Can green growth policy incentivise investment? Insights from Indonesia

Can green growth policy incentivise investment? Insights from Indonesia

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Date: 5th April 2016
Type: Feature
Countries: Asia, Indonesia
Tags: cities, energy, forests, green growth, green investments, incentives, renewable energy

Indonesia is internationally known for its ambitious climate policies and the role of its extensive forests in locking up carbon. Mochamad Indrawan, CDKN’s senior strategic advisor for Indonesia and Indra Darmawan, Director of International Business Cooperation of BKPM- the Indonesian Investment Board, report on the debates at the ‘Tropical Landscape Summit’, and the progress since then.  In this first blog, they discuss the investment potential and roles of land-based measures and sustainable cities in green growth. 

Indonesia is moving toward green growth and along the way opening up to increased international investments.  One such interface, the ‘Tropical Landscape Summit: A global investment opportunity’ by Indonesia Investment Coordination Board (BKPM) and UN-ORCID was held in Jakarta in April 2015.  The goal of the TLS was to promote opportunities for green investment in Indonesia, with an aim to foster multi-stakeholder dialogue towards enabling framework and incentives.  Issues explored included investment potential, land based issues, sustainable cities, PPP (private public partnership) and the fourth P (people), as well as youth, and women.  Eventually the workshop brought about paradigm shifts in ways not anticipated before.

Investment potentials

Franky Sibarani, Head of BKPM, presented that during the last 5 years, Indonesia has seen a US$ 41 million growth in green investment, and for the next five years no less than US$ 100 million is targeted.   Sectors deemed promising are agriculture, forestry, fisheries, geothermal, electricity generation through new and renewable energy, environment friendly product, and waste management.

Indicating the mainstreaming of policy, green investment has been captured in the National Development Plans, 2015-19.   The Government of Indonesia has also moved to provide fiscal incentives including regulation for tax allowance for 143 businesses including electricity, renewable energy, geothermal, LNG, ecotourism, and mass transport.   Tax holidays for 5 – 15 years are being designated for pioneering industries such as biofuel and renewable energy.  Non-fiscal incentives include easier license and permits, and mobilisation of eight  special economic zones and 11 industrial areas.

Vice President of the Republic of Indonesia, HE Jusuf Kalla, who inaugurated the summit urged for more progressive incentives for sustainably sourced energy generation. Mr. Kalla drew the comparison that if coal-fired electricity is to be purchased at 7 cents per hour, then renewable energy should be 9 cents per hour, and geothermal 10 cents per hour.

Land based issues

Indonesia’s forests remain an important focus for green growth, and this calls for proper valuation of functions, services and benefits of forests.  Although the contributions of forests are often recognised through services such as tourism, water security (note that Jakarta’s water use has yet to be calculated), mitigation of floods and drought, such contributions are conservatively calculated, stressed Siti Nurbaya, Secretary of Ministry of Environment and Forestry (KLHK). Neither should the (local) socioeconomic functions of forests be disregarded.   Peter Holmes, Director General of CIFOR - Center for International Forestry Research pointed out that values to the local communities in terms of food and energy are often not brought into the market equation.

H.E. Mr. Stig Traavik, Norwegian Ambassador to Indonesia in his talk discussed that how Indonesia's low carbon development agenda continues to receive international attention.   Private sector and NGOs alike admit that Indonesia’s land based investments are turning green, with larger industries especially palm oil and pulp and paper, paying attention to the global markets and pledging to avoid deforestation.  Uses of degraded lands, rather than natural forests for plantations, are receiving increased attention.

Ecosystem restoration is on the increase, and may be considered as green investment.  Further, the alliance of indigenous people progressively protects tenurial rights including the mapping of property rights in forests.

Siti Nurbaya also pointed out that the forestry sector is now issuing 'timber legality' licenses over natural forests and peatlands, thus fostering chain of custody and sustainability.  Furthermore, sustained consultations have started with regulators (Bank Indonesia and OJK- Financial Services Authority) over sustainable incentives such as low interest rates, and soft loans for small and medium sized enterprises.

Equally commendable as a model for landscape approach was the move by the government in further extending the two yearly moratorium for new logging licenses (prohibiting new concessions to operate in primary forests).  The current moratorium will extend from 2015 -2017, and will be backed by improved management of tropical moist forests and peatland.

Indonesia’s Strategic Environmental Assessment (KLHS) is now included in mid term development plans at both national and regional levels.  Furthermore,  the KLHS has also been integrated to spatial planning at both national and regional levels.

However, there is room for even more reform.  To begin with, there can be heightened awareness that  the landscape is not only physical but also political.  In other words, a landscape approach cannot be sectoral such as forestry, agriculture etc., as pointed out by Emmy Hafild, NGO activist.

To enhance the investments, regulations need to cover not only landscape but also finance sectors. The private sector can contribute but only when sector barriers are removed, and financial access is improved.   The private sector can especially play a great role in the restoration of degraded lands.  Eventually, forest funds may help such as World Bank’s Forest Investment Funds.

Sustainable cities

Mari Pangestu, UN-SDSN Leadership Council and Former Minister of the Republic of Indonesia discussed Indonesia's rising urbanisation trend.  On a par with the world trend, by 2025, close to 68 percent of Indonesian citizens will live in cities.    Consider the 2009 World Bank data that shows the 3 neighbouring provinces in West Java (W. Java proper, DKI Jakarta, and Banten) cover only 7 percent of the nation’s land mass, yet actually contain 59 percent of the the country’s population, 61 % GDP, and 69 % spending, Ms Pangestu said.

Urbanisation poses complex challenges, such as attracting the rural poor - who often end up as the urban poor.  Rural-urban migration must be effectively managed through urban master planning, spatial planning, coordination and leadership by the local governments, sustainable infrastructure including energy efficient transport, green buildings, waste management, and access to basic services including low cost housing and slum upgrading.  At the same time, productive 'hinterlands' should be sustainably developed.

Ultimately, a new vision can be envisaged, whereby cities can be net producers of water, energy, and nutrients, thus providing actual ecosystem services. In Melbourne, it is possible to use municipal wetlands as natural sponges to harvest and store storm water.   In Singapore, biofilters help process waste water.  In many parts of the world, living walls, or integration of plants into buildings and even urban agriculture have been practiced, as pointed out by John Thwaites, Chair, Monash University Sustainability Institute.

Read here the second part of this feature that elaborates on the 4 P’s, and discusses the implications of this summit one year on.

Photo Courtesy: Halimun Salak national park, Java, courtesy CIFOR.

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