Indonesia does not have a carbon tax, has not put a price on carbon, nor has an emission trading system. However, there are several sources that finance projects to reduce emissions, especially from land use, land use change, and forestry (LULUCF). In October 2019, the most recent financing mechanism was announced. The Environmental Fund Agency, supervised by the finance ministry, will have 148 million USD to fund carbon reduction projects in other ministries. It will also finance small grants to community forest management. Its budget may increase to 55 billion USD. Funding comes from public and private sources as well as through trade agreements and donations.
The most established emissions reducing finance mechanism is REDD+; ‘reducing emissions from deforestation and forest degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries’. REDD+ provides payments to projects that have proven mitigation results. The most well-known REDD+ financing mechanism in Indonesia is 2010 Indonesia-Norway REDD+ Partnership which provides 1 billion USD in financing. In February of 2019, Indonesia received its first payment for preventing 4.8 million tons of carbon dioxide emissions by reducing deforestation. Following through on bilateral REDD+ agreements Indonesia will promote REDD+ projects sub-nationally, such as jurisdictional projects like the $15 million USD project in Jambi to protect a five million hectare area of old growth forest and carbon rich peatland. The Ministry of Finance created a Public Service Agency (BLU, Badan Layanan Umum) to manage REDD+ projects and funds, including those under the Indonesian Climate Change Trust Fund (ICCTF) – a fund to manage small mitigation grants – and the Norway-Indonesia partnership. The BLU took off in the last year and will be pivotal in hosting and distributing funds to projects
REDD+ also allows Indonesia to participate in an international carbon market trading system. Other countries can buy carbon credits in the form of REDD+ projects to offset their emissions, but there’s no national Indonesia carbon trading system or cap on emissions. This is an international sale (of REDD+) for countries with carbon trading systems. For example, an oil company in Germany could offset their emissions by paying into an Indonesian land management project that protects rainforests, thereby preventing emissions. It’s kind of a flawed system; offsetting CREATED emissions with PREVENTED ones.
*** Moving Forward in LULUCF mitigation finance
* Falling Behind in energy sector mitigation financing
With the release of funds in the last year from the Norway-Indonesia partnership, the Environmental Fund Agency, and the rolling out of the BLU to distribute funds to REDD+ projects, Indonesia is moving forward on its LULUCF mitigation finance mechanisms. Improving the measurement, verification and reporting (MRV) systems of REDD+ projects will encourage further investment in REDD+ programs, as nations seek to offset their carbon emissions. REDD+ programs with robust MRV will have greater legitimacy.
Between 2026 and 2027, emissions from the energy sector will surpass forestry, agriculture and land use. REDD+ programs alone will not allow Indonesia to meet its Paris Agreement pledge. Indonesia is subsidizing the development of new energy plants to electrify rural parts of the country and meet growing demand as the economy and population grow. These new energy projects include coal fired plants. To transition away from carbon emitting energy sources such as coal, gas and some biofuel derived from palm oil, a carbon tax should be implemented.
Indonesia should remove subsidies for coal and gas development and reduce their contribution to the national target for the energy mix by 2025. Renewables only make up 23% of the 2025 target. Removing financial incentives such as the price cap on mandatory sales of Indonesian coal to the state electricity company, will help ensure that Indonesia is in line with its Paris Agreement pledge.
The energy sector is falling behind forestry and land use in achieving Indonesia’s Paris Agreement pledge. Renewables should be incentivized. Taxing businesses which degrade high carbon stock landscapes and/or rely on carbon-emitting energy sources will help Indonesia achieve its emissions reductions targets.
Send Action Alert Message
Contact PLN and urge them to remove subsidies for coal and gas development and green the 2025 energy mix: email@example.com
Contact your representative and urge them to put forward a tax on companies which rely heavily on non-renewable energy sources or degrade high carbon stock landscapes: http://www.dpr.go.id/en/anggota
Background on REDD+ projects: https://forestsnews.cifor.org/52205/sharing-the-benefits-of-redd-in-indonesia?fnl=en
ISFL program in Jambi: https://www.biocarbonfund-isfl.org/isfl-indonesia-program-jambi-province
For more information contact Climate Scorecard Indonesia Country Manager Tristan Grupp: Tristan@climatescorecard.org