climate change in national planning and budgeting
TRANSCRIPT
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Climate Change in National Planning and Budgeting 3rd November 2020Center for Climate Finance and Multilateral PolicyFiscal Policy Agency
1
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
1. OUR COMMITMENT ON CLIMATE CHANGE
2. CLIMATE BUDGET TAGGING MECHANISM IN STATE BUDGET
3. INNOVATIVE FINANCING RELATED TO CLIMATE CHANGE
4. TAKE AWAYS
Outline
2
KEMENTERIAN KEUANGANREPUBLIK INDONESIA
KEMENTERIAN KEUANGAN REPUBLIK INDONESIA
OUR COMMITMENT ON CLIMATE CHANGE
1
3
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA 4
Climate change is indisputably apparent and studies indicate the occurrenceof global warming acceleration.Climate-related risks for natural and human systems are higher for globalwarming of 1.5°C than at present, but lower than at 2°C.The graph shows an increase of global temperature from the year 1960 -2000 which indicates the likeliness of temperature to spike if real-climate-related actions are not implemented.
WATER SECURITYThe increasing level of severe flood and drought willexacerbate the clean water scarcity.
LAND ECOSYSTEMIt is scientifically predicted that severe forest fires will highly occur. This could lead to the lost of ecosystem, biodiversity and a vicissitudes of Biome.
OCEANThe rise of sea level temperature leads to the extinction of corals, seaweeds, mangroves, several marine biodiversities and ecosystems.
HEALTHFloods could lead to the spread of vector-borne diseases and deaths related to drowning. The riseof temperature can cause death of heat strokes.
FOOD SECURITYThe changing of biome and ecosystem production couldlead to food scarcity for all beings.
RISKS ON INCREASED GLOBAL TEMPERATURE
1960 200025.2
26.6
26
1980(YEAR)
(Ann
ual M
ean
Tem
pera
ture
)(°C
)
Indonesia’s Vulnerability from Climate Change
Indonesia is the world’s largest archipelago comprising over 17,508 ISLANDS. Covering an area ofabout 790 million hectares with a total coastline length of 95.181 KM and a land territory of about 200 million hectares. Therefore, Indonesia is highly vulnerable to the adverse impacts ofclimate change.
Source: Cost of Climate Change, USAID, 2016
The monetary value of the economy loss annually due toclimate change in 2050 is amounted toUSD 14.8 BILLION(132 TRILLION RUPIAH)
Climate Change is believed to increase the risk for hydro-meteorological disasters, which make up to
80%of disaster occurrences in Indonesia.Source: NDC, 2016
Climate Change
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Our Commitment to Tackle Climate Change
note: data is inMTonCO2e
INDUSTRIAL PROCESSES AND PRODUCT USE
FORESTRY ENERGY & TRANSPORTATION
WASTE AGRICULTURE
314
3.25
497
650 398
11
26
9
4
2.75
Emission Reduction Target Per Sectors
2 9 %
4 1 %
Indonesia actively participates in controlling climate change at global level through United Nations Framework Convention on Climate Change Conference of the Parties (UNFCCC COP). Government of Indonesia is committed to controlling climate change through various ratifications of international policies into national regulations and action plans. Our state budget also contributing to funds climate mitigation and adaptation actions.
Unconditional emissionreduction against BAUscenario
Source: Indonesia’s NDC
conditional emission reduction subject to international support
29%
up to
41%
By 2030, Indonesia is determined to reduce its Green House Gasses Emission by:
Indonesia’ First Nationally Determined Contribution (NDC), 2016
Ratification of Paris Agreement into National Law No. 16/2016
National Action Plan on GHG Emission Reduction(RAN-GRK), 2011
National Action Plan on Climate Change Adaptation (RAN-API), 2014
National Action Plan on Sustainable Development Goals, 2017
Climate Change Action Based on SDGs 13
Indonesia’s First Mitigation Fiscal Framework (2012)
National Mid-Term Development Plan 2020-2024
National Priority No.6Develop environment, improve disaster and climate resilience.
Priority Program: Low Carbon Development, Environment, Disaster, and Climate Resilence
Other National Policies and Frameworks Related to Climate Change
5
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
6
Climate FinanceFINANCING NEEDS TO ACHIEVE NDC
Source: Second BUR (2018), Billion USD
Energy & Transportation,
236.2
FOLU, 5.6
Industrial Processes & Product Use,2,9
Waste, 2.17
Agriculture, 0.38
In billion USD
Based on the 2018 Second Biennial Update Report (BUR), Indonesia submitted an estimated financing needs to achieve the emission reduction target in 2030 reaching USD247,2 billion or around Rp3.461 trillion (Rp266,2 trillion/year).
SECTORS ACTION PLAN PROJECTED EMISSION REDUCTION
Forestry and Land Use
• Forest conservation and protection program• Forest fire prevention
655 million-ton CO2e
Energy and Transportation
• Development of renewable energy power plants• Clean technology investment
398 million-ton CO2e
Industrial Processes and Product Use (IPPU)
Majority for Cement and Iron Industry (80% private investment)
3,25 million-ton CO2e
Waste Treatment of Liquid and Solid Waste at Industrial and Household
26 million -ton CO2e
Agriculture
• Low emission varieties• Irrigation efficiency• Biogas utilization• Increasing the quality of livestock supplements
4 million-ton CO2e
STATE BUDGET
SUB-NATIONAL GOVERNMENT BUDGET
BPDLH
GREEN SUKUK (GLOBAL & RETAIL)
Domestic Public Sources
SOEs(PT. SMI)
Green Climate Fund
Regional and Bilateral Agency
Global Environment Facility
Adaptation Fund
International Public Sources
Multilateral Development Banks
SUSTAINABLE FINANCE (BANK
& OTHER FINANCIAL
INSTITUTIONS)
PHILANTHROPY DOMESTIC PRIVATE INVESTMENT
FOREIGN DIRECT INVESTMENT
PRIVATE GREEN BONDS
Private Sectors
6
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Fiscal Policies on Climate Change and Climate Finance
Fiscal Policies Related to Climate Change Actions:
Fiscal Support on Climate Change
• tax holiday for pioneering industry,
• tax allowance for renewable energy sector,
• VAT and Exemption on Import Duty for geothermal development activities.
• Regional Incentives Funds (Dana InsentifDaerah/DID), one of the performance category that related to environment and climate change is waste management performance category.
MoF’s Innovative Financing Related to Climate Change:
SDG Indonesia One is a blended finance platform managed by PT. Sarana Multi Infrastruktur (SMI) to facilitate philanthropic involvement. international donor agencies. aid allocation. green investors. commercial banks. Multilateral Development Banks (MDBs). etc.
Green Sukuk is an instrument to finance climate change actions and also achieve the SDGs target. Climate Budget Tagging data is used as reference / underlying asset for the issuance of Green Sukuk.
Badan Pengelola Dana Lingkungan Hidup(BPDLH) aims to support conservation and environmental management. biodiversity management. and addressing the impact of climate change
Climate Budget Tagging is a mechanism in our national planning and budgeting system to track and identify climate change related output and budget in central government.
Climate Budget Tagging
7
KEMENTERIAN KEUANGANREPUBLIK INDONESIA
KEMENTERIAN KEUANGAN REPUBLIK INDONESIA 8
CLIMATE BUDGET TAGGING MECHANISM IN STATE BUDGET
2
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Climate Budget Tagging
9
Since 2012, the Ministry of Finance has actively carried out several policy studies in terms of public funding for climate change and was used as the basis for climate change budgeting activities.
As an effort to increase transparency of public funding for climate change in Indonesia, in 2016, the Government of Indonesia c.q. The Ministry of Finance initiate the climate change budgeting (Climate Budget Tagging) system in state budget.
Climate budget tagging is a process of marking, tracking and identify climate change outputs and budgets in planning and budgeting documents.
Implementation of Climate Mitigation Budget Tagging in
ADIK system
2016
Study of Mitigation Fiscal Framework
(MFF) by FPA
2012
Study of Low Emission Budget
Tagging and Scoring System (LESS) by
FPA
2013
• Collaboration between FPA & UNDP/UNEP in the Sustainable Development Finance Program.• Study of Green Planning &
Budgeting
2014
FPA Published Climate Change Mitigation Budget Report 2016-2017
2017201820192020
• FPA launch the Public Climate Finance Report FY 2016-2018
• Developing the Regional Climate Budget Tagging
• Implementing CBT Adaptation
• 1st Global Green Sukuk Issuance based on climate budget tagging data
2nd Global Green Sukuk Issuance and Green Sukuk Retail Issuance based on climate budget tagging data
Tagging in output level
RAN API
Government AnnualWork Plan
National Planning & Budgeting
NDC
Climate Budget Tagging
Line Ministries Budget Work Plan
Implementation
MRV & Evaluation• MRV by Ministry of Environment and Forestry.• Planning & Budgeting Evaluation by MoF and
Bappenas
The implementation of mitigation and adaptation projects by Line Ministries
RPJMN
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Central Government Spending on Climate Change
• Over the past 5 years, the average climate change budget allocation was IDR92,9 trillion per year, allocated 4,0% in state budget per year. The average of climate change spending (realization) since 2016 amounted IDR83,2 trillion per year.
• Since 2016, Government of Indonesia already spent IDR332,7 trillion in order to fund climate change actions through line ministries
• Since 2018, government spending on average contributing 24,5% of national financing needs to achieve NDC targets by 2030. Since then, Government of Indonesia needs to mobilize other climate finance sources outside the state budget to achieve the NDC target by 2030.
10
Notes: * interim data** amount of budget allocation using data after budget reallocation and refocusing policy of COVID-19, and
still interim data.
2018 2019*
Government Spending Contribution in Climate Financing Needs based on 2nd BUR (Trillion Rupiah)
Realization Financing GAP (2018-2030)
2016 2017 2018 2019* 2020**
Climate Change Budget Allocation and Realization (Trillion Rupiah)
Budget Allocation Realization Climate Change Budget Allocation per National Spending
72,3 95,652,4 85,0 121 111,7 97,6 83,5 77,7
3,5%4,5%
5,5%
4,0%2,8%
111,7
154,5
83,5
182,7
266,2
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Central Government Spending on Climate Change
In 5 years, climate change budget allocation was dominated by mitigation actions (74%). The significant gap between mitigation and adaptation budget tagging caused by the adaptation budget tagging mechanism just started in 2018, meanwhile mitigation budget tagging already started since 2016.
11
111,7 83,5
182,7
74%
26%
Budget Allocation Based on Climate Change Actions
MITIGATIONADAPTATION
Sectors (based on NDC):Mitigation•FOLU (Forest and Peatland rehabilitation, forest conservation)•Energy & Transportation (Low emission and sustainable transportation, renewable
energy development and energy conservation)•Agriculture (Land optimization for low emission agriculture production, low emission
seeds)•IPPU (green industries and circular economy policy & development)•Waste (waste management and waste to energy)
Sectors (based on RAN-API):Adaptation•Life System Resilience (Health, Settlement and Infrastructure)•Ecosystem Resilience (Biodiversity, Forestry Ecosystem, and Coastal)•Economic Resilience (Food Security and Energy Sovereignty)•Special Territory Resilience (Cities, Coastal and Small Island)•Adequate Support System (Information, R&D, Planning & Budgeting, MRV, Capacity
Building)
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Central Government Spending on Climate Change
12
111,7
154,5
83,5
182,7
1. Ministry of Agriculture2. Ministry of Environment and Forestry3. Ministry of Public Works and Public Housing4. Ministry of Energy and Mineral Resources5. Ministry of Transportation6. Ministry of Industry7. Ministry of Maritime Affairs and Fisheries
MitigationTotal Spending since 2016
was IDR256,7 Trillion (average IDR51,3
Trillion/year)
1. Ministry of Agriculture2. Ministry of Environment and Forestry3. Ministry of Public Works and Public Housing4. Ministry of Maritime Affairs and Fisheries5. Ministry of Health6. Ministry of Social Affairs7. Ministry of Agrarian and Spatial Planning/National Land Agency8. Ministry of Home Affairs
AdaptationTotal Spending since 2018
was IDR75,9 Trillion (average IDR15
Trillion/year)
9. Agency for the Assessment and Application of Technology (BPPT)10. Central Bureau of Statistics (BPS)11. Meteorological, Climatological, and Geophysical Agency (BMKG)12. National Disaster Management Authority (BNPB)13. Geospatial Information Agency14. Indonesian Institute of Sciences15. National Institute of Aeronautics and Space
Line Ministries:
Line Ministries:
KEMENTERIAN KEUANGANREPUBLIK INDONESIA
KEMENTERIAN KEUANGAN REPUBLIK INDONESIA 13
INNOVATIVE FINANCING RELATED TO CLIMATE BUDGET TAGGING
3
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA 14
1st Global Green SukukUSD1,25 billion
2nd Global Green SukukUSD750 million
1st Green Sukuk Retail (ST-006)Rp1,46 trilion
3rd Global Green SukukUSD750 million
March 2018
February 2019
November 2019
June 2020
5 years tenor
2,3% Coupon
• Lowest coupon rate for 5 years tenor• 7,37x Oversubscribed
Underlying Assets:
Ministry of Public Works and Housing
Ministry of Transportation
Ministry of Energy and Mineral Resources
Projected Emission Reduction from Global Green Sukuk Issuance
5,7 millions ton CO2e
First Issuance 2018
3,2 millions ton CO2e
Second Issuance 2019
8% 6%
17%
62%
7%5%
27%
11%
49%
9%
RenewableEnergy
Energy Efficiency ImprovingClimate
Resilience forVulnerable Areas
SustainableTransportation
WasteManagementand Waste to
Energy
2018 2019
Sovereign Green Sukuk Financing
Ministry of Finance has launched the Green Sukuk Allocation and Impact Report in March 2020. The report shows the govt. of Indonesia’s commitment on low carbon economy and climate resilience in the future.
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA 15
Global Green Sukuk in COVID-19 Pandemic
2018• Yield 3,75% p.a.• Tenor 5-years• USD1,25 billion• Investor spread: 18%
USA, 15% Europe, 32% Middle East, and 35% Asia
2019• Yield 3,90% p.a.• Tenor 5,5-years• USD750 million• Investor spread: 23%
USA, 22% Europe, 29% Middle East, and 25% Asia
2020• Yield 2,30% p.a.• Tenor 5-years• USD750 million• Investor spread: 12%
USA, 11% Europe, 32% Middle East, 40% Asia, and 5% Indonesia.
1st 2nd 3rd
Reached 33,74% of Green Investor (an increase from 29%
on the previous year)
Resilience to Climate Change for Highly Vulnerable Areas and
Sectors/Disaster Risk Reduction
Waste to Energy and Waste Management
Sustainable Transport
2020 Sector Focus
Source: DJPPR-Kemenkeu (2020)
Green Sukuk is potential to be developed and used as climate funding in Indonesia even in the midst of COVID-19 pandemic
Sovereign Green Sukuk Financing
KEMENTERIAN KEUANGANREPUBLIK INDONESIA
KEMENTERIAN KEUANGAN REPUBLIK INDONESIA 16
TAKE AWAYS
4
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
• The Climate Budget Tagging is one of thematic tagging in Indonesia’s planning and budgeting. Themechanism aims to identify the amount of climate change budget allocation and budget realizationwhich used to fund mitigation and adaptation actions from line ministries.
• The Climate Budget Tagging used as reference to determine underlying asset of green sukuk since2018. Green sukuk was used for financing and refinancing line ministries projects that meet therequirements of Indonesia’s Green Bond/Sukuk Framework.
• On fiscal policy, MoF is currently developing Climate Change Fiscal Framework that will set out fiscal policy strategy to meet the NDC, SDG and Low Carbon Development Initiative. It will identiify the supply and demand of climate finance and thus the gap and how the policy and strategy would fill this financing gap. As well, it will set out how climate finance policy would respond to shocks such as current pandemic to maintain the commitment to climate action.
17
Take Aways
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
THANK YOU
18
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
KEMENTERIAN KEUANGANREPUBLIK INDONESIA
KEMENTERIAN KEUANGAN REPUBLIK INDONESIA 19
INNOVATIVE FINANCING RELATED TO CLIMATE CHANGE
3
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA 20
GREEN CLIMATE FUND
What is
GCF?UNFCCC’s Financial
Mechanism Executing Agency
Established at the UNFCCC COP in
2010
The Biggest Climate Change Fund in the
World
It Began Operations in 2015 in Songdo
Balanced Mitigation-Adaptation Financing
Diversification of Financial Instrument
Committed
Mobilized
USD Billion
10.3
9,84,95,4
Potential Fund
Replenishment
Fund Proposal
Request of No-Objection
Letter (NOL)
No-Objection Letter
Fund
ing
No-Objection Letter
• Accredited Entities and NDA are the main components in accessing GCF funding
• The GCF works through AE to channel funding into projects or programs
• Developing countries need to have an NDA / focal point in order to access GCF funding
• The Fiscal Policy Agency representing the Minister of Finance was designated as the Indonesian NDA-GCF based on the Decree of the Minister of Finance Number 756 / KMK.10 / 2017
Funding Mechanism
Funding Area
Access and Energy Power Grid
Transportation
FOLU
Building, City, Industry and Equipment
Mitigation Adaptation
Health, Foods, and Water
Society and Community Livelihoods
Infrastructure and Environment
Ecosystem and Environment Services
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Read
ines
s Fa
cilit
ies
Fund
ing
Prop
osal
s
GCF Readiness Program to strengthen NDA and AE institutional capacityPhase I and Phase II
1 Project Preparation Facility of Semarang’s Bus Rapid Transit
2
Funding Scheme in million USD
Geothermal Resource Risk Mitigation Facility (GREM)
Funding facility program for the development of geothermal energy that specifically de-risk the development stage. Implementation will be with PT SMI as executing entity.
GCF Funding : USD 100 millionCo-financing : USD 310 million
3
Grant : Phase I USD 850.000Phase II USD 998.000
Grant : USD 788.000
Climate Investor One (CIO)
GCF Funding : USD 100 millionCo-financing : USD 721,5 million
Blended finance facility with different funding scheme for each stages (development, construction, and implementation). Implemented in 11 countries, and Indonesia is expected to access minimum of USD 43,9 million out of the total project amount.
Funding Scheme in million USD4
GREEN CLIMATE FUND APPROVED PROJECTS IN INDONESIA
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA 22
GCF REDD+ RBP Pilot Programme• The GCF RBP REDD+ facility is a pilot
program with a total allocation of USD 500 million starting in October 2017 until 2022.
• Based on the results of reducing emissions between the end of 2013 until the end of 2018.
• GCF would pay a maximum of 30 million-ton CO2eq per country during pilot program
• GCF REDD+ Proposal requirements:a. No Objection Letter from National Designated
Authority (Head of Fiscal Policy Agency, MoF)b. Approval from UNFCCC focal point in Indonesia
(Ministry of Environment and Forestry)
Indonesia is the first non-Latin America country to access this scheme, as well as being the largest recipient of grants over Brazil’s (USD 96,5 million)
Total FundingUSD 103.781.250
BPDLHImplementing AgencyEnvironment Fund Management Agency(Badan Pengelola Dana Lingkungan Hidup/BPDLH)
Emission Reduction20,25 million-tonCO2eq for results in 2014-2016
Duration4 years
Use of Funds• Strengthening the coordination and implementation of REDD+ and its
mechanism in Indonesia• Supporting the decentralization of forest governance at province level
through Forest Management Units (Kesatuan PengelolaanHutan/KPH) to encourage sustainable forest management which will be distributed through BPDLH.
Source: Indonesia’s RBP REDD+ Proposal
In the Midst of Pandemic:Green Climate Fund Approved Indonesia’s RBP REDD+ Proposal
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
SDG IndonesiaOne(PT. SMI)
FUNDING SCHEME
Sectors: Health, Education, Renewable Energy, and Urban Infrastructure (transportation, clean water & waste management)*
*potentially expandable
SDG Indonesia One will manage & utilize funds to facilitate 93 projects valued around USD18,2 billion.*
*from 26 development partners (per October, 2019)
SDG Indonesia One is an innovative financing instrument that support infrastructure development in achieving 16th of the 17th SDG goals.
SDG Indonesia One is a blended finance platform managed by PT. Sarana Multi Infrastruktur (SMI) to facilitate philanthropic involvement. international donor agencies. aid allocation. green investors. commercial banks. Multilateral Development Banks (MDBs). etc.
Inve
stor
Con
trib
utio
nPr
oduc
t
Donor (Philanthropy) and Impact/Climate Funds
Donor. Impact/Climate Funds and Development Banks
Commercial Banks and Institutional Investor Institutional Investor and
Developer
Equity. Equity-LinkedInvestment
Equity Financing
Grant (Project Preparation. Technical Assistance. Research)
SDG Development Facilities SDG De-Risking Facilities
Concessional Loan. First-Loss Facility. Interest Subsidy. Guarantee Premium
Subsidy. VGF etc.
Financing Facilities
Senior Loan. Subordinated Loan
SDG Indonesia One (Dikelola oleh PT SMI)
Contribution:Grant. Technical Assistance
Contribution :Pinjaman. hibah
Contribution :Loan. Bond. Sukuk
Contribution :Equity
SDG Projects
Objective:Support pre-construction project
development
Objective:Project de-risking (improving
bankability)
Objective:Construction / post-construction
finance
Objective:Investment in high impact / new
frontier SDG sector
*Source: PT. SMI
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA*Source: PT. SMI
SDG INDONESIA ONE HIGHLIGHTPer June 2020
SDG IndonesiaOne(PT. SMI)
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
“We need to maintain and develop a strategy so that Indonesia able to grow higher, Namun, komitmen untuk dapat mengurangi emisikarbon tetap bisa dilakukan. Kami dari Kementerian Keuangan siapmendukung pelaksanaan BPDLH dengan tata kelola yang baik dan efisiensi yang maksimal. Karena manusia tanpa alam adalahkemuskilan.”
-Sri Mulyani, Menteri Keuangan RI-
EnvironmentFundManagementAgency
BPDLH aims to support environmental conservation and management, biodiversity management, and overcoming the impact of climate change
Business Process
*Source: BPDLH
Source of Funds:
• State Budget• Sub-national Budget• Grants and donation• Other source of funds
Capitalization:
• Banking instrument
• Capital market instrument
• Other instruments
Fund Channels:
• Carbon Trade• Loan and Grant• Incentives• Other Mechanism
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA 26
• REDD+a. Funds for the results of GHG emission reduction in forestry sector. b. Source of Fund: Grant (Result Based Payment)c. Beneficiaries: Parties that contribute in reducing GHG emissionsd. Fund Channeling: Grante. Potential of RBP REDD+ in Indonesia:
• Reforestation & Environmental Investment:a. Allocation of reforestation funds for forestry development activitiesb. Source of Fund: State Budgetc. Beneficiaries: farmers group and forest industryd. Fund Channels: Loan/Development Financing
Initial Fund to be managed by the Agency
Donor Commitment Period
Pemerintah Norwegia USD 56 million 2020
Green Climate Fund USD 103,78 million 2020-2023
Forest Carbon Partnership Facility (Kalimatnan Timur Provincr)
USD 110 million 2023-2025
Bio Carbon Fund(Jambi Province)
USD 60 million 2023-2025
EnvironmentFundManagementAgency
*Source: BPDLH