Download Fiscal Policy towards an Inclusive Green Economy in Indonesia

Fiscal Policy towards an Inclusive
Green Economy in Indonesia
Expert Dialogue on the Quality of Growth
Bangkok, 14-16 November 2012
by
LAKSMI DHEWANTHI
MINISTRY OF ENVIRONMENT
OF THE REPUBLIC OF INDONESIA
1
Why Quality of Growth matters? for Indonesia
Indonesia is a developing country with GDP per capita of US$ 3.500,
with the following major environmental challenges:
1.
2.
3.
4.
5.
6.
7.
Population will increase from 238 mil.(2011) to 316 mil. (2050); 80%
are living in Jawa & Sumatra, 60% lives in urban coastal areas,
many of them low-land;
Inequity among regions: Western-Eastern Indonesia, SouthernNorthen Java, Urban-rural;
Jawa produces 57% (Jakarta 16%), Sumatra 24% National GDP;
Ecological footprint Jawa-Bali, Sumatra (Riau, Jambi), North Celebes
exceeds island’s biological-capacity,
High urbanisation rate to cities at eastern coast of Sumatra.
northern-coast of Jawa induced by dense sea traffic along Malacca
Strait, Karimata Strait, Jawa Sea and Celebes Strait;
Land subsidence in Northern Jawa & sea level rise of Jawa Sea;
Increase frequencies of floods and droughts with changing climate
in Jawa;
source: Emil Salim, 2012
2
Indonesia’s 2020 carbon challenges
Loss of Biological Diversity
2000
1500
1000
-26%
Peat Fire
-41%
LUCF
Waste
500
Agiculture
Industry
0
source: Bappenas, 2010
Energy
2000 2005 2010 2015 2020
BAU BAU BAU
2020
target
3
Map of Indonesian Green GDRP
Legend
Green GDP% GDP reg
57 - 73
74 - 80
81 - 85
86 - 89
90 - 92
NAD
SUMUT
KALTIM
SULUT
GORONTALO
RIAU
MALUT
KALBAR
SUMBAR
JAMBI
BABEL
SULTENG
KALTENG
SUMSEL
BENGKULU
KALSEL
MALUKU
SULSEL
SULTRA
PAPUA
LAMPUNG
0 170340
BANTEN
JABAR
JATENG
DIY JATIM
680Kilometers
BALI
NTB
NTT
source: KLH, ESP2 DANIDA, 2009
4
Challenges
POLICIES as well as MARKET FAILURES
(subsidized growth, distorted energy prices, no internalized of
externalities, absence of market and economuc value on th enatural
resources and environment, unsustainable consumption and
production pattern, lack of prority )
INTERVENTIONS FOR MARKET CORRECTIONS AND
CHANGING BEHAVIORS
• Reshape Fiscal and Financial Infrastructure
• Ensure Food dan Energy Security
• Moving from Single Track to Multiple Track
5
Points to share….
Mainstreaming
• Leader commitment
• Common understanding and National Development Plan
Policy and Program
• Various Sector
Coordination and Complementarity
• Strategic partnership
• Involvement and Participation
• Joint Task-force (Multistakeholder, MoE-MoF, MoE-Central Bank,etc)
Methodology and Capacity Building
• Guideline (Economic Valuation, Green GDP/GDRP,etc)
• Training and Technical Facilitation
Support and Incentives
• Standard
• Non-monetary and monetary (Fiscal and Financial) Incentives
6
LONG TERM DEVELOPMENT MISSION, 2005-2025
Competitive
Indonesia
Green and
Everlasting
Indonesia
Just and
Distributed
Development
Indonesia as a
Strong, Selfreliant
Archipelagic
Country base on
National Interests
Vision
“ Prosperous, Democratic and
Just Indonesia”
Mission
 Continue Development to
achieve Prosperous Indonesia
 Strengthen Democratic Pillars
 Strengthen Justice in every
Aspect of Development
Source: Bappenas, 2010 and Ministry of Finance, 2012
2004
2007
2009
• Pro-poor
• Pro-jobs
• Pro-growth
• Added by Pro-environment
• Economic Growth 7% by
2014
• GHG Emission reduction
26% (+15%) by 2020
• Less biodiversity
2014
2020
• Sustainable Growth with
Equity
7
Source: UKP4, 2012
8
THE NEW PARADIGM OF SUSTAINABLE DEVELOPMENT
(Prof. Emil Salim, former Environmental Minister and member of Presidential Advisory
Committee)
1. The need for Synergy of Economic Growth with Social Equity
and Ecological Sustainability requires moving away from an
“economic” single track to “economic-social-ecological triple
track of development”;
2. With the Common Goal of: (1) Raising Green GDP with (2) Low
Gini (inequality) coefficient and achieving Millennium
Development Goals; (3) Ecological Foot-prints below Natural
Carrying Biological Capacity;
3. It requires mainstreaming “sustainability principles” into the
multi-disciplinairy approach of development.
Develpment is conducted NOT IN A VACUM, but in an environmental setting that
recognizes the need for: Interdependency among development components; Diversity
within and among the components; Resiliency of the components; Usefullness of each
and all components; Sustainability of components within the system.
Source: Salim, 2012
9
GREEN ECONOMY- 3 component
Sustainable use of natural resources, internalizing cost of natural resource
depletion/environmental degradation, efforts on alleviate the poverty, creating decent
jobs, and ensuring sustainable economic growth”
Expected behaviours for GREEN ECONOMY
LOW CARBON AND
SUSTAINABLE USE OF
LESS HARZARDOUS
BIOLOGICAL DIVERSITY
WASTE
I. ROAD MAP OF LOW
CARBON (National/Regional
Action Plan on GHG emission
Reduction (RAN GRK))
REDD+
II. Update IBSAP
(Indonesia
Biodiversity Strategic
Action Plan)
MAINTAIN NATURAL
CARRYING CAPACITY
III. SPATIAL PLANNING
emphasizing on Environmental
Carrying Capacity
POLICIES INITIATIVES, including Fiscal and Financial
10
Source: MoE, 2012 and Bappenas, 2012
SUSTAINABLE DEVELOPMENT PERSPECTIVES IN LONG TERM NATIONAL
DEVELOPMENT PLANNING
Mission #6
Goals
National/Sector Policy & Existing Initiative, i.e.
Realizing an In
donesia
that
is balanced
and
sustainable
a. that is improving the management of develop- ment that can
maintain the balance among
the utilization, sustainability, availability, and
uses of the natural resources and environment, while still preserving the functions,
capacity, and comforts of life in the present and in the
future through the utilization of space that is harmonious for use
for human
settlement, for social economic activities, and
for conservation purposes
•Strategic Plan 2010-2014 of MoEv, MoAg, MoPW,
•Government Regulation No.32/2009: Protection and Environmental
Management.
b. Increases the economic use of natural
resources and the environment in a sustainable
manner
•Strategic Plan 2010-2014 of MoFr;
•Gov Reg. No.03/2008: Forest & Forest Management Plan & Forest
Utilization
MoF: Act 28/2009 on Regional Tax and Regional Retribution
MoEv:Act 32/2009 Economic Instrument,incetive system of
environmental financing, Green GDP, Develop the guidance &
application of economic valuation of Natural Resources &
Environment & Environmental Impact;
BNI & Bank Mandiri: Green Banking;
Bappepam: Green Investment
c. Improves the management of natural resources
and the environment for supporting the
quality of life
Strategic Plan 2010-2014 of MoEMR
d. Provides beauty and comfort of life, and increases
the preservation and utilization of bio‐diversity as
the basic asset of national development.
Strategic Plan 2010-2014 of MoFr
MoAg: ISPO, sustainable agricultural development;
MoPW: Green Infrastructure;
MoFr: Sustainable Forest Management;
MoEv, MoHA, Bappenas: SEA.
Bappenas: ICCSR, ICCTF, RAN-GRK;
MoEv: Implementation B3, waterwaste investment program B3;
MoEMR: Development of Renewable Energy
MoT: Green Transportation; MoEMR: Energy Efficient Equipment
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Labeling
Source: Bappenas, 2010
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Agriculture
Building
Urban/Cities
Energy
Fisheries
Forestry
Manufacture
Tourism
Transportation
Waste
Water
1. Renewable energy,
2. Low carbon transport,
3. Energy efficient
buildings,
4. Clean technology,
5. Improved waste
management,
6. Improved freshwater
provision,
7. Sustainable agriculture
and forest management,
8. Sustainable fisheries.
TRANSITIONAL
PROCESS
Source: Bappenas, 2012
Green jobs
12
Learning from the past experiences (1)
Focus on getting the market price of
environment right
1. Shifting away levies from items that are valued
highly by society (manual work, intellectual creativity) to
undesirable items (pollution);
2. Tax-subsidies to correct distortions (taxing private for
subsidizing public transportation, taxing fossil fuel to subsidize
wind energy);
3. Environmental service user pays the provider
(down-stream river user pays upstream river people to prevent
sedimentation)
Integrating decentralized policy making
•
13
Provinces and Districts are autonomous to impose levies on
natural resources with Central Government’s approval.
Learning from the past experiences (2)
Effective implementation in nature
•
Possible and reasonable cost to implement, falls as
clearly and directly as possible on the ultimate payer,
embody no favoritism or special exception,
correspond to the payer’s ability to pay, and NOT
bring about undesirable economic distortions.
Public and Private Involvement
•
14
Actively involvement of stakeholders are crucial
Act 32/2009, article 42-43:
Economic Instruments for Environmental Protection and Management
PLANNING
FINANCE/FUND
Green GDP/GDRP
Environmental
Performance Bond
Environmental
Compensations
(Payment for
Environmental
Services between
regions)
Natural Resources
and Environmental
Accounting (NREA)
Environmental
Emergency Fund for
Mitigation and
Rehabilitation
INCENTIVE/DISINCENTIVE
Environmental Taxation
(retribution, tax, subsidy, fee,
etc)
Environmental Labelling
(Ecolabel)
Green Procurement
Green Banking and sound Capital
Market
Environmental Trust
Fund
Internalization of
Environmental Cost
Payment for Environmental
Services (PES)
Tradeable permit
Article 45:
Green Budget
Environmental Performance
Award
15
Environmental Insurance
15
Fiscal Policy incentives Grant mechanism for transport system
for REDD/ forestry / other Climate Change
sector
Subsidy/ fiscal incentives for renewable energy
• Streamlining DAK for
Environment
Fiscal mechanism/ tax exemption for
manufacturing
to encourage low
emission
Carbon
Tax
•
• Develop charge mechanism for
waste
• Develop protocol for Payment for
Environmental Services (PES)
• Capacity Building For EI’s
• Develop protocol for environmental
damage assessment
Develop protocol for economic valuation in
• Legal framework
relation to spatial planning
Time
2010
2011
2012
2013
2014
16
Not only MoE….
•
Collaboration with Indonesian central bank, to internalized environmental
measurements into bank’ policies
i.e. - BI regulation no. 2/2005 and Circulate Letter of BI No. SEBI No 7/3/DPNP which
includes inclusion of environmental performance within bank credit policy  i.e. create
direct financial disincentive for PROPER’ participating companies;
- Currently, joint taskforce in developing “Green Banking Policies” and capacity building
•
Ministry of Finance,
– 2009, Ministry of Finance Green Paper: Economic and Fiscal Policy Strategies for
Climate Change Mitigation in Indonesia
– 2009, Act 28/2009 regarding Regional Taxes and Regional Retribution, includes some
taxes/retribution on environmental related
– 2011, Ministry of Finance Green Paper-follow up: Regional Incentive Mechanism for
emissions reductions from land based sectors & Geothermal Policy and Electricity
Supply Efficiency,
•
National Development Planning Agency
•
•
•
National Statistic Bureau
•
•
Regional Natural Resources Accounting, SEA, etc
Ministry of Industry
•
•
Natural Resources Accounting System, SEEA, etc
Ministry of Home Affairs
•
•
Presidential Instruction no. 61/2011 on National Action Plan on GHG Emission
Reduction
Presidentian Instruction no. 71/2011 on GHG Inventory
Green Industry Policy, including financial incentives,etc
Others
17
CLIMATE CHANGE INITIATIVES:
TOWARD LOW CARBON DEVELOPMENT
BAPPENAS
2007:
COP-13 on Bali and National Action Plan on Climate Change
(RAN-PI)
2007:
‘Yellowbook’: Integrating CC into development planning
(regularly revised)
2009:
Technology Needs Assessment (TNA)
2009:
Indonesia Climate Change Trust Fund (ICCTF)
2009:
President announces mitigation targets (-26% /-41%)
2010:
Indonesia Climate Change Sectoral Roadmap (ICCSR)
2010:
Indonesian Second National Communication (SNC)
2011:
Presidential Regulation on National Mitigation Action Plan
(Perpres RAN GRK)
2011:
Presdential Regulation on GHG Inventory
Current Activitie:
•
Coordination with central government institutions for RAN-GRK implementation
•
Coordination with local stakeholder -> Development of Local Action Plans (RADGRK)
Source: Bappenas, 2012
MoF
FISCAL POLICY FOCUS
FISCAL
 Minister of Finance (MoF) Regulation
on Taxation and Customs Facility for
Renewable Energy Sources Utilization
Activities
FINANCIAL
∗
Mobilization of International Climate
Finance
 The Indonesia Climate Change Trust
Fund (ICCTF)
 The Indonesia Green Investment Fund
(IGIF)
 The Climate Investment Funds ( CTF
& SCF)
∗
Optimalization of Domestic Finance
 Banks and Insurance
 Public: APBN, APBD
 Private:
 MoF Regulation on Exemption or
Reduction of Corporate Income Tax
 MoF Regulation on VAT burden by the
Government on the Import of Goods
for Geothermal Activities
 MoF Regulation on VAT burden by the
Government for Bio Fuel
 Price subsidy for Bio Fuel
 Revolving fund for geothermal
exploration
 Government Guarantee
 CSR
 Carbon Market
19
Source: MoF Indonesia, 2012
Transfer to Region for Climate Change Programs
To support climate change-adaptation and mitigation in the region, the Government attempt to fund
activities related to climate change trough the Special Allocation Fund (DAK). There are two
sectors related to climate change activities that are DAK Forestry and DAK Environment
Sector/Year
2006
2007
2008
2009
2010
2011
2012
Environment
113
352
352
352
352
400
480
100
100
250
400
490
Forestry
DAK Forestry
Improve watershed function, in order to maintain and increase the carrying capacity of forest
resources, land and water, and to support climate change mitigation. The policy is sated by preventing
more damage of forest resources, soil water that is in the watershed through implementing land
rehabilitation, forest management in the scope of the district / city / province affairs, including the
development of village nurseries and peat land conservation.
DAK Environment
Support the national priority targets of pollution loads reduction and alleviation of 50 percent
pollution level by the implementation of water pollution control, air and solid waste in the region and
to strengthen the implementation of regional environmental field of Minimum Service Standard (SPM).
Source: MoF Indonesia, 2012
20
Policy Framework for Reducing Fuel Subsidy
Target
Condition
• Rising fuel consumption
• Fuel prices increases
• Bottleneck domestic refineries
• Restricting domestic fuel stock
• Insufficient infrastructure and
transportation
• Ineffective fuel subsidy
Fuel Subsidy
Alleviation
Current
Condition
• Decreasing energy
intensity
• Provision of sufficient
infrastructure and transport
of fuel
• Alleviating fuel subsidy
along with compensating
variation
• Energy diversification
•Lower volume of
subsidized fuels
• Minimum subsidy on
fuels
• Non-fuel diversified
renewable energy
sources
Strategy
(2005)
Strategy of Fuel Subsidy Reform
Source: MoF Indonesia, 2012
– The phasing out of inefficient fossil fuel subsidies in Indonesia is to be implemented in a gradual
manner in order to minimize the spill-over impact on the poor noting that a large part of the
consumption basket of the poor is affected by higher fossil fuel prices  2005, reducing subsidized
from 5 to 3 commodities, by removing diesel oil from industry and fuel oil from subsidy, Carrying
out Kerosene to LPG conversion program, Putting the removed subsidy budget for poverty
alleviation related program.
– The phasing out strategy is to be sequenced through managing the demand side by adopting
measures that will reduce fossil fuel energy consumption and then by gradually narrowing the gap
between domestic and international prices.
21
Overview of development of incentive instruments
for the environment in Indonesia (emphasized by Act 32/2009)
Objectives of Environmental Finance
Incentives towards
sustainable resource use
Incentives set by the State
Creation of markets
Emission
charges
Product
charges
Environmental
taxes
Environmental Fiscal Reform
Waste and
water fees
Payments for
Environmental
Services
Tradable
permits
Access and
Benefit Sharing
Funds
linked
to resource
use (selfgenerated)
certification
Concessions or performance
bonds
Reform and removal of
adverse subsidies
Revenue
mobilisation
Carbon Offsets
Refund
systems
Environmental funds
Mechanisms for
administrating funds
Debt-for-nature
swaps
Funds from government
and donors budegts
Private donations
Funds
from outside
resource
management
Diagram modified from Emerton, L. et al. (2006) Sustainable Financing of Protected Areas, IUCN and Fischer, A. / Petersen, L. /
Hubbert, W. (2004): Natural Resources and Governance: Incentives for Sustainable Resource Use, GTZ).
22
Remarks
Although Indonesia is still facing challenges in ensuring poverty
eradication as well as in managing the environment, Indonesia
continue commit and strengthen its efforts towards “sustainable
growth with equity”.
• Leader’s commitment is strong, yet various domestic agenda
are also at important, such as democratization and
decentralization;
• Continue to strengthen public awareness and various
stakeholders involvement;
• Continue to enhance understanding towards sustainable
development at all level;
• Continue to engage with various partners/institutions for
enhancing our sustainable development agenda.
23
Thank You
Contact us:
Assistant Deputy for Environmental Economic
A Building, 4th floor
Jl D.I Panjaitan Kav 24
Kebun Nanas - Jakarta Timur
Ph/fx. +62 21 8517161
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