Indonesia to prioritize climate finance at COP26 summit
At the upcoming 26th United Nations Climate Change Conference (COP26), Indonesia will be prioritizing, among other things, the completion of international rules governing climate finance. With its delegation consisting of both state and non-state actors, Indonesia has also partnered with other tropical forest-rich countries to up their influence during climate negotiations.
Indonesia went ahead and began drafting its own carbon-trading regulation, in the form of a presidential regulation (Perpres), ahead of the summit. The Perpres will regulate issues pertaining to carbon trading mechanisms, carbon offset as well as results-based payments from carbon emission reduction success, according to Environment and Forestry Ministry climate change management director general Laksmi Dewanthi.1
The government began drafting the Perpres last year shortly after the announcement that Indonesia was to receive US$56 million from Norway as part of the $1 billion grant promised under the REDD+ cooperation scheme. However, since the Indonesian government unilaterally terminated the pact in September, the country has turned to the carbon market as a means of financing its climate change mitigation efforts.
This was first reflected by the introduction of a carbon tax in the recently passed Taxation Harmonization (HPP) Law, which stipulates a minimum tariff of Rp 30,000 ($2.10) per ton of carbon dioxide equivalent (CO2e) and is currently limited to the energy sector. While this looks like a step forward for Indonesia, the beginning of the government’s carbon tax implementation was actually underwhelming given that the finalized tariff is less than half of what was originally drafted.
During its drafting, the HPP Law faced much backlash from business players, with many claiming that a carbon tax was too burdensome on the industry. Though the government may have ended up compromising by slashing the tariff, introducing a carbon tax, no matter how little, will be evidence for Indonesia’s commitments to heading toward a climate economy at incoming global summits, be it COP26 or the G20 forum that Indonesia is hosting next year.
Additionally, the Environment and Forestry Ministry initiated the Forest Power for Climate Actions agenda by cooperating with Brazil and the Democratic Republic of the Congo. The three countries, all rich in tropical forests, have teamed up to share solutions on how the forestry sector can help overcome climate change ahead of the summit. Together, the three countries, along with other tropical countries, can amp up their influence in climate negotiations.2
As has been seen in previous summits, the Indonesian delegation will consist of both state and non-state actors. The Indonesian Chamber of Commerce and Industry (Kadin), particularly, will also take part as a manifestation of this partnership.3
Kadin’s participation at the summit will be crucial in encouraging the private sector, especially the energy sector, to support Indonesia’s Net Zero Emissions commitment and decarbonization of certain industries. The energy sector, for one, currently accounts for 34 percent of the country’s total carbon emissions and will play an important role as Indonesia gradually shifts from fossil fuels to renewable energy.
As a reminder, National Energy Council (DEN) member Setya Widya urged the government not to hastily pursue its energy transition target without the appropriate supporting policies in place. Indonesia should focus on addressing the gradual steps needed to ensure this transition occurs as smoothly as possible.4
Looking ahead to COP26, it is expected that updated climate targets and Paris-focused implementation rules will be established. The latter refers to the fact that there are still outstanding implementation issues from the 2015 Paris Agreement in regard to carbon markets.
For one, parties to the Paris Agreement were unable to agree on a framework to operationalize Article 6 of the “Paris Rulebook”. This framework will set international standards to govern and guide a global carbon market that will drive emission reductions. Though a bulk of the Paris Rulebook was finalized in 2018, Article 6 remains stalled and is likely to be one of the main focuses of the upcoming summit.
According to Environment and Forestry Minister Siti Nurbaya, Indonesia is already preparing the infrastructure to support the policy, such as the Perpres draft on the economic value of carbon. Since the Finance Ministry has already introduced a carbon tax in the HPP Law, it is now getting ready to face the implications on the international trade sector. Finance Ministry special staff member Masyita Crystallin added that the government was also drafting a zero-emissions road map called the Long-Term Strategy for Low Carbon and Climate Resilience (LTS-LCCR 2050).5
Previously, Finance Minister Sri Mulyani Indrawati also claimed that Indonesia needed approximately $365 billion (Rp 5.131 trillion) to finance its climate change mitigation efforts. In addition to public financing, the minister is optimistic that the private sector will also support the government’s commitments. At the G20 forum next year, Minister Sri hoped that all G20 countries would also be able to discuss how to fund and catalyze private sectors all over the world.6
Under the Paris Agreement, Indonesia targeted to reduce carbon emissions by 29 percent below a business-as-usual projection by 2030, or 41 percent with international assistance. The Climate Action Tracker (CAT) has also rated Indonesia’s climate targets and policies as “highly insufficient”, meaning that they were inconsistent with the Paris Agreement’s 1.5 degrees Celsius temperature limit and did not contribute enough to the global fight against climate change.7
Moreover, it appears that Indonesia has yet to muster the courage to become carbon neutral by 2050 as other countries have, but there is hope that Indonesia’s long-term strategy suggests a pathway to reach net-zero by 2060.
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