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CLIMATE CHANGE FINANCING IN INDONESIA:

Implications for poverty reduction
by. M. Hidayana Suryana and Ahmad Risqon1)
Background Paper for Conference on the “The Environments of the Poor” 24-26 Nov 2010

With over 17,000 islands and a coastline of more than 80,000 kilometers, a large part
of Indonesia’s population depends on natural resources that are prone to climate change,
such as agriculture, fisheries, and forestry. Based on the Data form Statistic Centre Bureau
in 2009, around 20.61 million rural people or 17.35% from the total of population lived under
poverty line.
For example, in the Nusa Tenggara Timur is the one of Province in Indonesia, with
percentage of poor people are 25.35% (GoI Data 2009) as compared to 17%.35% nationally.
In particular, in the western of the Island of Timor, where livelihoods are overwhelmingly
dependent an agriculture (80%), erratic climate and extreme events regularly cause crop
failure. Climate change impact seemed to have increased the frequency and impact of the El
Nino and thus enhanced vulnerability of the poor.
To anticipate the poor might be affected by climate change, Government of
Indonesia in 2010-2014 has focusing 15 programs, which the one of it program is
“Anticipation on Climate Change and Environment Program”.
In the past, government activities targeting climate change were embedded into
regular development programs, with no specific national budget allocated to climate change,
funding was instead mainstream into existing programs. Now, Indonesia recognizes that
climate change can only be properly addressed by allocating specific funding to the issue.
1. FUNDING FOR CLIMATE CHANGE
a. Prioritizing adaptation and mitigation measure to fight climate change.
b. The priority sectors consist of 2 matter, as follows:
i) Mitigation are (i) energy, mining, and (2) forestry
Examples: Study on Geothermal Power Plant Development and Transmission
Network Expansion Plan in Flores, and Development of Sustainable Forest
Management.
ii) Adaptation, the sectors are (1) agriculture, and (ii) coastal areas, small islands,
marine life and fisheries.
Examples: Research and Development Consortium on Climate Change in
Agriculture, Marine, Coastal and Small Island Ecosystem Mitigation and
Adaptation.
2. FINANCING POLICY FOR EXTERNAL COOPERATION
Climate change financial scheme to Indonesia will apply the rules and procedures under
the United Nations Framework Convention on Climate Change (UNFCCC) and Official
Development Assistance (ODA) financing Mechanisms. That also aligns with
Government of Indonesia (GOI) general financing policies on climate change as follows:
a. GOI acknowledges the use of UNFCCC or ODA financing mechanisms and their
respective principles, rules and regulations for any bilateral or multilateral assistance
that supports climate change initiatives in Indonesia.
b. Bilateral and multilateral donors must also comply with existing government
regulations and procedures.
 c. The GOI uses the principles of Paris Declaration as main guideline to plan and
implement climate change initiatives funded by bilateral and multilateral donors
d. Use the ODA funding to support climate initiatives will not reduce commitment from
donors to other sectors which are not related to climate change.
e. The GOI prioritizes cooperation with donors that use financial mechanisms
emphasizing ‘ease of access’ to funding sources on climate change initiatives.
Loan resources can be utilized when grant funding insufficient. Utilization of loans should
be the last alternative for climate change financing and must be in concessional terms
that entitle government to a low borrowing cost. Developed countries or lending
institutions must provide financial resources with soft conditions to Indonesia.
A new key source of climate change financing is emerging in the form of a trust fund
scheme. Financial support from donor countries to mainstream climate change and the
environment into development policies and budgets is not only important but also
needed to implement the policies through cross cutting sectors, such as energy and
infrastructure development. Donor support should be pooled into a trust fund and
channeled in a way that harmonized the different comparative technical strengths and
development priorities of donors. Such a fund should directly support the implementation
of development policy priorities with minimal overlap and administrative burden to the
government.
3. GRANT AND LOAN SCHEME
The external loan/grant should be directed at funding the main activities that are able to
improve people’s lives with optimum benefit with the intention of accelerating the
achievements of the development objectives as have been stipulated in the Medium
Terms (National) Development Plan (RPJM-N) and in line with the objectives of
Millennium Development Goals (MDGs) in Indonesia.
Any efforts on national climate change planning and programming must be in line with
the existing National Long Term and Mid Terms Development Program.
Concerning the climate change program, to ensure an effective internal coordination and
communication, The Government of Indonesia has established the Climate Change
National Council through President Regulation No. 42/2008 which chaired by President
and consists of relevant ministries in the cabinet.
To facilitate financial support for these climate change funding requirements, the GOI
has developed a national trust fund mechanism: the Indonesian Climate Change Trust
Fund (ICCTF). The ICCTF will be the financing mechanism for our national policies and
programs. As it is owned and managed by the GOI, the creation of this fund mechanism
corresponds with Government efforts to strengthen the effectiveness of national
ownership over development as outlined under the Jakarta Commitment (2008).
ICCTF was 'soft-launched' in Jakarta, Indonesia by the Minister of BAPPENAS and
Minister of Finance on 14 September 2009.
The Indonesia Climate Change Trust Fund (ICCTF) serves as one of the funding
mechanisms in the climate change arena. It has two main general objectives2):
1. To achieve Indonesia’s goals of a low carbon economy1 with greater resilience in the
face of the impact of climate change dynamics.
2. To establish innovative ways to link international financial sources with national
investment strategies, and simultaneously, to become a showcase of alternative
financing for climate change mitigation and adaptation programs managed by
government, in a transparent and accountable manner.
 At this stage, the ICCTF has specific objectives:

1. To facilitate and accelerate investment in renewable energy and efficiency, and

simultaneously reduce Indonesia’s greenhouse gas emissions from the energy
sector.
2. To reduce emissions from deforestation and forest degradation leading towards
sustainable forest management.
3. To reduce vulnerability in coastal ecosystems, agriculture and water sectors.
4. To bridge the financial gap necessary to address climate change mitigation and
adaptation.
5. To increase the effectiveness and impact of external support finance for climate
change in Indonesia.

Based on the Yellow Book, the GOI had already identified a series of primary and
secondary sectors in which investment activities should be prioritized for ICCTF.
Table 1: Priority areas identified in the Yellow Book (Bappenas 2008)

SECTORS MITIGATION ADAPTATION

Agriculture, Coastal Area

Energy and Mining,
Primary (incl. small islands,
Forestry
marine life and fisheries)
Road Infrastructure, Water, Health,
Secondary
Waste Management, Transportation, Industry

1). Representative from Ministry of Finance of the Republic of Indonesia

2). http://www.icctf.org