The Urgency of Climate Change Funding in the Regions


The Urgency of Climate Change Funding in the Regions

By: Dr. Alin Halimatussadiah, Head of Environmental Economic Studies at LPEM FEB UI and Nauli A. Desdiani, S.E., M.Sc. LPEM FEB UI researcher

KONTAN – (24/8/2021) Over the last 10 years, the intensity of natural disasters in Indonesia has continued to increase. Bappenas estimates that economic losses due to the impact of climate change could reach Rp 115 trillion by 2024.

The high risk that must be borne by Indonesia has prompted the government to develop a Nationally Determined Contribution roadmap as a commitment at the global level. In addition, the Government has also placed climate change management as a national priority program for the 2020-2024 RPJMN. This national priority on climate change is carried out through three programs to improve environmental quality, disaster resilience and climate change, and Low Carbon Development Planning.

To realize this, requires large funding. In an optimistic scenario, the estimated total financing is US$ 446.5 billion (34.6% of GDP for the period of 2020-2024) or equivalent to US$ 21.9 billion per year. This funding requirement is predicted to be higher because Indonesia plans to achieve Net Zero Emissions by  2060 or sooner.

Local Government Engagement

Achieving this target is not easy. The involvement of the local government (Pemda) is needed. In accordance with the division of central-regional authority in the implementation of development (Law No. 23/2014), local governments are responsible for carrying out responsibilities and authorities related to environmental and disaster risk management. Moreover, each region faces different climate and disaster risks, both in terms of type or magnitude of impact. However, not all local governments are able to cope with this risk well.

Local governments face various challenges in implementing climate change control programs. For example, understanding of climate change risks among local stakeholders is not equal. There is no careful planning for climate change adaptation and mitigation programs in the RPJMD, funding for environmental programs is seen as a “cost” and not an investment, budget dependence on transfers from the central government, and the minimal proportion of budget allocation for the environment.

The challenges are even greater in the midst of the COVID-19 pandemic. The balance of regional budgets shifts. The LPEM FEB UI study (2021) on the resilience of regional budgets during the COVID-19 pandemic found that there is a budget reallocation for short-term interests in the context of handling and preventing the spread of the virus and mitigating the economic crisis at the expense of long-term budgets, including the budget to support climate change funding.

In order for climate change and disaster management programs to run, financing innovation as well as budget planning and management are very important. Several strategies for mobilizing climate finance budgets in the regions include: First, prioritizing climate change programs on the regional development agenda. Second, reducing inefficient spending and diverting spending posts to climate change and disaster management.

Third, optimizing the quality of spending on technology-based central transfer funds (Ecological Fiscal Transfers) such as the Environmental DAK, DBH Reforestation Funds, DID, and Village Funds. Fourth, adopting climate change budget tagging in the regions or Climate Budget Tagging to identify and evaluate the effectiveness of climate change and disaster budgets.

In addition, local governments need to increase regional revenues, such as from natural resource and environmental management, for example from waste retribution in accordance with externalities, Payment for Ecosystem Services, and result-based payments.

Private sector participation through Environmental Social Responsibility schemes, loans or grants from the Central Government through the Environmental Fund Management Agency, funding from donors and abroad, as well as strengthening collaboration with non-government parties such as universities, the private sector and SMEs, financial services, and NGOs, both in terms of planning and funding climate change and disaster programs, should  be considered. Finally, the implementation of the Ecology-based Provincial Budget Transfer and Ecology-based Regency Budget Transfer schemes need to be carried out to encourage the achievement of environmental indicators at the regional level, and at the lower administrative level.

Source: Kontan Newspaper. Issue: Tuesday, August 24, 2021.