawesi resulted in the following top issues: garbage (40.5 indicated they were `very concerned' about water percent), air pollution (37.5 percent), traffic jams (34.7 (river/lake), pollution in general, forests and land. percent) and floods (24.5 percent). · The INFORM focused on forestry issues in North · Surveys done in Papua showed that "more Papuans Sumatra, Jambi, Jakarta, West Java, Central 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- Pew Research Center 1,008 respondents spread in most part ease with Major World Powers", 2007 of the country 39 2 "Mr. and Mrs. Indonesia", 2007 commercial CLSA Indonesia (Roy Morgan) 21,000 respondents (middle class) in market survey 20 big cities 3 "Public Perception on Efforts of Natural State Ministry of Environment (KLH) 5,000 respondents from 22 cities and Resources Management - Looking Upon 41 kabupaten 2009"; 2006 4 "Knowledge, Attitudes and Practices (KAP) Natural Resources Management 2,000 respondents from 2 provinces Survey Report - North Sulawesi and East Project (USAID) (East Kalimantan and North Sulawesi) Kalimantan" 5 "Report of Study on Jabodetabek Crisis", WALHI 1,000 respondents in DKI Jakarta 2007 6 "Laporan Segar Jakartaku", 2003; aware- Swisscontact 1,517 respondents in DKI Jakarta ness survey following public campaigns 7 "Survey Campaign 2004 ­ Indonesia", Swisscontact 2,292 respondents in DKI Jakarta awareness survey following public cam- paigns 8 "Indonesia Forest and Media Campaign INFORM program (PT. Insan Hita- 900 respondents in North Sumatra, Monitoring and Evaluation" wasana Sejahtera) Jambi, Jakarta, West Java, Central Kalimantan 9 "Papua Public Opinion Survey", 2003 International Foundation for Election 3,450 respondents in 12 districts in Systems (IFES) Papua SECTION 2: Challenges of Environmental Governance waterways have deteriorated over the past 5 years · The Swisscontact 2004 survey indicates that about 70 (than think they have improved)". And yet, "more percent of respondents feel that government is most think the condition of their air, seas and oceans and responsible for air pollution, and seems to indicate soil have improved over the past 5 years". "public does not feel they need to take initiative to handle air pollution". The surveys indicate that the Indonesian public is quite aware of the general condition of natural resources and environment The picture that emerges is one where the environment is on in their immediate surroundings. However, several studies the radar of the Indonesian population. However, to define show that understanding of technical or specific information more clearly which environmental issues they are concerned on cause, effect and solutions are weak. about remains difficult. This is because the national- and local- view surveys were designed to address certain issues, and did Regarding attitude, the Indonesian public does not demonstrate not provide an opportunity for respondents to give an opinion a strong attitude towards environmental protection or natural on the whole array of environment and natural resources issues resource conservation. Although there seems to be interest faced by Indonesia. If the fact that they responded positively to in these issues, political participation and personal action is certain issues raised in the survey can be considered indicative limited. Most still identify the government as the party most of their concern for that matter, then it is possible to conclude responsible for managing the resources/ environment. that the public is highly concerned about: · The KAP Survey found that natural resources are · Water (pollution, floods, drought), Investing In a More Sustainable Indonesia regarded "primarily as a principle source of food or resource to be sold for money for direct family · Cities (cleanliness, solid waste, air quality), welfare". The attitude of respondents towards natural resources is still low compared to attitude towards · Forests (degradation, forest fires, illegal logging), daily needs and family welfare. And although the "desire to protect natural resources is high", the The data available does not allow a deeper investigation into level of political participation with regard to natural the perceptions on each environmental sub-topic. In fact, resources issues is quite variable, with 61 percent in it is difficult to claim that the majority of Indonesians is only North Sulawesi and only 34 percent in East Kalimantan concerned about the three sub-topics. However, lacking more claiming participation. compelling and comprehensive data, the rest of the analysis will use the three sub-topics as the best-estimate. · The INFORM study found that respondents are willing to participate in actions or activities to prevent, stop 5.2 Compatibility of Public Perception with and overcome forest destruction, as long as they do Government Priorities not bear significant risks. Further, the public "assigns the government as the responsible agency to manage Compatibility between government agenda and public concern the forests, except when it concerns utilization of on environment is seen as an indication that public concern is 40 forest products, communities want to play a role". effectively 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 insufficiently 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 fulfillment and upholding of these rights were insufficiently 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 suffers 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 fulfilling 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 SECTION 2: Challenges of Environmental Governance undertaken that uses the three environmental issues of public change (WorldPublicOpinion.org, 2007)21. Energy, on the other concern identified in the previous chapter. Each issue was hand, generally is not seen by the public as an `environmental' evaluated with regard to: issue and thus does not emerge in public surveys. Hazardous materials and waste issues never seem to be understood by the a. trends in environmental degradation; public, likely due to the highly technical nature of information. b. inclusion (or exclusion) in the government agenda In conclusion, with issues of public concern represented fairly (represented by the existence of programs and budget well in the government agenda, it is safe to conclude that allocations20 to address the issues); public-to-government communication does occur effectively. However, the public still lacks awareness or concern about c. effectiveness of the above programs in ameliorating the some issues that the government regards as important. This situation (where data are available). indicates that public awareness of environment and natural resources is still limited in breadth. The analysis, available in the cited background paper, indicates that the government has addressed the key environmental 5.3 Assessing the Quality of Public Access in issues of concern to the public. Programs are in place, and Environmental Governance most have some degree of financial support from the national government. Good environmental governance requires the application of the principles of transparency, participation and accountability in However, when compared to data on environmental trends, environmental planning and decision-making. Public rights to it appears that deterioration of the environment continues to information, participation and justice are essential prerequisites proceed. This analysis concludes that government programs for the effective implementation of these principles. These are are unable to outpace the rate of environmental degradation. further defined as: Country Environmental Analysis This means that the programs are either too slow to have effect, the programs are too limited in scope to produce · Access to information ­ every person has the right systemic improvements, and/or that demands and pressures to access full, accurate and up-to-date information on the environment (and natural resources) from development about the environment; activities evolve too fast for government programs and legislations to keep pace. · Access to participation in decision-making ­ this includes access to participation in making decisions It is noteworthy that several items on the government's on environmental policies and programs, participation environmental agenda do not appear as issues of concern to in the legislative process and participation in making the Indonesian public including: particular environmental decisions based on an interest in the subject matter; and · Atmosphere (global warming, greenhouse gases, ozone depleting substances); · Access to justice ­ the existence of a mechanism by which members of the public can directly uphold 41 · Coastal and marine resources; environmental law should their rights to information, participation and/or enjoyment of a healthy · Biodiversity; environment be infringed. · Energy (clean-coal, alternative energy); and These access principles were part of the 1992 Rio Declaration and were subsequently reaffirmed at the 2002 World Summit · Hazardous materials and waste. on Sustainable Development as well as through other international agreements. Although some of the topics above were excluded from the scope of the surveys used in this analysis, it is fair to conclude A set of indicators has been developed by The Access Initiative, that, in general, the Indonesian public's awareness of these a global coalition of NGOs, to assess governmental performance issues and concern is limited. Coastal and marine resources, in fulfilling the three access principles. The Indonesian Center for example, ranked low in the KAP surveys conducted in East for Environmental Law, a member of the Initiative, has recently Kalimantan and North Sulawesi. Awareness of climate change completed an assessment based on these indicators in the issues may just be developing since the UNFCCC in Bali end of representative provinces of Riau, West Kalimantan, East Java, 2007. It is curious that a world opinion survey that included Central Sulawesi, and North Sulawesi. The results of the Indonesia, did not ask respondents the question about climate assessment are summarized in Box 5.1. 20 Data was only available for budget allocations, are used, in this study, as indication of government concern and intentions. 21 The report states that local survey partners were given the discretion to exclude certain questions. SECTION 2: Challenges of Environmental Governance 5.4 Key Partners for Communications and Swisscontact survey (2004), TV and radio were the main sources Awareness of information on the clean air campaign, followed by outdoor media (banners, posters and billboards). Swisscontact found In any democracy, three actors play a key role in bridging that newspapers and magazines play a lesser role. communications between the public and the government, namely mass media, legislative, and civil society. Besides Casual observation22 of Indonesian media coverage indicates individual links, the three actors reinforce each other's work, that news items and public service advertisements on especially as control mechanisms for the executive branch of environmental degradation, disasters, and over-exploitation government. of natural resources have increased over the years, in both electronic and print media. TV stations broadcast in-house In post-reformasi Indonesia, the three actors are undergoing a documentaries on illegal logging, forest fires, floods, garbage, multi-dimensional transition ­ one that covers their roles and etc. A "Green Radio" was also launched recently in Jakarta responsibilities, who institutions cater to and who they must (previously Radio Utan Kayu), with all its programs geared be accountable to, relationships with other institutions both towards building environmental awareness. And print media horizontally and vertically. The term "democratic consolidation" features investigative reporting on various issues, usually is used by some researchers (Diamond, 2003 as quoted in surrounding certain incidents (such as floods, forest fires, Susan, undated), which implies a process that will lead to a new landslides, etc). The UN Conference on Climate Change in Bali, equilibrium in how the nation and its people act and react to December 2007, also provided an important momentum for the demands of the time or situation. In this period, the pillars media to cover a wide array of environmental issues. Investing In a More Sustainable Indonesia of democracy -- freedom of political expression, freedom of speech and freedom of the press ­ are being developed, Although media coverage on environment may have increased strengthened and reaffirmed. The players of this democracy, in Indonesia, it's proportion and emphasis, relative to coverage government executive branch, legislative branch, judicial on conventional issues, it is still miniscule. In the socio-political branch, civil society and the mass media, are challenged with arena, the news is dominated by stabilization of the economy, realignment and reestablishing their allegiances and redefining anti-corruption drive, exercise in democracy (represented in their constituencies. local elections, political parties, parliamentarians, etc). But the dominant features of electronic and print media coverage This section will discuss the three actors, and their role in are entertainment, infotainment and consumer product communicating the public's environmental concerns and advertisements. Environment's low position in the media totem aspirations on the environment. An additional, and possibly pole creates only a superficial pro-environmental attitude an emerging player, will also be explored, namely religious among the Indonesian public, if at all. institutions. Each section will discuss the role of the player in influencing public opinion as well as in channeling public The role of media in channeling public concern to the opinion to influence government agenda, if any. This part of Government may be even more limited. From the surveys the analysis is largely based on literature review and interviews examined in this study, East Kalimantan and North Sulawesi with selected resource persons (a list is provided in Attachment respondents claimed they use media as the last resort in 42 B). Where information was available, survey results examined in expressing their environmental aspirations, and prefer going this study were quoted as additional evidence. directly or writing letters to the relevant government institution (KAP survey, 2001). However, it may be misleading to define 5.4.1 Mass Media the role of media solely through the public's preference for communication (or conveying complaints). The media's role Mass communication literature states that "agenda setting must be seen in a more complete picture, which includes media is one of the most prominent effects that the media have on coverage of NGOs voice on environment. public opinion" (Yin, 1999). The public responds to information presented in the media. Yin further quotes "the public is likely 5.4.2 Civil Society Groups to be aware of certain issues and consider them as important if these issues are highlighted by the mass media". In the environment field, NGOs/CVOs have played an important role ever since environmental management was In identifying the factors that influence public perception, the incorporated in the development agenda in the mid-1980s. KAP survey found that media was the main source of information NGOs/ CVOs are classified into different types, but for the for both North Sulawesi and East Kalimantan respondents. environment field, their main mission or activities include: a) Media includes radio, newspaper, and TV, although TV is advocacy, b) scientific and/or policy research, c) community considered more important in rural areas than in urban areas. development/ empowerment, d) public awareness/ education, The INFORM survey also found that TV is more effective (and and e) conservation. With respect to public perception on likely the least cost per head), while printed media and radio environment, NGOs/ CVOs play at least two important roles, seems to be less effective. Among Jakarta respondents of the namely as: a) Source of environmental information for the 22 This study was unable to find statistics on news coverage on environment/ natural resource issues. SECTION 2: Challenges of Environmental Governance public; and b) Agent for bringing public's environmental is no mechanism or regulation that defines, elaborates or aspirations to the Government's attention. These roles will be institutes how a political party interacts with their constituents. discussed in the following. Relationships with constituents become individual rather than systemic in nature (http://forum-politisi.org). An interview with a In recent years, the role of NGOs in the post-reformasi period DPRD member from West Java Province confirms this assertion. has come under scrutiny. "Politicians have started to ask This veteran parliamentarian claims that communication with questions regarding NGO legitimacy and how much they the public is very dependent on each individual's commitment really represent the interest of their constitutents" (Antlov et.al, and willingness to spend the hours attending Musrenbang 2005). Furthermore, the "role of public watchdog is no longer sessions or other community meetings. Many DPRD members monopolized by NGOs, but shared with other actors..." The only attend the opening ceremonies for such meetings, and challenge of the time is "reformulation of NGO positions vis-à- leave before the substantive discussions begin (Bawono, vis the state and various other sectors in society", in a setting personal communications, 2008). Furthermore, individual where "power is no longer centralized but distributed among members of the parliament do not obtain any support from their new power centers, such as parliament, political parties and political party in their effort to communicate with constituents. judicial institutions" (Antlov et.al, 2005). Parties tend to use constituents for short-term gains every 5 years, namely getting votes during elections (LGSP, 2008 and In this new setting, environmental NGOs will be challenged to http://forum-politisi.org). The term `constituent relations' is define more clearly their comparative advantage as`mouthpiece' understood as building relations with specific interest groups for the public or certain components of the public. Political that can help get a legislative candidate elected (LGSP, 2008). parties and parliamentarians, particularly, claim they have a more legitimate role in representing the public's views and With legislative members left to their own devices to aspirations. Granted that political parties and parliament are, communicate with the public, to obtain information on what at present, still in the process of trying to establish credibility the public needs or wants, it is not surprising that the legislature Country Environmental Analysis (amid myriad corruption cases and personal scandals), the have little to base their arguments in debates with the executive public can be expected to be more discriminating in selecting branch or other parties. This is further aggravated by the paucity who to represent their aspirations. of "intellectual support", meaning provision of "background and specialist information ­ sifting and systematic explanation of a NGOs have also been challenged to improve their accountability, mass of material" (Sherlock, 2003). At the provincial and district both in terms of management of activities, as well as funding levels, members must do their own research or hire assistants at arrangements. International donors and sponsors have their own expense (Bawono, personal communications, 2008). demanded better reporting of financial contributions, while A member of DKI Jakarta parliament also says members rely on others see the need for NGOs to distance themselves from their knowledge of living conditions of their city, as well as input international donors. "It is also important that the philanthropic from others around them (Mukhayar, personal communication, sector expands in Indonesia, so that civil society organizations 2008), indicating the absence of structure in the way parliament in Indonesia become less dependent on foreign funds, and in members prepare for their duties in representing aspirations of that process start to relate increasingly directly to Indonesian the public. Only at the national level parliament, do members stakeholders, being more responsive to local developments" have intellectual support. The Commission VII (for Environment, 43 (Antlov et al, 2005). Energy, Research and Technology) is supported by a 6-member team of experts to gather data and conduct analysis. The 5.4.3 Legislature members of the team have at least a Master's degree in relevant fields and are employed on a full-time basis. The chairman of With the downfall of the Soeharto regime, the parliament (at Commission VII said the team of experts was an effective way to the national, provincial and district levels), found itself having sift through large amounts of information, including reviewing a clearer, stronger mandate, and, with it, higher expectations written grievances received by the Commission (Hartarto, from the public. Gone are the days where parliamentarians personal communication, 2008). rubber-stamped the executive branch's development plans ­ now parliamentarians are expected to have an informed In the environment field, parliamentarians face a wide range opinion on the topics being discussed. Gone also are the days of topics ­ all of which involve a combination of scientific where the parliament was largely a monolithic voice ­ now information and frequently conflicting interests from different parliaments at all levels are faced with multiple opinions from stakeholders. Newly-elected parliamentarians need to quickly different factions in the house, each carrying what is supposed learn the issues and form their own opinions. Members of the to contain aspirations from their respective constituents. DPRD of West Java Province initiated a radio-talkshow that Attached to this are political parties, which have mushroomed addressed current environmental issues, as a crash-course from a mere 3 (three) in the Soeharto era to 34 (thirty-four) on environment for parliamentarians. Guest speakers from which passed the verification process to participate in the 2009 academia, NGOs and local government agencies were invited general elections. to discuss different topics. These exchanges became one of the references when reviewing draft legislations. However, again Political parties have not yet developed the infrastructure or the persistence of individual parliamentarians is tested. Many culture of serving as a vanguard for public aspirations. There parliamentarians come unprepared, not having reviewed draft SECTION 2: Challenges of Environmental Governance legislations in question, let alone doing their own research. As a sensitive to environmental issues and include environmental result, even in the national-level DPR, the quality of discussion, messages in their sermons (www.menlh.go.id). debate and questioning in most Commissions and Committees is poor (Sherlock, 2003). Religious leaders have also been embraced by the Indonesian affiliate of US-based Conservation International (CI). CI initiated Lacking official "intellectual support", legislative members have a discourse on Islam and conservation among kyais (Moslem developed networks or other informal forum to exchange views preachers) and pesantren leaders. A study of the scripture and information. The DKI Jakarta DPRD members participate in and hadith literature indicates that the tradition of protection a network which includes NGOs, media representatives, local of nature (forests, land, animals, etc) does exist in Islam. As a government agencies and community groups. In West Java, result, Moslem preachers find the message of conservation DPRD members are linked in a caucus that crosses factions, acceptable, compared, for example, to messages of gender crosses political parties, crosses Commissions, and regions. Such equality, which are prone to heavy debate (Mangunjaya, a caucus was initiated by the Ministry of Environment in 2002 ­ personal communications, 2008). Based on the work with intended as an informal forum among DPRD members to keep pesantrens and discussions with kyais, CI has observed environment in the agenda in all discussions in the parliament. pockets of increased action and participation with regard to To date, the Ministry boasts of 20 DPRD member caucuses on environment. A kyai in the Province of Nusa Tenggara Barat, for environment, covering 85 districts/cities and provinces (www. example, initiated a regreening program for his surroundings, menlh.go.id). However, once formed, the fate of the caucuses and a pesantren in Northern Sumatra proposed the designation again depends on the commitment of the individuals involved of conservation area, now known as the Batang Gadis National Investing In a More Sustainable Indonesia and how much support they manage to obtain from the DPRD Park (Mangunjaya, personal communications, 2008). or the government. In the other major faiths in Indonesia, the Buddhist group Tzu 5.4.4 Religious Institutions Chi is recognized as promoting environmental protection as an integral part of its mission. Focused on assisting the poor, the Religious institutions are not traditionally known to play a role Tzu Chi organization holds routine activities with communities, in representing public aspirations or forming public opinion covering recycling, regreening/replanting efforts, compost- in the environment. It is discussed in this analysis as a group making, etc. (www.tzuchi.or.id). The organization also owns a with significant overall influence in the Indonesian society and private TV station, DAAI TV, broadcast in Jakarta and Medan recent interest in environment. The role of religious institutions since 2006, which dedicates its programs to environmental was not addressed in any of the surveys examined in this study, topics (Jakarta Post, 6 May 2008). and thus the discussion below relies on literature review and interview with resource persons. Aside from that, an interfaith group was established by a concerned Catholic priest in alliance with other groups such In recent years, several religious institutions have proclaimed as Maarif Institute, Wahid Institute, Clean and Healthy Life their environmental mission or engaged in environmental Movement, Lantan Bentala Foundation, Interfaith Dialog activities. Specifically, the two largest Moslem organizations, Society, Indonesia Institute for Pluralism, the Nahdlatul 44 Muhammadiyah and Nahdlatul Ulama, have signed Ulama and Muhammadiyah youth groups, Kemang Pratama Memorandum of Understanding with, respectively, the Ministry Indonesian Christian Church and others. Gempita (Gerakan of Environment and the Ministry of Forestry. Muhammadiyah, Iman Peduli Jakarta), as the group is known, aims to change through its Environment Institute (Lembaga Lingkungan Hidup) people's waste management habits. "As religious values are aims to develop an environmental movement that is based connected to human behavior, religion can help social change on Islamic values. While Nahdlatul Ulama (NU) established a by guiding human beings to more civilized behavior," says program designed to cater to its 45 million members, 65 percent Andang Binawan in an interview (Jakarta Post, 17 July 2008). of which live in rural areas and are linked, one way or another, to forested areas. NU's cooperation with the Ministry of Forestry, The effectiveness of religious institutions' and religious leaders' called National Movement for Forestry and the Environment influence towards the public's environmental behavior cannot (Indonesian acronym GNKL), has a wide range of objectives, be measured as yet, and may take some years to materialize. which include improving the welfare of NU members, increase Their involvement in building environmental awareness can their involvement in sustainable forest management, and be seen as a positive development, adding another important providing inputs for policy makers. player to the arena. However, their interest in the matter may, in fact, signal a frustration on the part of religious leaders/ Many Islamic boarding schools have also engaged with intellectuals that environmental issues remain an unsolvable the Ministry of Environment through a program called problem, despite the urgency and dire impacts they have Eco-Pesantren. With 15,000 pesantrens spread throughout created for the Indonesian population. On the other hand, the Indonesia, and about two million students at any given time, government and NGO's initiative to include religious leaders pesantrens are considered a strategic ally for awareness in spreading the environment message can also be seen as a building. Not only does the program aim to create pesantren desperate attempt to reach the public, partly an admission of as a model for good environmental practices, it also hopes to their own inability, after decades of environmental campaigns. develop religious leaders (graduates of the schools) who are 45 45 Co u n tr y E n v i r o n m en t a Anal s i s Country En vi ro nm e n ta l An al ys is C o un t r Environmental Analysis al SECTION 3: Sectoral Challenges in a Changing Climate SECTION 3: Sectoral Challenges in a Changing Climate Investing In a More Sustainable Indonesia 46 Chapter 6: Adapting to a Changing Climate Coastline, East Nusa Tenggara Photo: Endro Adinugroho SECTION 3: Sectoral Challenges in a Changing Climate MAIN MESSAGES · Specific areas of Indonesia are highly vulnerable to multiple climate change hazards (drought, floods, landslides, sea-level rise) · While temperature may only increase modestly, more intense rainfall and sea-level rise will negatively affect 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, flooding and/or landslides; dependent on climate-sensitive agriculture or fisheries for their livelihoods; and have fewer assets to cope with the impacts of a changing climate · The annual benefit of avoided damage from climate change is likely to exceed the annual cost by 2050 and, by 2100, the benefit 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 Investing In a More Sustainable Indonesia phased and prioritized according to the magnitude of costs, benefits and risks 6.1 Impacts of Climate Change in Indonesia Indonesia is susceptible to all major climate change risks (drought, floods, landslides, sea-level rise) except cyclones. Recent analysis for the Southeast Asia region (Yusuf and Francisco, 2009) suggests that Indonesia is highly vulnerable Indonesia will experience modest temperature increase. within the region to various aspects of a warming climate. Annual mean temperature in Indonesia has been observed The eastern and western portions of densely-populated Java, as increasing by around 0.30 Celsius (oC) since 1990 and has the coastal regions of much of Sumatra, parts of western and occurred in all seasons of the year, relatively consistent if not northern Sulawesi, and southeastern Papua islands all rank slightly lower than the expectation of the warming trend due highly on the multiple climate hazard map (see Figure 6.1). to climate change. The 1990s was the warmest decade and a Figure 6.1. Multiple Climate Hazard Map of Southeast Asia 48 Legend Multiple Climate Hazard Index 0.00 - 0.04 0.04 - 0.09 0.09 - 0.14 0.14 - 0.18 0.18 - 0.24 0.24 - 0.31 0.31 - 0.39 0.39 - 0.47 0.47 - 0.60 0.60 - 1.00 Country Boundary Source: Yusuf and Francisco, 2009 SECTION 3: Sectoral Challenges in a Changing Climate Figure 6.2. The Average Change of Precipitation Pattern 1900-2000 September-November (in mm/100 years) < -100 -100 - -75 -75 - -50 -50 - 25 -25 - 0 0 - 25 25 - 50 50 - 75 75 - 100 > 100 SOURCE: Ratag, 2007 Country Environmental Analysis 1998 increase of almost 1oC (above the 1961 ­ 1990 average) agriculture and thus food security. The droughts caused by the made it the country's warmest year in the century (Hulme, et 1997 El Nino event affected 426,000 hectares of rice. The loss of al., 1999). production (measured as the percentage deviation from a five- year moving average) in eight El Nino years between 1965 and Indonesia will experience more intense rainfall. Climate change 1997 averaged 4 percent. Production variability during 1963- is predicted to result in 2 percent to 3 percent more rainfall per 1998 was greatest for maize (13.5percent due mainly to chages year in Indonesia (Ratag 2001 in Susandi 2007). As Figure 6.2 in area harvested (World Bank, 2008). For particular regions, shows, the entire country will experience more rainfall, with the the losses may be higher: East Java/Bali, an area with a very largest change being in the Moluccas. The increased rainfall is short monsoon, is predicted to be 18 percent for the January- expected to continue and, due to climate change, result in a April harvest (Naylor et al., 2007). shorter rainy season (fewer number of rainy days in a year), with significant increase in the risk of flooding. Important income-generating non-food crops such as coffee, cocoa and rubber were also affected (FAO, 1996). Projected Food security in Indonesia will be threatened by climate changes in crop yields in Asia could vary between -22 percent 49 change. Perhaps the largest concern for Indonesia with regards to +28 percent by the end of the century in the event of a to the impacts of climate change is the risk of decreased food doubling of atmospheric carbon dioxide concentrations (Reilly, security. Climate change will alter precipitation, evaporation, 1996). A model simulating the impacts of climate change on run-off water and soil moisture; hence will have effects on crops (Goddard Institute of Space Studies, UK Meteorological 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) SECTION 3: Sectoral Challenges in a Changing Climate Figure 6.4. Population Density Within and Outside of a 10 m Low Elevation Coastal Zone (CIESIN, 2007) JAKARTA Investing In a More Sustainable Indonesia Population Density within and outside of a 10 meter low elevation coastel zone (LECZ), 2000 Persons per sq km <25 25-100 100-250 250-500 500-1,000 >1,000 within LECZ outside LECZ Office) shows a decrease of crop harvest in West and East Java. centimeters (cm) per year. The average depth of inundated Climate change will likely reduce long-term soil fertility by 2 area varies between 0.28 and 4.17 in 2050 (Meliana 2005 in percent to 8 percent, resulting in projected decreases of rice Susandi 2007). This coupled with the land surface decline as yield by 4 percent per year, soybean by 10 percent, and maize high as 0.8 cm per year, as observed in the Jakarta Bay, can have by 50 percent (Amin, 2004 and Parry and Nih, 1992) a tremendous impact on urban productivity and infrastructure, as visualized in Figure 6.3 (Priambodo 2005). Also, in rural Land and forest fires in Indonesia are closely related to a districts such as Krawang and Subang, a 95 percent reduction changing climate. In El Nino years, the total area of land and in local rice supply (down 300,000 tons) is estimated as a result forest affected by fire increased significantly, as did carbon of inundation of the coastal zone. In the same districts, maize emissions (GoI, 2007). These fires disrupt destroy habitats, output would be reduced by 10,000 tons, about half of this due pollute watersheds, reduce biological diversity, and increase air to inundation. 50 pollution, with consequent health effects. The 1997/98 El Nino- related peat fires in Indonesia have been classified as one of the At the national scale, recent analysis by Columbia University top ten natural hazards in the world between 1907 and 2007, has indicated the extensive risk of sea level rise to Indonesia with the direct and indirect value of damages and economic (see Figure 6.3). Areas with a density of more than 1,000 people losses potentially totaling $17 billion (OFDA/CRED, 2007). per square kilometres such as Jakarta, Yogyakarta, Semarang, Surabaya, are areas which will get hit the most by sea level rise Rainfall variability will negatively affect water resources. (CIESIN, 2007). In total 41,610,000 Indonesians live within ten Decreases and increases in rainfall will adversely affect meters of the average sea level. They are the most vulnerable hydroelectricity generation and drinking water supply, both to sea level changes (IIED, 2007). of which depend on steady supply from water reservoirs. Data from eight dams during six El Nino years indicate that Sea level rise will reduce farming and coastal livelihoods. Sea- hydropower plant output was below normal. Shortage of level rise would also be likely to affect fish and prawn production. water in reservoirs also affects the availability of drinking water, In the Krawang and Subang districts, the loss is estimated at especially for cities. On the other hand, heavy rainfall with over 7,000 tons and 4,000 tons, respectively (valued at over associated turbidity will damage water processing facilities, US$ 0.5 million). In the lower Citarum Basin, sea-level rise could contaminate the water supply and increase the costs of water result in the inundation of about 26,000 ha of ponds and 10,000 treatment (GoI, 2007). ha of crop land. This could result in the loss of 15,000 tons of fish, shrimp and prawns output, and about 940,000 tons of rice Sea level rise will inundate productive coastal zones. Climate production. change will also increase the average sea level due to increased volume of the sea water and the melting of polar ice caps. The The overall effect would be to reduce potential average income. mean sea level in the Jakarta Bay will increase as high as 0.57 The estimated reduction of yield would cost the rice farmer SECTION 3: Sectoral Challenges in a Changing Climate Figure 6.5. Vulnerability Map of Southeast Asia Vietnam Laos Philippines Thailand Cambodia Legend Vulnerable regions (Country std) mildly vulnerable (0.18 - 0.42) moderately vulnerable (0.43 - 0.65) highly vulnerable (0.66 - 1.00) Source: Yusuf and Francisco, 2009 Malaysia Indonesia Country Environmental Analysis US$ 10 to US$ 17 annually, the soybean farmer US$ 22 to US Climate change will intensify water- and vector- borne diseases. $72 and the maize (corn) farmer US$ 25 to US $130 annually. In the late 1990s, El Nino and La Nina were associated with It is estimated that the decrease in yield would cause, in the outbreaks of malaria, dengue and plague. Malaria has spread Subang District alone, about 43,000 farm laborers to lose their to high elevations where it was detected for the first time as jobs. In addition, more than 81,000 farmers would have to look high as 2103 m in the highlands of Irian Jaya in 1997 (Epstein, for other sources of income due to the inundation of their rice et al., 1998). In 2004, it appeared that a more virulent strain of fields or prawn and fish farms due to sea-level rise (Parry & Nih, the potentially deadly dengue fever virus may have emerged. 1992). Dengue fever has been spreading faster and killing more 51 victims than in past years, especially during La Nina years (GoI, The warming of ocean water will affect marine biodiversity. 2007). 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 The links between climate change and these diseases and health reefs in Indonesia, about 18 percent of the world's total, are problems is poorly researched. The IPCC's Fourth Assessment already in dire straits. The El Nino event in 1997 ­ 1998 alone Report (2007) stated that there is too little data to reliably was estimated to have caused coral bleaching to 16 percent confirm perceptions of an increase in extreme weather events, of the world's coral reef. In a 2000 survey, only 6 percent of which may be due to increased reporting. However, perhaps Indonesia's coral reefs are in excellent condition, 24 percent as a forewarning of what is to come, the rise in the number in good condition, and the remaining 70 percent are in fair to of dengue fever cases during the rainy seasons in Indonesia, poor condition (John Hopkins University and Terangi, 2003). particularly in Java, could have been partially caused by warmer A survey in the Bali Barat National Park found that a majority climates. Research has confirmed that warmer temperature of coral reefs were in poor condition. More than half of the has led to mutation of the dengue virus, making cases more degradation was due to coral bleaching. This puts the Bali Barat difficult to handle, thus leading to an increase in fatalities. National Park as a catastrophically-affected site (Wilkinson, 2000 in Setiasih, 2006). In Pari island, in the Thousand Islands Impacts will be uneven across the country, but result in National Park, 50 ­ 60 percent of the coral reefs were found significant economic damage and loss of livelihoods. For bleached in 1997 (Irdez 1998 in Setiasih, 2006); ten years later, example, the economic impacts of forest fires are estimated this had increased to 90-95 percent (GoI, 2007b). to cost an annual US$ 9 billion from droughts and fires (Applegate, May 2006) and US$ 4 billion from haze related costs (International Development Research Center, 2003). SECTION 3: Sectoral Challenges in a Changing Climate There is no proven evidence yet that intense and more frequent because Indonesia has a long coastline, high population El Nino and La Nina events are caused by or are causing climate density in coastal areas, high dependence on agriculture change. But these events can be a good proxy for looking and natural resources, relatively low adaptive capacity, and at the damage that could occur due to climate change. The a tropical climate (ADB, 2009). With no further mitigation or rare events could become the norm as the world will get adaptation measures, mean GDP losses from market and non- permanently warmer. market impacts could reach 6.0 percent by 2100. If the chance of catastrophic events is also considered, they could go as high 6.2 The Socio-economic Costs and Benefits as 7.0 percent of GDP. of Adaptation Benefits of adaptation far outweigh the costs. For Indonesia and 6.2.1 Vulnerability 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 With 65 percent of its population living in coastal areas, Indonesia crops) would be about $5 billion per year by 2020 on average. is vulnerable to sea-level rise and other hydrometeorological The annual benefit of avoided damage from climate change for events. This exposure is even greater when one considers that Indonesia is likely to exceed the annual cost by 2050. By 2100, nearly half the population depends on agricultural as well as the benefit could reach 1.6 percent of GDP, compared to the forest-based livelihoods (GoI, 2007b). Recent analysis (Yusuf cost at 0.12 percent of GDP (ADB, 2009). It should be stressed and Francisco, 2009) has evaluated the exposure of people to that further adaptation cannot entirely mitigate the projected Investing In a More Sustainable Indonesia climate change in Southeast Asia as well as climate threats to damage from climate change and must be complemented by protected areas. When human and ecological vulnerability are global mitigation of greenhouse gas emissions to avoid the considered, important population centers in Indonesia will be greater impact of future climate change. 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 Benefits 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 52 Chapter 7: Land Use and Climate Change Land clearing for oil palm plantation, Sumatra Photo: Heri Wibowo SECTION 3: Sectoral Challenges in a Changing Climate MAIN MESSAGES · High rates of deforestation, illegal logging, forest fires, 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 benefits, i.e. improved forest law enforcement, management and governance; realigned incentives for timber harvesting and processing firms to improve sustainability; restructuring and revitalization of forest sector industries, forest and land fire control, greater equity and transparency in forest/land use decisions, and independent monitoring of legal compliance. Investing In a More Sustainable Indonesia · Forest climate finance such as REDD can provide an important incentive for implantation of these "no regrets" options. 7.1 Deforestation and Land Degradation Forest Loss is Declining. More recently, data and analysis (cited in MOFr, 2008) show an improvement in the rate of 7.1.1 Overview23 deforestation. The figure to the right compares average areas deforested during different periods based on when satellite In recent decades, Indonesia has been known for high rates information was gathered by different organizations. The of deforestation, illegal logging, forest fires, and peat land most recent period, since 2000, shows a clear indication that conversion. All of these contribute to high rates of greenhouse deforestation is declining. The current rate may be only a gas emissions. The exact emissions figures are uncertain and third of average rates estimated in the 1990s. These data from disputed because of the many factors that must be measured or mapping analyses (and see figure below) have been developed estimated to develop sound estimates (e.g., timing/severity of using more sophisticated and detailed images and analysis fires, depth/subsidence of peat, deforestation vs. degradation, from new satellite systems (Hansen, et al., 2007). These results carbons stocks in different kinds of forests). depend on definition of forest and interpretation of land cover, but there is a clear indication that deforestation is going down 54 Greenhouse gas emissions estimates have focused renewed in more recent years. During the period of the monetary crisis attention on Indonesia's forests in the context of the and decentralization (1997-2000) in Indonesia, most analysts global climate change debate. However, sustainable forest believed that deforestation was increasing (World Bank, et al., management and governance has long been a topic of concern 2006). These data confirm that judgment, but also show that in in Indonesia, as well as the rate of conversion of forest and peat more recent years, the rate of deforestation may be only a third land into plantations and other uses. These issues have been the subject of study and debate for many years (see World Bank, et Figure 7.1. Indonesia: Deforestation and Degradation al., 2006 for an overview of forest sector issues). Climate change Deforestation and the focus on carbon emissions provide another rationale Rate (M ha/year) for raising the level of policy and management attention to this 3.0 set of issues, especially as it has the potential to unlock up to Million Ha per Year a billion dollars of payments for the preservation of standing 2.5 forests. Green house gas emissions are just another symptom/ indicator of the underlying issues of forest management 2.0 for improved equity, economic growth, and environmental 1.5 projection, as reflected in the national development focus on "pro-poor, pro-jobs, pro-growth." 1.0 0.5 0 1982 - 1990 82 1990 - 1997 90 1997 - 2000 97 2000 - 2006 000 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. SECTION 3: Sectoral Challenges in a Changing Climate Figure 7.2. Decrease of Forest Cover in Indonesia 2000-2005: Forest Cover Change Areas Forest cover changes area Landscape classes Natural forests Other areas No data (clouds) and inland water Modis analysis - SDSU/SUNY-ESF Landsat analysis - SDSU/MoF Modis pre-processing - NASA/UMd/SDSU Landsat data provision - USGS/GPW/UMd Indonesia land cover - MoF 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. or less than the average rates in the late 1990s. However, no REDD incentive scheme being negotiated under UNFCCC. official analysis has been conducted and publicized to explain Country Environmental Analysis the drop in deforestation. Thus, it is still unclear whether Comparison of Emissions Estimates. Emissions estimates the decline is due to effective law enforcement policies, the from forest loss and land use change are subject to a wider increasing cost and difficulty of accessing unexploited forest range of assumptions and uncertainties than those coming areas, or some other combination of factors. from fossil fuels. Since a range of assumptions are employed at various points in the analysis, it is relatively more difficult The Ministry of Forestry is currently preparing to implement to elaborate a specific range in the final analysis. Forest cover a plan for reducing emissions from Indonesia's forestry sector. information was developed from satellite analysis conducted As part of that work, there will be an effort to translate the by Ministry of Forest in collaboration with South Dakota State latest information on forest cover loss into estimates of GHG University (MOFr 2008; Hansen, et al., 2007). This analysis for a emissions and rates of change. Since emissions are based more recent period indicates that forest loss during 2000-2005 on land use change and deforestation can be shown to be was about one third of prior estimates (0.7 million ha/yr vs. 1.3- declining (to perhaps a third of prior estimated levels), it can 1.9 million ha/yr in FAO 2007 and other sources). Estimates be expected that lower estimates of Indonesia's forest-based vary due to the definition of forest and methods used (e.g., emissions will emerge. resolution of images). In general, though, lower deforestation 55 estimates in the newer period would lead to lower estimates Peat Swamps and Fires. This Section analyzes deforestation of overall emissions than previous estimates in international patterns. However deforestation is not a perfect guide to publications. Several other considerations and assumptions emission because different forest and soil types have different also contribute to overall emissions estimates, including carbon content. Many estimates of emissions show that peat estimates of the carbon stock (which can be disaggregated for drainage and fires have been a more important source of different types of soils and forests). Assumptions about the emissions than deforestation. Fires do not happen every year depth of peat and the rate of burning also have a substantial with same severity, so estimates of this source may vary by effect on the emissions estimates. The period before 2000 not methodology and which years are taken into account. These only included more deforestation, but also more forest fires and emissions also create costs in terms of air pollution and health hot spots. More recent analysis shows that the number of hot risks to the local population and in neighboring countries spots and range of forest fires has been lower than in 1997-98 (BAPPENAS-ADB, 1999). Reducing the use of fire in peat period. The approach for incorporating these findings into an conversion would have multiple benefits24, and could perhaps overall country estimate and a baseline for future projections be achieved at negative cost (that is, overall, society would is at the heart of analytical concerns and discussions going gain through this change, even after the implementation cost on now among Indonesia's forest carbon analysts inside and is considered). However, peat fires and peat land drainage on outside of government. land without trees are not currently considered part of the 24 Use of fire 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 profits, and hurt poor small holders. Evidence shows that most fire 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 effect a shift toward less destructive and emissions-producing practices. SECTION 3: Sectoral Challenges in a Changing Climate Figure 7.3. Forest Loss by Land Use Type, 2000-2005 areas have been allocated for economic exploitation through 1.8 selective harvesting or through liquidation and conversion 1.6 to agricultural or plantation uses. In contrast, protection 1.4 and conservation forests are relatively less damaged, better 1.2 protected. 1.0 0.8 The figure also shows that both "dry land forests" (i.e., most 0.6 forest areas in Indonesia) and "swamp forests" (forests on 0.4 wetlands, often peat, or lahan gambut) are facing heavy 0.2 deforestation pressure. This is critically important for emissions 0 because peat swamp forests contribute several times more Production Conversion Conservation Protection Not in Forest oduction onversion nservation rotection ti ot GHG emissions than dry land forest areas. Thus, even though a Estate smaller area is affected, overall emissions from this area could Land Use / Forest Classification well be higher.25 Note that production and conversion areas Swamp Forest Change 2000-05 (Ha) Sw accounted for almost all of the forest loss on swamp/peat land Dryland Forest Change 2000-05 (Ha) Dr r in this analysis. Production Forests are allocated for permanent production through selective harvesting, such that the timber can grow 7.1.2 Disaggregating the Deforestation Investing In a More Sustainable Indonesia back and be harvested again over some long period. However, Findings note that the highest level of deforestation is occurring on these production forest lands. This is unauthorized deforestation, A more disaggregated analysis of deforestation locations and resulting from poor forest management practices, illegal trends can reveal much about how and where Indonesia can behavior, and insufficient or ineffective law enforcement. make efforts to reduce emissions. Following deforestation is a Reducing emissions on these lands would mean addressing the reasonable approach, because deforestation is clearly linked to underlying drivers of deforestation that have been analyzed at emissions. Emissions will not track deforestation areas exactly, length in other sources (World Bank, et al., 2006). because of differences in the carbon content of different forests and soils, as well as the method of deforestation. For example, Conversion Forests are allocated for liquidation to non- deforestation through burning contributes emissions more forest uses. This means these are planned losses within directly and quicker. Deforestation and further drainage of peat Indonesia's forest management framework. These planned land (mainly swamps, or lahan gambut in Indonesian) creates losses contributed 25 percent of overall deforestation on state- more emissions per unit area due to the high carbon storage claimed land. Converted lands are used for agriculture and ability of these soils. An analysis of emissions, however, would plantation crops, and a high proportion is converted to timber be subject to much uncertainty, given the ongoing debate over (pulp) and oil palm plantations, which are some of the fastest the level of emissions from peat lands and burned areas, as well growing land uses in Indonesia. Other analysis shows also that 56 as the rate and frequency of burning. Indonesia is in the process pulp plantations and oil palm plantations are important to of compiling its Second National Communication, as well as a regional economies. Some of this converted forest is swamp `readiness' submission to the Forest Carbon Partnership Facility. These processes should lead to more consensus on the forest Figure 7.4. Forest Loss on State Forest Land (Percent) sector emissions levels, as well as a baseline for judging future reductions. 45.0% 40.0% Deforestation by Land Use. The data available on 35.0% deforestation are informative on a number of issues, such as the locations and types of land where deforestation is most 30.0% prevalent. These would be the most likely targets for an effort 25.0% to reduce deforestation, hence emissions, and achieve some 20.0% level of international compensatory payments. Although 15.0% total emissions from deforestation are still under study, the 10.0% deforestation figures are more widely accepted (since they can 5.0% be read relatively directly from satellite imagery) and the basic Land Type trends and relative values are reasonably clear. 0.0% Production o Production Conversion n Conversion Conservation onservation n Protection o Protection As the figure 7.2. shows, most forest losses in recent years Swamp Sw occurred on production and conversion forest land. These Lowland ow Lo 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 fire type. SECTION 3: Sectoral Challenges in a Changing Climate Figure 7.6. Forest Loss During 2000-2005, By Province land on peat soil (lahan gambut). These categories represent only 5-8 million ha of land, but are likely among the most Top 10 Provinces Account for 83% of Forest Loss intensive sources of emissions per hectare. Because of high (Total Loss = 3.5 M Ha, IFCA Analysis & Assumptions) carbon concentrations in peat soil, smaller areas may lead to higher emissions than deforestation on mineral soil, or "dry 3.5 land". If the Government wanted to reduce deforestation here, Million Ha Lost 2000-2005 3.0 it would have to reconsider the policy of authorized forest clearance for economic purposes. 2.5 Conservation and Protection Forests have not suffered the 2.0 large and rapid deforestation on other classes of forest land 1.5 ­ though any deforestation is too much in areas set aside to preserve Indonesia's heritage and biodiversity. Looking only at 1.0 the state-claimed forest areas, in the figure 7.3., it can be seen 0.5 that only 8 percent of deforestation on state lands (the four left most bars in the figure) occurs in protected and protection 0 au l h r th st t bi t h ng areas, while two-thirds occurs on lands managed under the ra as es ut ut Ea m Ri nt pu W aE No So So Ja lim Ce lim m concession system of allowable harvesting. Another 25 percent pu m m lim La lim Ka Su Pa Ka Su Ka occurs on land slated for liquidation, conversion to non-forest Ka Cu Cumulative Area Lost from Swamp Forest uses. ). These are areas allocated for protection of watershed services and conservation of biodiversity and landscapes. Cumulative Area Lost from Dry Forest u Cu The IFCA process and report on REDD readiness provide and the role of local governments in allocating and creating Country Environmental Analysis extensive analysis of the issues and options for controlling incentives for land conversion would have to be considered ­ as emissions from deforestation and land use (MOFr/IFCA, 2007). opposed to improvements in forest management or traditional A few key points are worth summarizing, however. Substantial law enforcement methods. emissions come from deforestation in the forest estate. These emissions can be reduced by focusing on forest management Outside State Forest considerable deforestation is also practices and the drivers of deforestation. However, the occurring. The figure above (right-most bar) indicates that figures in this section also show that substantial deforestation a million hectares of forest were lost there (with associated (and emissions) are coming from planned land conversion to emissions) during the study period 2000-2005. Note that plantations and the continued operation of those plantations, land categories are also subject to change. After clearing and on both mineral and peat soil. To address this source of permitting for other uses, such as plantations or agriculture, emissions, a different suite of policy interventions may become conversion forests are removed from the state forest area and more important. For example, the role of land use licensing 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. 57 Figure 7.5. Forest Loss by Type and Province (Top 10), Forested land outside the state forest may be in large blocks, or 2000-05 in smaller areas controlled by small holders (mixed agroforestry areas), private operators or local governments. The remote 1.2 sensing behind this analysis indicates less swamp area in this category of land use; these swamp forests may be under 1.0 greater threat of clearing and conversion, however. Plantation Millions of Hectares 0.8 crop expansion is the main driver of deforestation on non state forest areas, with permits granted by local governments 0.6 (Casson, 2000; World Bank, 2006). The GOI exercises less central control in these areas, which include private lands. Actions to 0.4 reduce deforestation in these areas would have to be based on the legal authorities and incentives appropriate to lands under 0.2 local and private control. 0 As noted above, payments through a forest carbon market au l h r th st t bi t h ng ra as es ut ut Ea m (REDD) could provide a source of revenue that would allow Ri nt pu W aE No So So Ja lim Ce lim m pu m m lim La the Government to address underlying deforestation drivers. lim Ka Su Pa Ka Su Ka Ka Sw Swamp Forest Loss, 2000-05 (Ha) Under some combination of carbon and land values, REDD payments would be sufficient to displace certain other kinds of Dryland Forest Loss, 2000-05 (Ha) r Dr economic activities, beginning with those of lower value. d source: Modis Analysis by MOFr and SDSU SECTION 3: Sectoral Challenges in a Changing Climate Deforestation by Province. Looking at deforestation at the from efforts to reduce forest loss. These few provinces have island and province level, reveals that deforestation is most the potential to contribute the most to Indonesia's forest sector prevalent in a few places, mainly on Sumatra and Kalimantan. GHG emissions, which could potentially yield up to a billion Ten provinces account for 78 percent dry forest loss and dollars in payments annually, if successful. 96percent of swamp forest loss in the 2000-2005 period (see Figure 7.5.). As noted, GHG emissions flow from forest loss 7.2 Land Use and Carbon Emissions and swamp land disturbance (with higher emissions per unit of peat land and for burning). Thus, these 10 provinces are Indonesia's forest and land use emissions are still being also the largest emitters of GHG from forest loss and land use tabulated through official consultative processes. The change. Of these, Riau, Central Kalimantan, and South Sumatra Ministry of Environment is developing Indonesia's Second account for well over half of overall losses during the period, National Communication to UNFCCC on GHG emissions, while including most of the swamp forest areas degraded. As forests the Ministry of Forestry is developing a plan and baseline become scarcer in the west, Papua will become increasingly a estimates for a national initiative on Reduced Emissions focus for forest harvesting, and hence a center for deforestation from Deforestation and Degradation (REDD). The Ministry in the future. This highlights the important role that specific of Forestry is also developing a Forest Resource Information provincial and local governments have in contributing to System and a National Carbon Accounting System. A global efforts to reduce deforestation. A cost-effective, efficient and REDD framework, under negotiation through UNFCCC, holds well-targeted REDD initiative should focus most attention on the potential to provide payments through markets for GHG the largest sources of deforestation (and emissions). emissions reductions from forest lands. Investing In a More Sustainable Indonesia This concentrated geographic distribution of forest loss means However, considerable consensus has emerged on the that efforts to reduce it can be targeted to a few places, where importance of forestry and land use emissions in Indonesia's the drivers and trends are well known. Targeting of actions and overall profile (National Action Plan on Climate Change, 2007; interventions can lead to more effective resource deployment National Development Planning Response to Climate Change, and more cost-effective approaches to reducing deforestation. 2008, MOFr/IFCA, 2007)26 . Land use change and forest loss are However, it must also be realized that forest law enforcement key mitigation issues and the GOI is placing a high priority on and governance remains a challenge. These are the same this issue and working toward preparation and implementation provinces that have, in recent times, produced the most timber of a national REDD Initiative (REDDI). Because this detailed harvesting, timber processing and illegal logging, based on sectoral work is ongoing, this low carbon study incorporated past estimates and other studies (World Bank, et al., 2006). available results and for comparison with fossil fuel and energy sector results. These forestry and land use data are preliminary A few changes in a few places have the potential to create and will be improved as the Second National Communication financial benefits for Indonesia and emissions reduction benefits is finalized and submitted by the end of 2009. for the whole globe. The converse is also true: continued inaction in these few provinces puts at risk the opportunity Emissions from forests and land use change. A range of for benefits on a large scale. In terms of REDD payments, the estimates of emissions from deforestation and land use change, 58 places where deforestation is highest have the most to gain including conversion by fire, 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 benefits 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 benefits 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 affects equity, development and decentralization and is an essential issue of governance. Forest management and incentive mechanisms (forest fiscal policies) affect outcomes, including revenue, forest cover, exports, and employment. The forest sector employs inefficient fiscal 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 identified 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, inefficiency and weak governance contribute to under-performing firms, 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 fiscal 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. SECTION 3: Sectoral Challenges in a Changing Climate 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) The wide range of estimates is because estimates are based on There is an important caveat on forestry and land use data. different periods of activity and different methods and focus. As noted in Table 7.1, several reputable, international sources In particular, the 1997-98 El Niño-Southern Oscillation period have reported different emissions estimates; some including was especially severe and caused widespread drought and fires, deforestation (dryland and/or swamp forest) and/or both. fires that have been estimated to have caused a global spike in However, it must be noted that data on land use changes are GHG emissions (Page, et al., 2002). Even efforts to look carefully subject to some uncertainty and the total estimated emission at deforestation and land use change may not capture all level depends on a number of assumptions about land area emissions from peat land degradation and drying. Indonesia and emissions per hectare. Estimates that include peaks in Country Environmental Analysis has extensive areas of peat soil (lahan gambut), which are emissions from years with fires (1997-1998) may over-estimate particularly rich in carbon and a key contributor to Indonesia's Indonesia's average annual emissions contribution, especially overall emissions profile. if forest loss due to fire and degradation is being reduced in Figure 7.7. Forest & Land Use Sector : Upstream Policies & Distortions Impede Progress and Impose Cost on Society 59 Modified and expanded from WRI State of the Forest Report 2002 WB Strategic Options for Forest Assistance In Indonesia, 2006 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. SECTION 3: Sectoral Challenges in a Changing Climate recent years. Formal reporting on GHGs is done through the fundamental issues of management and governance that have National Communications to the UN Framework Convention existed for some time. Climate change and greenhouse gas on Climate Change (UNFCCC). The latest such reporting from considerations add a new lens, but not different fundamental Indonesia is from 1999 with data from 1994. Estimates of forest, options or solutions than have been offered in the past. The peat and fire GHG emissions will continue to be refined through climate change angle, especially the potential for payments ongoing processes (the Ministry of Forestry's Readiness Plan for reduced emissions from deforestation and degradation, and the Ministry of Environment's development of the Second may help to create new political will and financial incentives National Communication). It is clear, however, that all estimates for implementing changes. Figure 7.6 illustrates some of the of emissions from forests and land use are larger ­ potentially challenges that will be faced on the road to reducing emissions much larger ­ than the total emissions from the combustion of from deforestation. 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 figure 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 Investing In a More Sustainable Indonesia visible effects on the landscape. To address GHG emissions from forestry and land use, Indonesia will have to address the 60 Chapter 8: Energy and Climate Change Coal-Fired Power Plant, East Java Photo: Endro Adinugroho SECTION 3: Sectoral Challenges in a Changing Climate 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 difficult to promote efficiency, cleaner technology or innovation for environmental and climate benefits. · Indonesia uses fuel and electricity inefficiently 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. Investing In a More Sustainable Indonesia · Mitigating these emissions will require more realistic energy pricing, a more enabling environment to develop renewable energy resources, and greater efficiency in the industrial, power, manufacturing, and transport sectors. The purpose of this chapter is to examine energy, environmental, · Reviewing some alternative and renewable energy and climate change issues and linkages by: issues and alternatives from the perspective of environment and climate change, and policy · Demonstrating how energy sector policies and enabling conditions, rather than from the perspective incentive structures have contributed to impacts on of contribution to energy supply, or cost/benefit. environmental outcomes, as well as climate change options, at the same time diminishing potentials and · Describing some practical or feasible actions that opportunities in other areas, such as the development could be undertaken to improve the situation, while of alternative energy sources. recognizing the difficult political-economic issues associated with poverty, energy access and pricing. · Discussing energy sector issues and contributions 62 as they relate to Indonesia's climate change position and opportunities Figure 8.1. Indonesia's Fuel Consumption by Fuel Type and Sector 70 70 64 60 60 14% 52 50 18% 50 18% Million kiloliters Million kiloliters 11% 40 40 21% 17% 19% 27% 33 30 30 13% 19% 21% 22% 24% 20 20 50% 24% 20% 43% 48% 42% 10 10 42% 36% 0 0 1990 1997 2005 1990 1997 2005 Av Avtur M MFO Ga Gasoline HH - Household Power Po HH IDO IDO Ke Kerosene A ADO Industry Ind Transport Tra ndbook o ergy Econ tatistics Sources: Indonesia Handbook of Energy Economics Statistics (2005); Indonesia Oil & Gas Statistics for 2005 SECTION 3: Sectoral Challenges in a Changing Climate 8.1 Energy in the Country Economic and such as the significantly higher volume of kerosene used Development Context in Indonesia compared even with other countries that also apply heavy subsidies. The substantially lower kerosene price This section looks at trends in the energy sector, focusing on relative to, say diesel, has likely led to mixing of these fuels fossil fuels, electricity generation, the increasing importance (adulteration) to reduce consumers' costs. It will ultimately of coal, and the potential for renewable and alternative energy lead to diminished economic life of automotive engines and sources. meanwhile exacerbate street-level air pollution. Similarly, low oil fuel prices challenge the introduction of competing 8.1.1 Fossil Fuels technologies thus hampering the development of the broader energy economy. (WB 2008) The domestic oil market in Indonesia is large, with a high proportion of high-value products. Petroleum fuel 8.1.2 Electricity Generation consumption by 2005 had reached 64 million kiloliters or about 1.1 million barrels per day. Automotive Diesel Oil (ADO), Growth in demand for electricity (power) has been rising gasoline and kerosene together make up nearly 90percent of along with economic growth at around 6 percent each year. total consumption. Gasoline and kerosene, on the other hand, Forecasts indicate that this trend will continue. The state- are almost exclusively used for transportation and household owned electricity utility (Perusahan Listrik Negara, or PLN) has consumption respectively. Transportation uses have been struggled to increase generation capacity, improve reliability, growing at the relative expense of household and industry and manage the rising demand. Some generation capacity use. The share of oil fuels going into power generation has is being added, but there are still risks to the reliability of the also been rising and domestic demand continues to grow (WB, power supply system in the interim. Many analysts report 2008). (See Figure 8.1.) that electricity supply-demand imbalances could undermine economic growth (WB, IDPL, 2007; IIEE, 2007). (See Figure 8.3.) Country Environmental Analysis Demand is increasingly met through higher imports as domestic oil production is falling while refining capacity Annual demand growth of 7 to 9 percent is forecast in the remains stagnant. Aging existing oil fields with declining next decade, but there has been no corresponding growth production and a shortage of investments in new exploration in available system capacity. Additional growth could be are the main reasons. Indonesia also has not expanded its foreseen if greater progress is made in providing household refining capacity over the past decade, which has led to connections to the third of the population currently without increasing imports to meet domestic fuels demand. The electricity access. Peak demand has progressively approached combination of unfavorable production prospects and rising available capacity, until reserve margins are now inadequate. domestic consumption resulted in Indonesia becoming a net Blackouts and load-shedding are occurring, particularly on oil importer in 2005 (WB, 2007). (See Figure 8.2.) the islands outside the inter-connected Java-Bali system. (WB, DPL4, 2007). The fuel subsidy regime leads to economic inefficiencies that curtail prospects for higher growth. Over-consumption Low access to electricity contributes to economic and social of subsidized fuel products is leading to inefficient outcomes disparities. Over 70 million people in Indonesia, mostly the 63 Figure 8.2. Domestic Production and Refining Capacity Figure 8.3. Indonesia Power Demand Projections 1.8 400 1.6 1.4 300 Million barrels per day 1.2 200 1.0 0.8 100 0.6 0.4 0 996 1996 2000 0 000 2000 2004 2 2008 2012 2016 2020 0.2 Annual GDP growth: PLN 7.3% for 2006-2015, Beicip study 5% for 0 2002-2025, Nexant study 6% for 2005-2025 1 92 1 93 1 94 1 95 1 96 1 97 1 98 199 199 199 199 199 199 1998 1999 2000 2001 2002 2003 2004 2005 2006 1 1991 1992 1993 1994 1995 1996 1997 1998 2 00 2 01 2 02 2 03 2 04 2 05 2 06 200 200 200 200 200 200 200 PLN LN PL 2006-2015 plan (Growth: 8.5% /yr) Re Refinery Production Be Be Beicip study 2002-2025 (Growth: 6.2% /yr) Refinery Capacity R Re N Ne Nexant 2005-25 (10% /yr to 2010 then 6%) Crude Oil and Condensate Production Cr Cru Beicip F Source: PLN, Nexant, B i i Franlab rce: Indonesia Handbook of Energy Economics Statistics (2005) ; Source: Indo Indonesia Oil & Gas Statistics for 2005. SECTION 3: Sectoral Challenges in a Changing Climate poor, still do not have access to electricity. About 80 percent security (reduced reliance on oil) than on a desire to improve of those without electricity access live in rural areas and over environmental performance (increased reliance on coal). half live outside of the dominant economic centers of Java and Though climate change attention has increased in the last Bali. Increasing electricity access in Indonesia is an important year, most energy sector plans and decisions were made consideration for inclusive growth that will improve the quality before greenhouse gas emissions and the potential for carbon of life of the poor. (WB, IDPL, 2007) payments became an issue. As a result of attention at the 2007 Climate Change Conference in Bali, Indonesia is beginning to Potential private investors in the power sector have develop a low carbon options analysis and a second phase hesitated or requested further Government assurances, expansion plan with greater reliance on renewables. due to uncertainty about financial viability and the enabling conditions. Given the potential for a looming power crisis, 8.1.3 The Increasing Importance of Coal PLN will now have to take some rapid action to address the immediate concerns while also taking prudent action for Indonesia has vast reserves of coal and is a major exporter. long term development of the sector to support the growing Though prices are rising, coal remains a cheaper alternative economy. (WB, IDPL, 2007) than oil for power generation. PLN estimates that about $40 billion in generation, transmission, and distribution investment The GOI is working on three areas of electricity sector reform: are needed to keep pace with power demand growth and to system expansion, household access, and environmental maintain system reliability27. The Government has instructed sustainability (WB, DPL4, 2007). System expansion needs PLN to diversify its fuel mix by expanding the utilization of Investing In a More Sustainable Indonesia in the face of growing demand have lead to the short run coal for power generation. Presidential decree (Perpres No development of the "crash program" to build 10,000 MW of coal 5/2006) on National Energy Management states the intention fired power plants. A second program of 10,000 MW will rely to increase use of coal from 24 percent of overall energy use to a greater extent on geothermal and other renewables. In to 33 percent of energy use over 20 years (almost a 40 percent the near term, this will lead to an increase in greenhouse gas increase). emissions and an increase in emissions intensity. The GOI has initiated a program to develop 10,000 MW of The pace of electrification (access) is affected by PLN's coal-fired power plants to be ready in the next few years commercial incentives, with tariffs and subsidies playing critical (Presidential Decree 71/2006). It remains questionable whether roles. Because cost of supply varies across regions, one avenue this expansion can be adequately financed by PLN without for expanding household access to electricity would include some form of assistance from the Government. Some of the regionally differentiated electrification strategies, supported plants are under construction, even though there are still by local governments. With tariffs set below cost, PLN faces a uncertainties in coal supply and financing sources. Note that commercial disincentive to connect new customers, especially options for improving efficiency, promoting alternatives, and in rural areas off Java. shifting investment to cleaner coal technologies could be more beneficial than any stand alone environmental program. Less has been done on environmental sustainability. Though 64 plans are on paper for a shift in the energy mix, these plans are based more on the perceived need for improved energy 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. SECTION 3: Sectoral Challenges in a Changing Climate 8.1.4 Renewable and Alternative Resources Figure 8.4. Indonesia's Fuel-Based Emissions Relative levels of per capita emissions with Indonesia's emissions = 1 Indonesia is rich in renewable energy resources and could 1.2 benefit from increasing the share of renewables in power generation. Indonesia has nearly 40 percent of the world INDONESIA 1.0 potential geothermal resources, which could be a viable addition or alternative for baseload power generation. 0.8 Geothermal generation can be developed at a scale that would be economically feasible, especially if coal prices keep rising. 0.6 Biomass and hydro resources are abundantly available in 0.4 most of the outer islands, and can be attractive options for switching away from the largely diesel-based generation in 0.2 many of these locations. To exploit these resources, however, there is a need to develop a strategy and action plan to address 0 technical, policy, and commercial barriers that presently hinder Indonesia d n Indonesia e a Vietnam Vietnam India a n China China p nes Philippin Philippines progress. CO2 from petroleum use CO NOX 8.2 Environmental Concerns Indonesia uses fuel and electricity inefficiently and in A summary of environmental as well as economic concerns is excess. Consumption demands are rising faster than supply presented in Table 8.2. expansion. Excess consumption and inefficiency contribute Country Environmental Analysis to local, regional, and global environmental issues. Locally, air 8.2.1 Environmental Concerns from Over- pollution and particulates are a health concern. Regionally, Consumption coal-fired power generation can contribute to acid rain. Globally, excessive use of fossil fuels contributes greenhouse Key pollutant levels in Indonesia are high compared with other gases to the atmosphere ­ contributing to climate change. Asian countries. Excessive use of petroleum fuels has been The pricing and subsidy policy leads to excessive pollution identified as one of the key reasons. that damages the environment and also imposes substantial health costs. Initiatives to address fiscal and incentive issues Air quality is declining. Air pollution resulting from industrial in the energy sector would also have environmental benefits. emissions, power production, and motorized vehicles creates Table 8.2. Energy Subsidies: Economic and Environmental Issues Economic Efficiency and Targeting Concerns Environmental Implications 65 Inefficient in targeting the poor and thus inefficiently provide a Encourages excess energy consumption with associated social safety net emissions. Waste and excess: Resources are not used to maximize returns. Private costs not equal social costs of pollution and inefficiency. Distort price signals for industry and households toward inefficient Broader structural distortions: consumers buy less fuel efficient and internationally uncompetitive choices: less fuel efficient cars or live further from their workplaces than if facing true production and transport approaches and technologies. High fuel opportunity cost of fuel); Industries use inefficient production consumption means higher subsidy outlays. technologies, less competitive Hinder competitiveness and private investment, if only SOEs are Slows introduction of innovation and technology into the authorized to delivering energy products at prices below cost. sector, which could improve environmental performance Reduce fiscal space, the resources available to government to Also reduces available resources for environmental services or promote growth through investments in infrastructure or human protections capital. Undermine macroeconomic stability because expenditures increase when world oil prices increase Undermine ability to participate or benefit from global markets, as Larger than optimal greenhouse gas emissions, increasing the global regulatory and trade regime eventually makes carbon emissions intensity. Carbon inefficient and polluting emissions more costly or carbon intensive products less desirable. production choices are likely to become far more expensive when carbon emissions are priced globally Create opportunities for corruption and smuggling of products Weak rule of law undermines any efforts to improve from low price to high price zones or sectors, or in neighboring environmental compliance countries, thus weakening the rule of law. SECTION 3: Sectoral Challenges in a Changing Climate Table 8.3. Potential for Energy Savings from DSM Programs On-going Programs Potential Savings Efficient 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 negative impacts on people's property and health ­ including relying on coal-fired generation and associated emissions. respiratory diseases. Degraded air quality can also require International experience suggests that DSM measures are most people "to allocate greater proportion of their income to cover successful when complemented with incentive in price-based costs of medical treatment" (Bappenas, 2007). Although the air regulation of consumption (WB, IDPL, 2007). (See Table 8.3.) quality monitoring network has not yet reached all areas, the number of health problems related to poor air quality increases. 8.2.2 Concerns over Plans to Shift Fuel Mix (See Figure 8.4.) Indonesia has an abundance of energy resources that can be Investing In a More Sustainable Indonesia During the 1990s, it was estimated that over three quarters used for power generation, yet the fuel mix is dominated by of the NOx and SO2 emissions in Jakarta were from fuel fossil fuels. The Government hopes to improve the fuel mix consumption, mostly transport. Additionally, some 90 percent to enhance efficiency. Government subsidies for petroleum of the carbon monoxide emissions were from vehicles while fuel products have hindered investment in alternative energy. use accounts for two-thirds of the particulate emissions, which The Government has proposed a switch away from diesel are significantly higher than in neighboring countries. Such based power generation towards greater utilization of coal, deteriorating environmental conditions impose significant natural gas, and renewable energies. To realize this goal in an economic costs as indicated by a recent study that estimated environmentally sustainable manner, the following issues will the health impact attributed to air pollution can cost the need to be addressed: Indonesian economy in excess of $400 million every year (WB, Fuel Paper, 2007) See Chapter 2 for more detail on the costs of · Develop clean coal-based power. Increased coal environmental degradation. use would lead to significant negative environmental impacts associated with high sulfur content and Water quantity is essential for power generation28. potential impacts on forests from land clearing. Bappenas (2007) has identified water as one of the key risks Expanding use and export of coal has the potential to as development and energy use grow. Decreasing availability lead to much more extensive strip mining ­ affecting of water relative to need "can be seen in the growing conflicts already threatened forests in Kalimantan and Sumatra 66 over water resources, especially during the advent of more ­ not to mention the direct pollution impacts. Coal- frequent droughts, compounded by the increasing cost of fired power generation for base load could be clean water production" (by public water utilities). Availability justified provided that the environmental impacts of water varies spatially across Indonesia, and Java, with 65 of such expansions are thoroughly assessed and percent of the population, has high potential to be short of mitigation measures are implemented in accordance water. Meanwhile the demand for water is growing to cope with environmental laws and regulations. Cleaner with increasing population and escalating industrial growth. technologies should be progressively promoted IIEE (2007) notes that power sector expansion plans (e.g., 10,000 whenever they are feasible and economically MW coal fired expansion program) will strain water supply and justified. Aside from GHG emissions (mentioned transport systems, especially on Java. above), increasing use of coal also leads to localized pollution such as acid rain. Conservation and efficiency. Energy savings measures provide opportunities for relatively quick and cost effective · Develop reliable supplies of natural gas. PLN has options for reducing capacity expansion needs, and some already constructed nearly 3,500 MW of combined efforts are already underway. It is estimated that Demand- cycle gas turbine (CCGT) power plants, but has been Side Management (DSM) measures that are already being unable to secure gas supplies. These facilities are considered or implemented have the potential to reduce power presently using diesel, a key factor in the high cost generation capacity needs upwards of 2,500 MW. If these of supply in Java-Bali. Resolving the gas supply programs are scaled-up and realize their full potential, this shortage will be necessary to move toward more cost would be equivalent to expanding generation capacity, without effective and environmentally sound alternatives. 28 Though water quality in Indonesia is poor, this issue is not primarily tied to energy sector development. SECTION 3: Sectoral Challenges in a Changing Climate · Promote the development of abundant renewable Biofuels Development: Threat or Opportunity30. Biofuels energy resources. Indonesia is rich in renewable have become a hot topic globally ­ and in Indonesia -- as and alternative energy resources, and could benefit countries strive to develop renewable energy resources to from increasing the share of renewable generation. reduce greenhouse gas emissions, improve energy security Scaling up in this sector will require actions to and substitute for fossil fuels. With oil prices near all-time highs address technical, policy, and commercial barriers and high import dependence, both developed and developing that presently hinder progress. countries are actively pursuing large scale production of liquid biofuels, mainly for transportation. In Indonesia, Presidential 8.2.3 Potential Benefits from Alternative decree (Perpres No 5/2006) on National Energy Management Energy Resources 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 Geothermal29. Indonesia has the world's largest geothermal same period. power development potential, estimated to be about 27 GW. So far, 60 geothermal fields have been identified and more Analysts have expressed concern that the development and than half are ready for detailed exploration or exploitation ­ commercialization of biofuels will have implications (positive but only a few percent of this potential has been developed. In and negative) on the poor and the environment. For the rural 2003, GOI passed the Geothermal Energy Law to open up new poor, implications include impacts on food prices and land opportunities for private and public investments. Despite this, tenure, as well as opportunities for improved livelihoods. Indonesia still faces major hurdles in attracting investors and Environmental and land use implications include potentially financing and is likely to fall far short of its goal of increasing significant effects on forests and agricultural land. In particular, 1200 MW by 2008. With a projected doubling of electricity in Indonesia, there is concern that the push for oil palm demand in the next 10 years, mostly to be met through the development for biofuel will follow the existing pattern of expanded use of fossil fuels, any shortfall in the expansion of oil palm development for food and manufacturing purposes: Country Environmental Analysis geothermal power generation capacity would be met through increasing and unregulated conversion of natural forests to oil coal-fired power plants ­ resulting in greater emissions of GHGs palm plantations. There is also the concern that agricultural and conventional pollutants. lands currently devoted to food production will be converted into biofuel crops, this could interfere with food production The key barriers that have hindered GoI's effort to scale-up or prices, or even stimulate additional conversion of forests geothermal development include: (i) lack of a policy framework into agriculture to replace the lands that are lost. However, that provides sufficient economic incentives, proper risk along with these land management challenges, there are mitigation, sector coordination, and regulatory certainty opportunities for income generation for poor smallholders as for investing in geothermal power; (ii) lack of government bioenergy production increases globally. management, planning, and implementing capacity to effectively engage investors through efficiently conducted The economic, environmental, and social effects of biofuels are transactions; and (iii) insufficient domestic technical capacity widely debated. These effects depend on the type of feedstock, ­ in areas of planning and managing, as well as resource the production process used, and the changes in land use. The assessment, equipment manufacturing, and construction. arguments for and against biofuel development need to be 67 These kinds of barriers, which affect other alternative energy carefully evaluated. For example, some favor expanding biofuel sources, will need to be removed before Indonesia will be able production to reduce reliance on imported fuel sources, thereby to exploit its vast alternative energy resources, which could be contributing to energy security. With current technology, providing sizable economic and environmental benefits to the however, biofuels can only marginally enhance energy security country. Developing geothermal and other local, alternative in individual countries because domestic harvests of feedstock energy resources will enhance Indonesia's energy security and crops meet only a small part of fuel demand. There are a few provide a hedge against global fossil fuel price fluctuations. exceptions, such as ethanol in Brazil. Second-generation liquid biofuel technology, using wood and grass fibers, could In addition to analysis on identifying barriers that prevent greater potentially make a higher contribution to energy security, but levels of investments in geothermal, the Bank is facilitating still will not be the only solution to energy independence. a carbon finance transaction of the Lahendong geothermal project, which will provide lessons for further refining the Some also argue that substitution of bioenergy for fossil fuels Government's program for geothermal policy reform. The may help to reduce greenhouse gas emissions. However, the World Bank also has a significant engagement in helping the benefits should be evaluated on a case-by-case basis since Government expand investments in the infrastructure sector they will be different for each feedstock and production through public-private partnerships, which would also benefit processes. The analysis should cover the whole life of the fuel, geothermal power development. from production processes to transport to market. Also, it will be imperative to look at changes in land use, such as cutting 29 Source: GEF PIF For Geothermal Power Generation Development Program. Prepared by WB in Partnership with Min. Energy and Mineral Resources. September. 2007 30 Adapted from WDR, 2008, and WB PCN on Biofuels. SECTION 3: Sectoral Challenges in a Changing Climate 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 2 Solar 4.8 kWh/m /day 12.1 MW Wind 3-6 m/sec 1.1 MW forests, draining peatland, and forest conversion caused by There is an increasing effort to construct micro and small scale changes in agricultural production. The benefits of biofuels hydropower facilities at the community level. These are useful have come under increasing attack as scientists took a closer locally, but generallly do not add much to the overall grid look at the global environmental cost of their production capacity and national energy mix. (Rosenthal, 2008). Recent studies (Science, 2008; Royal Society, 2008) suggest that poor or inappropriate production processes The State of Environment Report (Min Env, 2008) notes that can cancel the carbon emission savings for centuries. development of alternative energy sources is an environmental priority. Yet, performance remains below expectations for Finally, it is also argued that biofuels can benefit smallholder increased contribution to the national energy mix. (see table farmers by generating employment and increasing rural 8.4.). Some of the obstacles to increased investment are noted incomes. However, current fuel sources that could be used as the high cost relative to the return (in the face of conventional to meet energy demands require fairly large economies of energy pricing), the low interest among private investors, and Investing In a More Sustainable Indonesia scale and vertical integration because of the complexity of the capability of the domestic energy and service companies. the production process in the distilleries. At the same time, The ministry notes that emissions and air pollution problems developing biofuels on a large scale also poses a number of will increase if renewable energy cannot grow as a portion of risks, including increases in food prices and issues surrounding overall national energy supply. land tenure and land acquisition, which could undermine the livelihoods of the poor unless handled carefully. 8.3 Energy and Climate Change Issues Indonesia is actively promoting biofuel development ­ in This section highlights climate change issues associated with advance of a full evaluation of the benefits and risks. Indonesia Indonesia's energy development pathway. is already producing between 1.5-1.8 million kiloliters of biofuel per year. Under the government's biofuel promotion plan, 8.3.1 Fossil Fuel Emissions in Global Indonesia will need to increase its consumption of biofuel to 5.3 Context million kiloliters by 2010 and 9.8 million kiloliters by 2015. As in other countries, fiscal incentives and quotas are being suggested Overall Emissions. When considering only fossil fuel as means to stimulate the sector. Indonesia's National Biofuel combustion, since 2004, Indonesia is among the top 25 CO2 Development Committee has suggested the government make emitters, or ranked 16th when counting EU as one country. Many it mandatory for biofuels to constitute 2 to 2.5 percent of the countries in this range have only a slightly higher or lower level 68 nation's total fuel consumption. This would equal 1.2 million to of emissions than Indonesia, making Indonesia's position (rank) 1.5 million kiloliters (kl) per year. Industry representatives have sensitive to small changes. However, if CO2 emissions due to suggested the government provide incentives in the form of deforestation and land use change are included, Indonesia tax exemptions for businesses in the industrial sector using then rises to among the top emitters. It is important to note diesel fuel with biodiesel added (a formulation known locally that there are questions on the reliability of emissions data from as "biosolar"). The Indonesian Biofuel Producers Association deforestation and land use change due to different methods of (APROBI) demanded the government make biofuel use mandatory at 1 percent of the country's total fuel consumption Figure 8.5. Top 25 CO2 Emitters in 2004 to help develop the industry (Krismantari, 2008). The World Bank is conducting several analyses to investigate these issues Mt CO2/yr and the options appropriate to Indonesia. 5,000 Wind, Solar, Biomass. As mentioned, Indonesia has the largest 4,000 geothermal potential in the world and is actively seeking to 3,000 develop these resources. In contrast, the potential for wind, Deforestation solar, biomass is lower and less developed. The Ministry of (estimated 2000) 2,000 Environment (Ministry of Environment, 2008) reports that the role of hydro power in the energy mix droped from 11.8 1,000 percent in 2004 to 9.6 percent in 2006 and is expected to 0 decline further to 7.8 percent by 2010. This is declining share Ch A Ru a Ja ia n rm a Ca ny da UK Ko y Fr ea M ce ico Au Iran h ia do a Sa S ia i A in Br a Po zil Ta nd Tu n ey l in Ge ndi In fric bi pa a US Ita ut ral ss s ud pa a an r rk a iw na ne la ex ra is due to the lack of investment of large hydropower plants, So st A I relative to the continued construction of conventional plants. Source: International Energy Agency (2007) [www.iea.org] SECTION 3: Sectoral Challenges in a Changing Climate Figure 8.6. Fossil Fuel CO2 Emissions per Capita and Their Figure 8.8. Average Annual Growth Rates 1994-2004 Growth Rates 8 20 Ch Change in fossil fuel emissions 18 6 16 GD growth GDP 14 4 Ch Change in emissions intensity (Emis/GDP) 12 10 2 8 6 0 4 2 -2 0 -4 sia a a il ico a A 5 az in di r ic -2 US sia a a il ico ca A 5 ne ex Ch In EU Br az in di Af -2 US ri ne do M ex Ch In EU Br Af h ut do M In h So ut In So Em Emissions/person (t, 2004) Annual emissions growth 1994-2004 (%) An Source: International Energy Agency (20 Source ency (2007) Source: International Energy Agency (2007) [http://www.iea.org/] estimation. More recent estimates of deforestation provided person. Comparing 1980 to 2004, the growth rate of GDP/ by the GOI indicate a substantial decline in deforestation. (See person has increased by 2.3 times and energy/person by 2.1 Figure 8.5.) times. In the meantime, CO2 emissions growth varied with changes in the energy structure and technology. In Indonesia, Country Environmental Analysis In the future there should be a tendency for slower deforestation annual growth rate of CO2 emissions per capita has risen faster emissions as the rate of deforestation will be slower due to than those of energy use per capita; indicating carbon intensity decreasing available forest areas. Meanwhile, energy use and of energy has increased as well. Comparing 1980 to 2004, the fossil fuel emissions will keep growing as GDP grows unless growth rate of energy use/person has increased 2.1 times and mitigating actions are taken. In the long run, CO2 emissions CO2/person by 3.3 times. (See Figure 8.7.) from fossil fuel combustion will most likely be much more important than that caused by deforestation and land use Emissions Intensity. Intensity is a measure of the level of change. emissions per unit of economic activity (as measured by GDP). The figure to the right compares changes in fossil fuel Emissions per Capita. Indonesia's fossil fuel GHG emissions emissions, GDP, and emissions intensity for several countries per capita are still low in comparison with other countries. and regions. Developing countries like India and China have However, as can be seen in the figure to the right (for energy high GDP growth rates (first, grey bar) and developing countries only, not forestry), it is growing relatively fast. From 1994 till generally have faster growing emissions (second, yellow bar) 2004, Indonesia's CO2 emissions per capita from fossil fuel than the developed nations of Europe. In most countries, GDP 69 combustion grew faster than China's and India's. (See Figure has been growing faster than fossil fuel emissions, so emissions 8.6.) intensity declines over time (third, brown bar). In Indonesia, by contrast, emissions from fossil combustion grew faster than From 1980 to 2004, annual growth rates of energy consumption GDP during the decade 1994 to 2004, so emissions intensity per person have increased slightly less than those of GDP per increased. The 1997/98 financial crisis which reduced GDP but did not change energy consumption much had a role to play. Figure 8.7. Annual Growth Rates of GDP, Energy Use and But Indonesia's emissions intensity also increased strongly from Emission per Capita 1999-2004 ­ at nearly 2 percent per year. (See Figure 8.8.) Emissions per capita Emis E Internationally, increasing emissions intensity is uncommon. 3.0 However, many fast-growing developing and industrializing 2.5 GDP per capita G P countries are shifting increasingly to coal, which will tend to Energy Ener per capita increase emissions intensity. The level of Indonesia's emissions 2.0 intensity (kgCO2/$GDPppp) is similar to that of the world 1.5 average, and still below the non-OECD average. 1.0 Emissions Intensity over Time. To understand better what 0.5 happened during the 1994-2004 period, it is possible to look separately at the pre- and post-crisis periods: 1994-1999 and 0 1999-2004. The figure below shows that CO2 emissions grew 1980 1984 1988 1992 1996 2000 2004 faster during the earlier 1994-1999 period than during the later Source: International Energy Agency (2007) [http://www.iea.org/] SECTION 3: Sectoral Challenges in a Changing Climate Figure 8.9. Emissions Intensity: Ave. Annual Growth Rates To understand why carbon intensity in Indonesia has increased 1994-2004 8.0% significantly, we need to observe the level of emissions for each 7.0% type of fossil fuel combustion (or by energy sources). The role 19 1994-1999 of coal in the electric generating sector emerges as a prominent 6.0% 1999-2004 19 9 factor in the increase in emissions intensity over time. 5.0% 4.0% 3.0% 8.3.2 Emissions by Type of Fossil Fuel 2.0% Combustion 1.0% Overview. The figure below presents the level of CO2 emissions 0.0% by the type of fossil fuel used. Note that the numbers shown ns gy P GD ity er sity GD ity GD are for the amount of emissions, not the amount of energy io P) ) P) er y/ ns is/ ns gy en n iss En rg te is/ te m te Em ne in (E s in m in consumed. Coal is the most emissions intensive fossil fuel, (E gy (E on n io er followed by oil, then gas. Coal releases roughly twice the amount rb iss En Ca Em of CO2 per unit of energy than gas, depending on the quality Source: International Energy Agency (2007) [http://www.iea.org/] of fuel and combustion technology. From this figure, it can be seen that emissions for each type of fossil fuel combustion have 1999-2004 period, though energy use grew faster. So although increased with time. However, emissions from gas and coal energy intensity increased from 1994-2004, the rates of combustion grew faster than that from oil combustion. Since Investing In a More Sustainable Indonesia increase declined, which indicates progress. Carbon intensity 1995, emissions from coal combustion grew fastest. has progressed as well: the increasing rates of carbon intensity declined. It is, hence, not surprising to see that the rate of Comparing the shares of CO2 emissions by type of energy use increase of emissions intensity was lower in the later period in 1984 and 2004 (not shown), one finds that the contribution than the earlier one. Thus, although the situation related to from oil combustion has been declining from contributing 85 energy use and CO2 emissions intensity in Indonesia had been percent of total CO2 emissions in 1984 to 53 percent in 2004. increasing during the 1994-2004, the rates of these increases Meanwhile, the contributions of coal increased from 1 percent have been declining. (See Figure 8.9.) in 1984 to 26 percent in 2004, while the contribution of gas moved from 14 to 21 percent in the same period. Carbon Emissions Decomposition. The following figure presents the average annual change of population, GDP per The broad trend in Indonesia's energy system basically shows capita, energy intensity, and carbon intensity for Indonesia and that although oil is still the main contributor of CO2 emission, several other countries. From this figure, comparing with other the share of oil is decreasing as domestic reserves are countries, it can be seen that the main long-term driver for exhausted and oil price rises. In the meantime, the share of increasing CO2 emissions in Indonesia is the increasing carbon coal is increasing and replacing the role of oil in the stationary intensity. The average annual growth of carbon intensity in energy sector, whereas the share of gas roughly remains Indonesia is much higher than those in other countries. Long constant as there are significant gas exports. 70 term annual change of energy intensity in Indonesia is in the right direction, albeit less progressive than in Vietnam and Looking at CO2 emissions by sector, the figure 8.11 shows that China. (See Figure 8.10.) industrial activities have been the main source of CO2 emission. One of the reasons is that a significant number of firms have Figure 8.10. CO2 Emissions Decomposition Figure 8.11. Emissions by Sectoral Sources (Shares) 8 160 P y= y=Y/P 140 6 e= e=E/Y 120 c= = c=C/E 4 100 Mton CO2 2 80 60 0 40 sia sia s nd m a a ld ne in di pr a -2 ay ne ila Ch In tn pi W al a 20 do e ilip Th Vi M In Ph -4 0 971 1971 1975 1979 1983 1987 1991 1995 1999 2003 Ele Electricity Industries Ind Tra Transport Residential Res -6 (Source: IEA 2007) I t Energy Agency (2007) [h Source: International E i 2007) [http://www.iea.org/] SECTION 3: Sectoral Challenges in a Changing Climate 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 growth `94-'04 Emissions 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 their own electric power generators. The types of energy that from other sectors. It also highlights the important of looking they use and the determinants of industrial fossil fuel use will carefully at power generation development plans, taking into be investigated more thoroughly in a second phase of work. account the costs, economic impacts and implications on resource endowments. Figure 8.12. Emissions by Type of Fossil Fuel Combustion 200 Fossil Fuel Emissions Decomposition. The figure 8.15 summarizes GHG emissions for the main product categories 180 160 140 Figure 8.13. Emission by Sectoral Sources (Shares) Mton CO2 Country Environmental Analysis 120 Share of Emissions (to 100%) 9% Residential Re 100 20% 80 23% Tr Transportion 60 25% 40 20 41% In Industry 0 1971 971 1975 1979 1983 1987 1991 1995 1999 2003 42% OIL COAL CO GA GAS 27% El Electricity 7) [http://www.iea.org/] Source: International Energy Agency (2007) [htt / i ] 13% CO2 emissions from the transportation sector grew steadily 1984 2004 but less so than the industrial sector. It is interesting that Source: International Energy Agency (2007) [http://www.iea.org/] emissions from the electricity sector grew the fastest (steepest slope) since the mid 1990s. CO2 emissions from residential (coal, oil and gas) and for the main consumption categories 71 sector grew the slowest, perhaps reflecting increasing levels (Industry, Electricity, Transport, and Residential). Industry is of household electrification. The household sector is not a currently the largest source of emissions, but further analysis primary issue in itself, but should be considered in how it is needed to determine which subsectors are most responsible relates to the overall growth in electricity demand, and how or fastest growing over time. Electricity is the fastest increasing that electricity is supplied (e.g., coal-fired power plants). Efforts major component. This is mainly due to the increases in to improve efficiency and manage demand at the household electricity demand, being fed by expansion of coal-fired level will have some effect on the need for generating capacity. generating capacity in recent decades and the increasing effort (See Figure 8.12.) to replace oil-fired power generation for energy security and price reasons. There has been almost a 5-fold increase in coal The Figure 8.13. shows emissions shares by sector. This conveys use since 1994. the same points: industry is largest, electricity is fastest growing. While total emissions have been growing by around Transport is the largest user of liquid fuel, due to growth 7.5 percent annually, the emissions from electricity grew by in vehicle fleet and the low price of liquid fuel products around 11 percent in the last two decades. for transportation. Low fuel prices (due to subsidies) mask improvements in vehicle efficiency that may be taking place Figure 8.14 focuses on shares of emissions in the electricity over time. The residential sector is not a large user of coal or sector. This shows that coal use in electricity has grown much gas. Emissions come mainly from the combustion of kerosene faster than in other energy sources. Hence, by 2004, proportion for home cooking. of coal use in electricity sector was much higher than that in other sectors. This is the main reason that the proportion of CO2 Preliminary Sub-sectoral Results. Using the IEA database for 2004 from electricity sector grew faster than the proportion of CO2 and Indonesian sources, analysis indicates that a dozen sub- SECTION 3: Sectoral Challenges in a Changing Climate Figure 8.14. Emissions by Energy Use: Electricity Use Electricity Others 1% Percent / Share (to 100%) Percent / Share (to 100%) 16% Gas Ga 22% 28% Ga Gas 1% 10% Co Coal 53% Coal Co 99% 77% 63% 31% Oil Oi O Oil 1984 2004 1984 2004 Source: International Energy Agency (2007) [http://www.iea.org/] sectors account for about half of emissions. Preliminary figures Future Emissions Trend and Scenario. If the trend from the and findings suggest that non-metallic minerals (cement), 1971-2004 period continues, by 2030 total CO2 emissions will Investing In a More Sustainable Indonesia textiles, steel making and rolling, pulp, food and beverage and be around four times the level in 2005 as can be seen below. fertilizer are high emitting segments of the manufacturing/ Total CO2 emissions grow by about 5 percent annually, while industrial sector. These need further investigation of the kinds CO2 emissions from coal grow by about 7percent annually. of cost effective interventions that can be pursued in these specific industries. These may be good targets for policy and There are many assumptions imposed on this trend, such as actions to increase efficiency, reduce emissions ­ assuming future proportion of energy used in the electricity sector and that these actions are also compatible with the economic and composition of energy use among renewables, oil, coal, and development needs of the country and the benefits of action gas, which are the same as those predicted by the International exceed the costs. Energy Agency (See Figure 8.16. and Figure 8.17) Within the transport sector, road transport is the largest user (IEA) with the exception of energy intensity. IEA predicts a and nearly the only one of consequence. Emissions are roughly reduction in the rate of energy intensity by around 2.5 percent split between use of motor gasoline and gas/diesel. In the annually, which is very high compared internationally and residential sectpr, residential emissions are almost entirely much higher than the historical rate in Indonesia where energy from kerosene use (mainly for cooking), with minor emissions intensity has actually increased over the last decade. For the from the use of LPG. Commercial and public services generate projection here, energy intensity declines by around 1percent emissions mainly from use of natural gas. Agriculture and annually, which is roughly in line with the global average 72 fishing have relatively small emissions from fossil fuel use (and reduction rate of energy intensity in the past. dwarfed by land use emissions). Even assuming a decrease in energy intensity, it can be expected Figure 8.15. ID: Emissions by Fossil Fuel and Using Sector that emissions from energy consumption will triple in the 140.0 period to 2030. It is important to note that CO2 emissions from Largest Using fossil fuel combustion under this projection roughly double Sector 120.0 every 15 years. CO2 emissions from energy use increase as Fastest Indonesia's GDP grows and the proportion of households with Growing 100.0 Component medium and high levels of income increases. In the electricity Largest Single Compont sector, by 2030, total emissions will be around 3 times the level 80.0 in 2005. The main driver of increasing emissions from electricity is emissions from coal combustion. 60.0 40.0 20.0 0 ndustry Industry ectricity Electricity Transport esidential id i l Residential Coa Coal Oil Gas Source: IEA 2004 in MtCO2e SECTION 3: Sectoral Challenges in a Changing Climate Figure 8.16. Estimate of Future Emissions from Electricity Figure 8.17. Estimate of Future Emissions from All Fossil Sector Fuels 300 1.400 16% 250 1.200 23% 1.000 200 Mt CO2/yr Mt CO2/yr 800 72% 35% 150 600 100 11% 400 60% 21% 42% 50 200 26% 29% 12% 53% 0 0 2005 2010 2015 2020 2025 2030 2005 2010 2015 2020 2025 2030 Source: International Energy Agency (2007) [http://www.iea.org/] Source: International Energy Agency (2007) [http://www.iea.org/] Country Environmental Analysis 73 SECTION 3: Sectoral Challenges in a Changing Climate Investing In a More Sustainable Indonesia 74 75 75 Country En vi ro nm e n ta l An al ys is C o un t r Environmental Analysis al Co u n tr y E n v i r o n m en t a Anal s i s SECTION 4: The Way Forward SECTION 4: The Way Forward Investing In a More Sustainable Indonesia 76 Chapter 9: Towards a More Sustainable Indonesia Off-shore Bunaken, North Sulawesi Photo: Winarko Hadi SECTION 4: The Way Forward 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 financing 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 specific 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. Investing In a More Sustainable Indonesia The previous analysis suggests that a more sustainable management, local-level financial management and incentives, Indonesia is one where: and a clarification of roles. · The costs of environmental degradation and climate Geography-based environmental management. One change are lowered so that less wealth is diverted recommendation is that environmental management should be from growth; unitary, based on geography such as a watershed. As Indonesia's law on water resources allows for water to be managed within · Good environmental management contributes to the context of watersheds, there is a precedent that could poverty alleviation by reducing impacts on the poor be applied to other resources, such as land management. and better sharing of benefits; Currently environmental management follows administrative boundaries rather than geographic boundaries. Transboundary · Renewable resources are used sustainably while non- issues get kicked up to the next level of administrative authority renewable ones are wisely developed for investment but seldom do environmental authorities at the next level up in human and physical capital; and have adequate power or resources to address the problem. The Ministry of Environment has only five regional offices to · Citizens are aware of and participating in address such problems. For example, the Leuser Ecosystem in environmental issues directly or through their North Sumatra spans two provinces (Aceh and North Sumatra) 78 representatives and other organizations. but the closest regional office of Ministry of Environment is in Pekanbaru, quite some distance away. Options for moving toward this vision are outlined in the sections below which cover environmental governance, Financial management and incentives. Another challenge adaptation to climate change, forestry and land use, and for decentralized environmental management is the fact energy. The World Bank has a long history of partnership that local governments get their funding on a yearly basis so with Indonesia on environmental and natural resource they have no facility for long-range investment. To further management issues. The ongoing engagement has centered compound the financing picture, it takes so long for central on forestry management and biodiversity conservation as well government transfers to actually reach the local governments, as coastal and marine resources. Given the findings of the CEA, an estimated 80 percent of local government spending takes there are opportunities for increased partnerships in the areas place in the last quarter of the year. Having no money for most of environmental governance and climate change that are of the year and then having to spend money quickly during summarized in this chapter and elaborated in the Annex. the final quarter makes for very inefficient spending patterns. More flexible financing options, such as DAK and BLU, could be 9.1 Options for Better Environmental more fully utilized for financing environmental management at Governance the local level. 9.1.1 Strengthening Decentralized The Ministry of Environment is currently looking at environmental fiscal reform. Income coming from taxes is Environmental Management currently not earmarked to specific tasks or activities, but it could be. Similarly, externalities are not being considered. Options for strengthening decentralized environmental There is also mention of better opportunities for incentives governance include geography-based environmental through matching grants provided through deconcentration SECTION 4: The Way Forward mechanisms. There may also be incentive mechanisms An environmental fiscal reform agenda. In order to overcome through special assistance measures for national assets such as these policy barriers, the government needs to engage in a national parks. Deconcentration is a mechanism for leverage. long­term reform and gradual environmental fiscal reform With regard to law on local government financing, the existing agenda. The objectives of such an agenda should be to set up a environmental taxation policy is poorly designed as it is based regulatory and economic framework which provides incentives on revenue, rather than taxing those companies who perform to change behavior, accounts for external environmental badly in their environmental management practices. costs, enhances resource conservation and improve revenue collection mechanisms. Clarification of roles. One of the more significant challenges of building regional capacity for environmental management The key is to identify the optimal mix of fiscal policy instruments is that the management units are too small--there are now which can create potential synergies between these various nearly 500 local governments in Indonesia, and this figure goals and minimize short-term trade-offs. An example may increase over time. At the same time, central government would be Indonesia's successful experience with fuel subsidy agencies often have a tendency to deal primarily with provincial reductions coupled with conditional and unconditional cash governments. However, the functions of the provinces under transfer programs targeted at poor households. Given that fuel regional autonomy have been restricted and they are often subsidies have largely regressive effects, a continued gradual unable to act with authority even where clear-cut environmental program of fuel subsidy reductions or even applying a carbon externalities arise. Local governments frequently challenge the tax could be politically feasible options in the medium and intervention of a higher authority on environmental matters long-term. (whether provincial or national), preferring instead to work individually, sometimes with support of donors who are keen Similarly, the government needs to introduce cost-reflective to place their assistance as close as possible to the source of electricity tariffs in the medium and long run. The current tariff the problem. structure prevents private investors to undertake significant Country Environmental Analysis investments in to renewable energy production. As with fuel In this light, a suggested recommendation is to clarify roles subsidies, relatively low electricity tariffs do benefit the rich and responsibilities. The central government could focus on more than the poor. Any program of a national gradual subsidy its comparative advantages of setting policies and standards, reduction could be coupled with targeted connection subsidies monitoring and reporting, identifying and disseminating to the poor or subsidized tariffs based on location and housing good practices, quality control, providing technical assistance, characteristics (IEA 2008). and capacity building. Local governments could focus on implementation of policies and programs in an accountable The REDD program offers a huge potential revenue opportunity, manner. Provincial governments would then focus on issues but it will not work without a functioning fiscal system for the that transcend more than one district within a province. Were forestry sector. REDD will allow for payments for projects and the government to pursue this course, it could be gradually policy actions that reduce forest-based carbon emissions. implemented and in a manner that allowed districts to However, any carbon compensation system will depend on maintain maximum opportunities for local participation and erasing the underlying fiscal distortions in the forestry sector. better governance. These distortions arise as true economic and environmental 79 values of forests are not captured. Thus there is a need to 9.1.2 Enabling policies develop a transparent royalty collection and monitoring system. Policy instruments that could provide the incentives Indonesia's fiscal regime for natural resource management is for more sustainable forest management include performance currently biased towards unsustainable resource extraction. bonds, better tenure arrangements and auctions. Similarly, In the power sector, fuel and electricity subsidies distort price other sources of climate finance (Climate Investment Funds, signals and limit the capacity of the government to invest more Adaptation Fund, bilateral programs, etc.) will not function in renewable energy production. In the forestry sector, the effectively if economic and fiscal parameters such as the overall current system of fiscal instruments is not capable to reduce the investment climate or fuel and power pricing continued to be incentives for illegal logging and to fully capture the economic distorted. rent associated with forest ­ based economic activities. 9.1.3 Expanding voice and access Clean up the legal framework. Across sectors the key problem is that national policies and laws governing specific sectors not NGOs/CVOs have historically played an important role in raising only contain contradictions within sectors, but also overlap specific cases to the public eye and government's attention, with decentralization laws and regulations affecting local largely using the media as their ally. However, with legislature resource use. Specifically, in mining and fisheries sectors, policy (and political parties) carving out a more solid position in this distortions arise from conflicting sector-based regulations democracy, NGOs will face increased scrutiny in their role of and the decentralization laws. Thus, a priority would be to representing people's aspirations. NGOs will have to clarify their harmonize these laws and regulations to provide a better base constituent-base and solidify their capacity for management to improve revenue collection and ­ sharing between local and and analysis of environmental data. NGOs/CVOs will also have national governments. to establish or assert their credibility more aggressively, if they SECTION 4: The Way Forward want to continue to play a role in building public awareness legitimate player, and can be expected to strengthen its mark and public demand for environment. in the future. Provincial and district/level legislature should also follow suit. However, with the institutional/ political situation The legislature is still in the process of solidifying itself as a key being so fluid, it may take at least another cycle of executive- force in the democratic process. The more established political legislative appointments to see whether the democratic culture parties, with a nation-wide network, have an advantage in of representing public interest will bear fruit, and whether the communicating with the public. Newer parties have yet to legislative members will be able to accelerate the learning develop a culture and effective mechanisms to communicate curve with respect to environment. with constituents. They may, in the future, play an important role in channeling public aspirations but this will probably not Finally, the public itself needs to build a more complete happen before political parties and legislature have convinced understanding of environmental issues and their contribution the public about their sincerity. As the democratic transition in protecting or destroying the environment. It is insufficient to progresses, the role of legislature at all levels can be expected know the visible or physical manifestations of environment and to strengthen. natural resource problems; the public must begin to understand the interconnectedness of environment and natural resource Religious institutions are an emerging player, mainly in issues, and the impacts of government's decisions and each influencing public behavior. Their effectiveness, however, is individual's actions. The public also needs to learn to articulate not yet evident. Furthermore, there is insufficient information (or define more clearly) their demands for a better environment. to determine their role in channeling public aspirations to the Without it, other parties may make assumptions about public Investing In a More Sustainable Indonesia government, at present or in the future. aspirations which will only confuse decision-making in an area already burdened by multiple conflicting interests. This will Media, especially TV, does play an important role in transmitting require pursuing options for expanded access as outlined in information on environment. But environmental messages tend Box 9.1. to be drowned out by the dominant messages of development, consumerism and entertainment. As a medium to channel 9.2 Options for a Changing Climate public aspirations, the media does not feature strongly. 9.2.1 Adapting to a Changing Climate In summary, who represents the Indonesian public in environmental issues is undergoing transition. In the past, Reactive and proactive options can help Indonesia adapt. NGOs have played an instrumental role. At present, the Table 9.1 indicates the range of responsive and anticipatory national legislature is beginning to exert themselves as the actions that can be taken to adapt to climate change with BOX 9.1. Options for Expanding Access to Environmental Governance Government needs to: 80 · Work with other stakeholders to monitor and appraise the performance of its own institutions in fulfilling access to information, participation and justice, and encourage the adoption of policies that better guarantee their fulfillment. · 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 fulfillment 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 SECTION 4: The Way Forward regards to water resources, agriculture, forestry, coastal/marine begin, what to scale up and how to link actions over time (see resources, and health. The options that are already incorporated Box 9.2). An example of how this is being proposed for the in Indonesia's National Action Plan Addressing Climate Change agriculture sector in Indonesia is provided in Figure 9.1. An (GoI, 2007a) and National Development Planning Responses to important consideration in prioritization will be to invest in Climate Change (GoI, 2008) are highlighted in bold. As not all measures to protect the populations that are at greatest risk in of the adaptation options have been considered in Indonesia, terms of health and livelihoods. Selectivity can also be guided there is scope for additional emphasis on: water resources by economic analysis through choosing options that have the (groundwater management, water recycling, and policy highest economic return and greatest net present value. reforms); agriculture (changes in planting, harvest and cultivars, policy reforms and early warning); forestry (agro-forestry, better Mainstreaming of adaptation will require complementary fire management, protection of biodiversity); coastal marine efforts. The planned and possible measures for mainstreaming (protection of infrastructure and more integrated coastal zone adaptation in climate change will need to be complemented management); and health (improved housing, living conditions by: and urban design, and public health reform). · Efforts to raise public awareness about climate Phasing and selectivity of adaptation measures are change and its impact in order to build a consensus needed. This is an enormous agenda for any country to take for significant public action on all at once. It will be necessary to think through where to Table 9.1. Adaptation Options Reactive/Responsive Proactive/Anticipatory · Protection of groundwater resources · Better use of recycled water Water Resources Country Environmental Analysis · Improved management and maintenance of existing · Conservation of water catchment areas water supply systems · Improved system of water management · Protection of water catchment areas · Water policy reform including pricing and irrigation poli- · Improved water supply cies · Groundwater and rainwater harvesting and desalination · Development of flood controls and drought monitor- ing · Erosion control · Development of tolerant/resistant crops (to drought, · Dam construction for irrigation salt, insect/pests) · Changes in fertilizer use and application · Research and development Agriculture · Introduction of new crops · Soil and water management · Soil fertility maintenance · Diversification and intensification of food and planta- · Changes in planting and harvesting times tion crops · Switching to different cultivars · Policy measures, tax incentives/subsidies, free market · Educational and outreach programs on conservation and · Development of early warning systems 81 management of soil and water · Improvement of management systems including con- · Creation of parks/reserves, protected areas and biodi- trol of deforestation, reforestation, and afforestation versity corridors · Promoting agroforestry to improve forest goods and ser- · Identification/development of species resistant to climate Forestry vices change · Development/improvement of national forest fire manage- · Better assessment of the vulnerability of ecosystems ment plans · Monitoring of species · Improvement of carbon storage in forests · Development and maintenance of seed banks · Forest fire early warning systems · Protection of economic infrastructure · Integrated coastal zone management Coastal/Marine · Public awareness to enhance protection of coastal and · Better coastal planning and zoning marine ecosystems · Development of legislation for coastal protection · Building sea walls and beach reinforcement · Research and monitoring of coasts and coastal ecosys- · Protection and conservation of coral reefs, mangroves, tems sea grass, and littoral vegetation · Public health management reform · Development of early warning systems · Improved housing and living conditions · Better and/or improved disease/vector surveillance Health · Improved emergency response and monitoring · Improvement of environmental quality · Changes in urban and housing design SOURCE: Adapted from UNFCCC (2007) in ADB (2009) SECTION 4: The Way Forward 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 efficiency · Provide more opportunity for alternative economic activities · Set up policy to limit conversion of rice fields 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 Investing In a More Sustainable Indonesia · Develop new irrigation facility in vulnerable rice production centre areas whenever possible to allow for increasing planting index and productivity · More research to better understand the local impact economic diversification, protection of assets and of climate change, cost-effective technical solutions other coping strategies (ADB, 2009). and sound strategies that go beyond technical solutions (migration, social protection, livelihoods, 9.2.2 Forests, Land Use and Climate Change governance) Forestry `No Regrets' Options. REDD offers new financial · Multi-agency coordination and planning to promote incentives for improvement of forest management practices, interdisciplinary approaches to adaptation, e.g. but payment is only based on performance, or outcomes, not linking adaptation with disaster risk reduction plans or projected improvements. To improve performance in the forest sector, both GOI sources and independent analysts · Strengthened local capacity to plan and implement have concluded (Min Forestry, 2006 and 2007; World Bank, adaptation measures, including improved central- 2006) that there is a need for: 82 local coordination, planning and financing · Improved forest law enforcement, management · Increased resilience of poor households and other and governance to improve asset management and vulnerable groups to climate shocks, e.g. through 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: 1. Give priority to "no regrets" investments and policy options that provide benefits even without climate change. These exist in almost every sector but may not be implemented due to lack of information, transaction costs and/or political will. 2. Buy "safety margins" in new investments to increase climate resilience, e.g. the marginal costs of building a higher dam or including additional groups in a social protection scheme. 3. Favor reversible and flexible options. Examples include restrictive urban zoning to anticipate new flooding patterns or crop insurance to protect farmers against a projected higher frequency of drought. 4. Plan based on scenario analysis. Assess strategies under a wide range of possible futures, review investment programs and adjust the scenarios as well as the programs according to new information. SOURCE: World Bank, 2009 SECTION 4: The Way Forward · Realigned incentives for timber harvesting and World Bank's Strategic Climate Fund, will provide grants and processing firms, to improve competitiveness and low-interest credits for development of REDD demonstration economic returns projects as well as investments in sustainable forest management and conservation of forest carbon reservoirs. The Government · Restructuring and revitalization of forest sector of Norway is providing development financing in countries industries to balance demand with supply, capture such as Brazil in exchange for verified reduction in the national and keep international markets, and improve rate of deforestation. The UK's Prince of Wales Rainforest Project competitiveness. seeks to provide similar payments on performance, perhaps financed by the issuance of rainforest bonds. · Forest and land fire control to reduce smoke and haze that cause high health costs 9.2.3 Energy and Climate Change Options · Equity and transparency in forest/land use decisions High-level planning and coordination. One of the key options (also fundamental for any financing and distribution for an effective climate change response, especially with regard mechanism) to fossil fuel use, is integration and coordination of the policy response across the Government. The Government has formed a · Independent monitors of legal compliance and National Council on Climate Change to help coordinate a policy participation standards. response, but this institution is still developing its capacity. To improve the technical basis of its recommendations and Under any climate scenario, these policy and governance coordination efforts, the National Council has commissioned actions make sense to improve management and financial a National Economic and Environmental Development Study returns from an important national asset. Thus, these could be (NEEDS) and an assessment of emissions abatement costs seen as "no regrets" options. across a range of sectors. Country Environmental Analysis International forest carbon financing opportunities. REDD Key sectoral ministries (energy, industry, forestry, etc) are aware is a major opportunity and incentive for Indonesia, which is a of the importance of climate change as a national development strong advocate in international negotiations. An international challenge and are formulating sector specific plans. In forest carbon market is expected to be established in the post- particular, in the area of fossil fuel emissions, the Ministry 2012 framework, under negotiation now. Estimates of the of Environment and the Agency for the Assessment and potential gains to Indonesia through a REDD scheme range Application of Technology (BPPT) have produced a Technology from $0.5 - 2 billion per year, depending on the area covered Needs Assessment on Climate Change Mitigation. and overall performance, as well as the stock of carbon in the different types of forests. These payments for REDD can benefit Many policy options are under consideration for reducing Indonesia by creating an incentive and a revenue stream that Indonesia's emissions. The GOI has developed a National offsets the costs of making needed changes. Many donors Action Plan for Climate Change and a National Development are now engaged in assisting the GOI to develop the REDD Planning Response to Climate Change. The Ministry of Finance program through pilot demonstrations and development of has commissioned a low carbon development options study 83 policy frameworks. Also, many private sector agents and NGOs and a green paper on climate change to help in formulating are pursuing REDD schemes through voluntary markets (World options to address both mitigation and adaptation. BAPPENAS Bank, 2009). is integrating climate change issues into the medium term development planning framework and developing a `road map' In fact, producing solid, verifiable emissions reductions for sale for addressing climate change issues. Both institutions are on an international is an investment process with risks. For this working to incorporate climate change priorities into national reason, the involvement of the Ministry of Finance is necessary budgets and longer term plans. and important. Reducing deforestation (and emissions) verifiably costs time and money: sites have to be selected Specific sectoral options. Bappenas (2007) has identified and surveyed, actions have to be taken in the field to change specific policy options that may help Indonesia "to reduce incentives or replace behaviors, monitoring and verification are energy-related emissions and to remain internationally needed to assure carbon buyers that the emissions have indeed competitive [including] efficient energy use to conserve the low been reduced, with some permanence and minimal leakage in cost energy source; fossil fuel substitution to adopt eco-friendly other areas. Willing buyers also have to be found and deals fuel, the use of renewable energy technology, and application negotiated with appropriate sharing of both financial benefits of emissions standards, a carbon tax and other incentives to and risks. Reducing deforestation means addressing the drivers support reforestation and sustainable forest management." To of deforestation: governance, enforcement, rent-seeking. This overcome the limitation of fossil energy resources, Bappenas remains a challenge, though recent forest monitoring data enumerates a number of possible efforts, including the need indicate that Indonesia has had some success in recent years. to "identify new resources, increase production, limit exports, and find/develop new and alternative renewable resources, In addition to REDD, Indonesia can tap other sources of forest including water power, geothermal, biomass (organic waste), carbon financing. The Forest Investment Program, within the solar energy, ocean energy, and wind energy." SECTION 4: The Way Forward From the analysis in Chapter 8, ongoing discussions and the to stimulate and accelerate the needed investments. climate change literature, several additional energy-related options can be pursued: 9.3 A Role for the World Bank · Energy pricing - The approach to pricing energy The World Bank has a long and evolving history of engagement hinders efforts to improve energy efficiency, develop with Indonesia on the environment and natural resource alternative energy resources, conserve on increasingly management. This engagement will continue in sectors such expensive fossil fuels, and reduce greenhouse gas as forestry, biodiversity conservation and coastal and marine emissions. This is a difficult political issue, but new resources. Partnership will be strengthened in the areas forms of climate financing may help Indonesia make emphasized in this CEA ­ environmental governance and progress in some specific areas. climate change. · Renewable energy development - Indonesia has 9.3.1 World Bank Engagement in the abundant renewable energy resources but their Environment and NRM Sectors development lags due to lack of investment and a weak enabling environment. If Indonesia continues Over the past two decades, the World Bank has been engaged to tackle the policy challenges and perceptions that with Indonesia in the area of environment and natural improve the investment climate generally, there will resources (mainly in the forestry sector) at different levels be benefits for investments in mitigation actions and in different ways. Before 1994, the Bank was involved in Investing In a More Sustainable Indonesia and development of alternative energy sources. lending operations and worked directly (and unsuccessfully) These investment climate issues may require a more with the GoI to achieve policy reforms. After 1994, the Bank in-depth look at banking sector policies, tax and withdrew from lending but tried to remain involved through depreciation incentives, and trade policies that help higher-level dialogue, analytical/advisory services to build or hinder the application of new technologies. capacity of local environmental agencies (Bappedalda) and the recently established Ministry of Marine Affairs and Fisheries. · Energy efficiency - Even in the current energy In addition, environmental "mainstreaming" also occurred pricing regime, there are some opportunities for through participation in the design and supervision of lending emissions reductions through energy efficiency and activities such as COREMAP I and II, KGRIP, ILGRIP, and UPP II and energy management approaches with short payback III, and the application of environmental safeguards in Bank periods, especially in the power, manufacturing loans to all sectors. and transportation sectors. Many of these actions make financial sense now at the firm level. Also, Then, in 2001, following launch of the Government's major energy management and efficiency standards for decentralization program, the Ministry of State for Environment certain types of equipment may be appropriate for (KLH) called upon the Bank's expertise to help devise a consideration in the Indonesian context. The energy strategy to improve the level and quality of environmental and cost savings would benefit the firm; the emissions management at the local level. Specifically, the Bank supported 84 savings would benefit all Indonesians. the development and implementation of the second phase of the PROPER program. Unlike the first PROPER program, which · Financing incentives - International financing targeted industrial water pollution only, PROPER II is based on mechanisms, in particular the carbon market and eight aspects, and participation in the program is mandatory the Climate Investment Funds, can help provide by ministerial decree. In addition, the Good Environmental some offsetting payments or lower cost funds to Governance Program was also launched to complement help Indonesia meet its mitigation objectives. Again, PROPER. GEG is meant to assess the state of environmental improvements in the investment climate would help 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-effective 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 verifiable efforts 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 benefits to prevent deforestation. SECTION 4: The Way Forward for better environmental performance in urban centers across 9.3.2 Areas of Continued Engagement Indonesia. As in the case of PROPER, the Bank was instrumental in supporting KLH's effort to scale up the program and develop The following is a brief overview of the themes/areas where the meaningful indicators to measure progress and impact of this World Bank already has a meaningful engagement in Indonesia program. (forest and biodiversity conservation, and, coastal/marine resources), and where it is likely to remain engaged at least A new phase of engagement began in 2004 on: (i) natural through the current Country Partnership Strategy. Considering resource management, with a particular emphasis on forestry environmental challenges more broadly, the World Bank will and coastal management, and a more policy-based focus on continue its support for water and sanitation, environmental mining; (ii) local environmental governance, including loans, services and infrastructure, and sustainable agriculture. grants and technical assistance to support decentralized environmental management; (iii) addressing global Forest management and biodiversity conservation. In environmental issues, including greenhouse gas emissions, the forest sector, the Bank's assistance strategy from 2004- biodiversity, international waters, and ozone depleting 2007 aimed at improving management and governance to substances; and (iv) safeguarding the environment through support governments and communities in sustainable forest continued, better-coordinated support to lending operations management, conservation, development and dialogue. in all sectors. Biodiversity conservation has been supported through a number of medium-sized terrestrial and marine initiatives The previous CAS (2004 ­ 2007) outlined a reform-oriented supported by the GEF. From 2008 to the present, the Bank's program around three objectives (Improving the Climate for primary forestry focus has been on developing the market for High Quality Investment, Making Service Delivery Responsive REDD in Indonesia as part of a strategy to reduce deforestation to the Need of the Poor; Governance) that are aligned with and forest-based carbon emissions. The World Bank proposes the Government's Medium Term Development Plan (RJPM) to scale up and mainstream assistance in Indonesia's forestry Country Environmental Analysis for 2004 ­ 2007. However, the CAS did not encompass the sector to develop more comprehensive programs --both environment or natural resource management. Environmental in conservation and collaborative management at the sustainability and providing a healthy environment for the community level--, to build environmental protection and poor are identified as strategic priorities but these are not forestry issues into activities with actors outside the forestry supported by substantive programs. Faced with this gap, two box --including enforcement authorities, customs, trade, important regional documents, the Environment Strategy for local governments, communities--, and into larger scale the World Bank in the East Asia and Pacific Region and the EAP macro-policy interventions focusing on public revenue losses, Forestry Strategy, provided critical guidance for expanding corruption, and poverty alleviation. Dialogue will also be scaled the Bank's engagement in Indonesia. These strategies up on community-based resource management, land rights emphasized the importance of improving the quality of life, and access, and their contribution to growth and equity. In enhancing the quality of growth, protecting the regional and forestry, this will be done primarily through continued support global environmental commons, engaging with local partners, for REDD through the Forest Carbon Partnership Facility, the supporting sustainable natural resource management, and Forest Investment Program and partnerships with government, assisting the reform process. donors and REDD demonstration projects. For biodiversity, the 85 emphasis will be on scaling up promising approaches such as In contrast, the new Country Partnership Strategy (2009-2012) the ecological restoration concession concept. embraces environmental sustainability as a core engagement area along with disaster mitigation. This engagement aims Coastal and marine resources. Most Bank and other key to strengthen Indonesia's ability to manage environmental donor assistance has contributed to strengthening institutional challenges and reduce disaster-related risks to ensure capacity of responsible institutions (both national, regional and sustainability. Specifically, work is to be undertaken on sub-regional). These capacity building programs are based environmental sustainability to build the capacity of the on management models and approaches that have been country to adapt to climate change and address environmental successfully tested as pilots in Indonesia or other parts of the challenges through climate change mitigation and adaptation, world. The Bank has led the development of a 15 year program natural resource management, biodiversity conservation, and called the Coral Reef Rehabilitation and Management Program local environmental management. Disaster mitigation also (COREMAP), which is the largest Program of its kind anywhere encompasses the importance of mainstreaming adaptation to in the world. The proposed Fisheries Revitalization Project will climate change through support to Indonesian institutions as increase income of rural coastal and fisheries communities well as within the Bank's own portfolio. The inclusion of this in participating districts. The World Bank has consistently engagement area was partly based on intermediate inputs supported the GoI to enhance management efforts promoting used to develop the Country Environmental Analysis. 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 SECTION 4: The Way Forward of Bank's and other donors involvements along the following about CDM opportunities; and c) actively developing CDM lines: i) Improve learning capacity of coastal and marine projects for carbon financing. Given the context described resources stakeholders: issue identification, plan development, above, there is now a unique opportunity to increase our managing implementation of the plan, monitoring, evaluation, engagement and effectiveness in helping Indonesia to tackle controlling; 2) Focusing on enhancing impact and outcome climate change issues. Each of the following strategic pillars of coastal and marine resource management, especially on builds on one of these comparative advantages with the socio-economic issues in advancing small-scale fisheries- objective of supporting Indonesia's ability to understand and based industries and livelihood, post-harvest industry and respond to the key challenges presented by climate change. trading of marine products, conservation-based marine tourism industries promoting coastal community welfare; · Pillar 1: Increasing the focus on the costs and benefits of and 3) Facilitation inter-regional cooperation in maximizing adaptation. The Bank should use its convening and fair share benefit from marine-based product for producers as analytical powers to help stakeholders in Indonesia tools for improving coastal community welfare. Many coastal understand the issues and options faced by the communities have been encouraged to implement options country in adapting to global warming. The two of producing processed materials from coastal and marine flagships for this pillar would be a) increasing the resources in sustainable manners. climate resilience of the World Bank's investment portfolio and exploring possible stand-alone 9.3.3 Implications of the CEA for New Bank operations that finance investments in adaptation, Partnerships and b) suport for the low-carbon growth strategy Investing In a More Sustainable Indonesia in order to identify different development scenarios Environmental governance and climate change have been that enable economic growth while lowering the identified in this report as areas that would be critical emissions intensity of development and incorporating for strengthening the GoI's efforts towards sustainable the costs (and benefits) of adaptation. development over the next years in the new Country Partnership Strategy. To date in Indonesia, the World Bank has only had a · Pillar 2: Enhancing the focus on avoided deforestation limited engagement with these two areas, and plans to step and degradation. As forest and peatland degradation up its presence over the next three years to respond to the are the overwhelming sources of Indonesia's GoI's request for support, enhance the Government's relevant greenhouse gas emissions, it is sensible to strengthen strategy and use the Bank's comparative advantages. the Bank's approach in this area. The objective should be to help Indonesia develop and implement its Environmental governance. Lessons learned and findings strategy for reducing emissions from deforestation from the implementation of the ILGR, ULGR and USRDP, and degradation, both through technical assistance COREMAP, PROPER and GEG programs indicate that there is and financing of demonstration projects for REDD, room and scope for developing an operation that addresses sustainable forest management and conservation of the expansive demands for technical and institutional capacity forest carbon reservoirs. needed to strengthen the environmental management capacity 86 of local governments, which ongoing pilots and relatively small- · Pillar 3: Building support for clean energy. With energy- scale initiatives cannot provide. With the evolving institutional based emissions likely to overtake those from land and regulatory framework, scaling up and mainstreaming use, there is an opportunity to increase World Bank assistance for local environmental governance could help support for clean energy. This would include initiatives systematically address existing gaps and needs in the sector at to: a) promote more investment in renewable energy the local level. This can best be done through existing platforms, and especially geothermal power; b) support policies e.g. the "Green KDP" program and the emerging "Green Urban and programs to promote greater energy efficiency Poverty Program", both within the government's community in industries, transportation and buildings; and c) empowerment framework (PNPM). A second option would be assistance to reduce carbon emissions from coal and to develop an investment operation that provides: a) grants for petroleum products. Potential instruments include locally-prioritized environmental infrastructure and services for financing from the Clean Technology Fund, lending those local governments that receive high performance scores for geothermal power expansion, growing the CDM from the national rating system (Bangun Praja), and b) technical portfolio, promoting clean fuels and technologies in assistance for the poor-scoring local governments that have the transport sector;, and supporting sector policies the political will to improve and qualify for grant assistance. By and reforms through development policy lending. focusing on local level needs for environmental management capacity, the Ministry of Finance could on-grant funds to local 9.3.4 Adjusting to the New Challenges government as environmental improvement would qualify as a non-revenue generating activity. In light of the CEA findings on environmental governance and climate change, the World Bank can adjust the Country Climate change. The World Bank is one of several actors that Partnership Strategy's focus on sustainability in two ways. have been active in climate change issues over the past five First, there is a need for new and strengthened partnerships. years. This has included: a) implementing activities with the Enhancing environmental governance will require more direct GEF climate change mitigation program; b) raising awareness work with local governments, civil society, parliamentarians, SECTION 4: The Way Forward religious organizations, and general public awareness. Tackling to new sources of climate financing such as the GEF Adaptation climate change should involve new actors in Indonesia (the Fund, the Climate Investment Funds and the Forest Carbon National Climate Change Council, the Indonesia Climate Partnership Facility. Second, there are new opportunities for Change Trust Fund and other local financing mechanisms, the World Bank to invest in a more sustainable Indonesia. Some and the Disaster Management Agency system for the linkages of these are summarized in Table 9.3, beginning with a base between adaptation and disaster risk reduction). Beyond case; a fuller table with more ambitious scenarios is presented Indonesia, the World Bank can help facilitate Indonesia's access 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 Min. of Environment, local governments · TA for setting up Green Urban Poverty Program (UPP) Min. of Public Works · Study on harmonization of the decentralization framework for environmen- Min. of Environment, local authorities tal management GRANT FUNDING · Continued scale-up of Green Kecamatan Development Program Min. of Home Affairs · Public awareness campaign(s) on key environmental issues(s) NGOs, mass media DIALOGUE/CONVENING · Increased consultation & involvement with mass media, legislature & reli- NGO as facilitator gious organizations Country Environmental Analysis Adaptation to Climate Change AAA · Mapping of climate change vulnerability at the national scale Disaster Mgmt. Agency (BNPB) GRANT FUNDING · Activities to link adaptation and disaster risk reduction agendas (GFDRR Bappenas, BNPB, Nat'l Council (DNPI) grant) DIALOGUE/CONVENING · Donor coordination for TA, capacity building & investment on adaptation Bi- and multilateral donors & NGOs INVESTMENT LENDING · Mainstreaming of climate resilience as part of overall investment portfolio World Bank & co-financiers Land Use and Climate Change AAA 87 · TA for implementation of REDD Readiness Plan at national level Min. of Forestry · Regional support for continued forest law enforcement & governance work Min. of Forestry, ASEAN · Identify Forest Investment Program investment program (with ADB and IFC) Min. of Forestry, private sector · Analysis of wetlands/peat issues related to carbon emissions (WACLIMAD) Provincial & district governments GRANT FUNDING · Management of Indonesia Forest Carbon Trust Fund with AusAID resources Central Kalimantan, AusAID · Expansion of ecological restoration concessions with new GEF grant Burung Indonesia, Min. of Forestry · Extension and expansion of Aceh Forest and Environment Project (MDF NAD government grant) Energy and Climate Change AAA · Low carbon options study with emphasis on energy-related issues and op- Min. of Finance, DNPI tions Various government & private partners · Develop Clean Technology Fund investment program (with ADB and IFC) GRANT FUNDING · Removing barriers to investing in geothermal power (existing GEF grant) Min. of Energy & Mineral Resources INVESTMENT LENDING · Geothermal power generation loan with Clean Technology Fund Pertamina ANNEX: Business Plan Scenarios for Increased World Bank Involvement Base Case Medium Engagement High Engagement (Base Case +) (Medium Engagement +) Environmental Governance AAA AAA AAA · Strategic environmental assessment on · Support to Ministry of Environment for · TA for strengthening local climate change for Greater Jakarta Sumatra spatial planning initiative enforcement of NRM and · TA for setting up Green Urban Poverty · TA to local governments to strengthen environmental regulations Program (UPP) with Ministry of PW AMDAL and other environmental · Development of environmental fiscal · Study on harmonization of the functions reform measures decentralization framework for NRM · Engagement on land resource access and tenure rights at the local level INVESTMENT LENDING GRANT FUNDING · Targeted environmental awareness · LG block grants based on · Continued scale-up of Green Kecamatan events for legislators, mass media and environmental performance and for Development Program religious organizations capacity building · Public awareness campaign(s) on key · Financing for mainstreaming Green environmental issues(s) GRANT FUNDING KDP and UPP in next PNPM lending · Expansion of reputational ranking · Inclusion of environmental fiscal DIALOGUE/CONVENING programs in KLH (PROPER, Adipura, MIH) reform measures in DPL series · Increased consultation & involvement Investing In a More Sustainable Indonesia · Pilot financing for Green UPP in select · Expansion of environmental with mass media, legislature & religious urban areas with Ministry of Public Works curriculum through education sector organizations programs Adaptation to Climate Change AAA AAA AAA · Mapping of climate change vulnerability · Detailed mapping of climate change · Development of adaptation action at the national scale vulnerability in highest-risk areas plans with the most vulnerable DIALOGUE/CONVENING · Assist Bappenas to develop a national localities · Donor coordination for TA, capacity adaptation needs assessment & building & investment on adaptation investment program INVESTMENT LENDING · Climate change adaptation soft loan GRANT FUNDING GRANT FUNDING with GEF Adaptation Fund inputs · Activities to link adaptation and disaster · Co-financing of adaptation activities with risk reduction agendas (GFDRR grant) the Indonesia Climate Change Trust Fund INVESTMENT LENDING · Mainstreaming of climate resilience as 88 part of overall investment portfolio Land Use and Climate Change AAA AAA AAA · TA for implementation of REDD Readiness · TA for implementation of readiness · Palm oil issues and options paper Plan at national level programs in select provinces · Identify FIP investment program GRANT FUNDING/CARBON FINANCE · Regional support for forest law GRANT FUNDING · Purchase carbon emissions reduction enforcement & governance work · Execution of FCPF Readiness grant on credits from 2-3 REDD demonstration · Analysis of wetlands/peat issues related behalf of Ministry of Forestry projects with FCPF Carbon Fund to carbon emissions (WACLIMAD) · Co-financing of ICCTF activities related to money forestry and land use GRANT FUNDING INVESTMENT LENDING · Management of Indonesia Forest Carbon DIALOGUE/CONVENING · Soft financing for REDD Trust Fund with AusAID resources · Donor coordination of different demonstration projects, sustainable · Expansion of ecological restoration approaches to reduce forest carbon forest management and/or concessions with GEF grant emissions conservation of forest carbon · Extension and expansion of Aceh Forest reservoirs with Forest Investment and Environment Project (MDF grant) Program (with IFC) Energy and Climate Change AAA AAA INVESTMENT LENDING · Low carbon options study with emphasis · Biofuels issues and options note · Clean technology investment on energy-related issues and options · Study on removing barriers to investment program (with IFC and ADB) · Develop Clean Technology Fund in other renewable energy sources investment program (with ADB and IFC) GRANT FUNDING/CARBON FINANCE GRANT FUNDING · New CDM projects for renewables and · Removing barriers to investing in energy efficiency/fuel substitution geothermal power (GEF grant) · Co-financing of ICCTF activities related to clean energy INVESTMENT LENDING · Geothermal power generation loan with INVESTMENT LENDING Clean Technology Fund · Loan(s) for energy efficiency 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