Jakarta – Indonesia needs funding of around 25 percent of Gross Domestic Product (GDP) to implement carbon emission reductions, officials said Monday (30/5). The calculation is based on the government’s commitment in the Paris Agreement.
Coordinating Minister for Economic Affairs, Airlangga Hartarto said at the Indonesia Financial Group (IFG) International Conference 2022, that in the Paris Agreement, Indonesia is committed to reducing carbon emissions by 29 percent with its own efforts and 41 percent with international support by 2030. In addition, the government has ambitions to implement zero percent emissions by 2060.
“Our conservative estimates show that Indonesia needs at least 25 percent of the country’s nominal GDP to finance the country’s commitment to reducing carbon emissions by 2030,” he said.
Furthermore, according to Hartarto, the two commitments are a tangible manifestation of the government to protect the environment and contribute to the application of clean energy. This is because Indonesia currently accounts for two percent of the world’s total carbon emissions and is one of the top 10 countries that contribute to dirty energy.
“About 60 percent of the country’s energy industry is still based on non-renewable sources such as coal-fired power plants,” he explained.
For this reason, the role of the financial sector becomes important in the context of financing. From IFG data, Hartarto added, about two percent of the total bonds outstanding in 2021 were classified as green bonds. In this effort, insurance contributions and pension funds are indispensable. “Total assets of insurance and pension funds are only less than 20 percent of nominal GDP in 2020,” Airlangga added.
The growth of insurance funds and pension funds in Indonesia tends to be slow. With a share of only 20 percent, the development of insurance funds and national pension funds is far below Malaysia and Singapore, which respectively reach 60 percent and 85 percent of the GDP of the two countries.
In other words, Indonesia had room and great potential to deepen the insurance and pension fund sectors. Moreover, during the COVID-19 pandemic, these two sectors also play an important role in the national economy. (Hartatik)
