Indonesia’s Vision 2030: Reducing GHG emissions with the economic value of carbon regulation

by: Eko Prasetyo

Globally climate change has become a major concern throughout the world, including Indonesia. As an archipelagic country with volcanoes located on the Pacific fire belt, Indonesia is a country highly vulnerable to natural disasters, including the negative impact of increasing concentrations of greenhouse gases (GHG) in the atmosphere. Thus, the great potential of Indonesia’s natural wealth should be maximized in order to bring positive contribution in overcoming climate change impacts.

One of the roles that the Government of Indonesia has taken is by ratifying the Paris Agreement to the United Nations Framework Convention on Climate Change which was ratified through Law Number 16/2016.

Along with Law no. 16/2016, the government has a vision to reduce GHG emission levels up to 29% independently and up to 41% with international support by 2030 [1]. In order to achieve this target, the Government of Indonesia has issued Presidential Regulation No. 71 of 2011 concerning the Implementation of the National GHG Inventory. The Government also—through the Ministry of Environment and Forestry— issued regulations to organize work procedures in the implementation of GHG inventory, monitoring, reporting and verification (MRV) as outlined in the Minister of Environment and Forestry Regulation Number 18 of 2015. The task was then delegated to the Directorate General of Climate Change Control.

However, the Government’s efforts in overcoming climate change do not seem to have yielded much results. The failure of this effort is even experienced by the rest of the world. Finance Minister Sri Mulyani said this happened because no value was given to air pollution such as carbon dioxide emissions. According to her, it is necessary to change the methodology in setting prices and overcome the problem of non-standardized carbon prices in the market [2].

The government is preparing two Presidential Regulations (Perpres), namely on carbon trading (economic value of carbon) or carbon pricing and new and renewable energy (NRE) tariffs as a form of support for environmental-based economic development so that GHG emissions into the atmosphere can be reduced. The two regulations were announced when the Indonesian Minister of Finance spoke at the 2020 Climate Conference held by the Green Climate Fund (GCF) on October 14, 2020.

Urgency

Normatively, the Presidential Regulation on carbon trading is expected to become a legal umbrella for the legal vacuum in implementing the domestic carbon market. Because, this issue is not covered by  Law no. 16/2016 concerning the Ratification of the Paris Agreement. Moreover, ratification laws in nature bind the countries entering into those agreements or outgoing binding, and cannot be a national basis as long as there are no regulations that details the technical implementation domestically. Therefore, the presence of presidential regulation a quo is expected to be the legal basis as well as the operational basis for the stipulation of Law no. 16/2016.

The Presidential Regulation on carbon trading is also an effort by the Government to involve business actors in the success of the emission reduction program as well as impose obligations to reduce emissions [3]. The basis starts from limitations of the state in funding its NDC. For the years 2018-2030, Indonesia needs around US$19 billion per year or US$247 billion in total. Meanwhile, the State Budget is only able to support funding of US$5.8 billion per year and US$0.9 billion per year of international funding support. Thus, it is necessary to involve non-state actors, especially the business sector in reducing emissions.

On the other hand, involving business actors in climate change mitigation and adaptation efforts as an effort to meet GHG emission reduction targets, also brings benefits to protecting the environment, bringing investment with “green” technology, and can be a source of income for the state.

More in-depth study is needed

Although the presidential regulation has the urgency and is considered to be beneficial, it is still limited to the ius constituendum or the law that is aspired to. This is because the presidential regulation has not yet been issued, and is limited as a draft presidential regulation. The last document that can be accessed is the first improved draft presidential regulation concerning carbon trading dated November 19, 2020. In addition, the latest information submitted to the public regarding the draft presidential regulation is a statement submitted by the Minister of Environment and Forestry Siti Nurbaya who basically said that the draft regulation was in the final stages of finalization [4].

Considering that the presidential regulation is still in the finalization stage, a review is needed regarding the substance or content of the presidential regulation. Of course, the content material must not only be reviewed based on normative aspects or in this context is the harmony between laws and regulations, but also with the social context and the policy context between institutions.

From a political point of view, the Government must have the political will to implement a carbon economic value policy in order to reduce GHG emission levels. This desire must be integrated in a number of ways. Firstly, it is necessary for the regulation to be consistent with the contents of various laws and regulations, both at the level of legislation to regional regulations. Secondly, because this policy is multi-sectoral, the draft presidential regulation explicitly mentions which ministries play a role in reducing GHG emissions, so synchronization between these ministries is needed in the policy plan, so that there is no overlap that will be counterproductive to the goal of achieving GHG emission reductions [5].

From a policy perspective, the GHG emission reduction plan—besides being intended to support economic growth—must be in line with the mission of alleviating poverty or continuing to prioritize community welfare. This is because the carbon economic value policy is closely related to cooperation between business actors and the government. Thus, policies must also target the empowerment and improvement of community welfare [6]. In addition, the Government needs to maintain consistency of action by making GHG emission reduction as a new approach to development.

At the conceptual level, determining the baseline requires a comprehensive study in each sector. What needs to be put forward is the determination of national emissions reductions, and not only follow trends, but also require long-term simulations with clear objective functions. That way, Indonesia’s 2030 vision which aims to reduce GHG emission levels by 41% can be clearly conceptualized and run optimally.

Endnotes: 

[1] Article 1 point 1 and Article 2 paragraph (1) Completion Draft 1, 19 November 2020, Draft Presidential Regulation on Carbon Economic Value Instruments to Achieve Nationally Determined Contributions and Controlling Carbon Emissions in Development.

[2] Cantika Adinda Putri, “Sri Mulyani’s Big Idea to Handle Carbon Emissions in the World”, https://www.cnbcindonesia.com/news/20210630201737-4-257238/ide-besar-sri-mulyani-tangani-emisi-karbon-di-dunia  Accessed on Monday, August 9, 2021, at 3:04 WIB.

[3] Lusia Arumingtyas, “Government Prepares Rules for Carbon Economic Value, Following Their Inputs”, https://www.mongabay.co.id/2020/11/07/pemerintah-susun-aturan-nilai-ekonomi-karbon-berikut-masukan-mereka/  Accessed on Monday, August 9, 2021, at 3:18 WIB.

[4] Anisatul Umah, “Reduce Emissions, Government Prepares Rules for Carbon Economic Values”, https://www.cnbcindonesia.com/news/20210318143115-4-231144/tekan-emisi-pemerintah-siapkan-aturan-nilai-ekonomi-karbon  Accessed on Monday, August 9, 2021, at 3:36 WIB.

[5] Article 13 paragraph (2) Completion Draft 1, 19 November 2020, Draft Presidential Regulation on Carbon Economic Value Instruments for Achievement of Nationally Determined Contributions and Control of Carbon Emissions in Development.

[6] Interpreted from Article 30 paragraph (1) Improving Draft 1, 19 November 2020, Draft Presidential Regulation on Carbon Economic Value Instruments for Achieving Nationally Determined Contributions and Controlling Carbon Emissions in Development.

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