A row of wind power plants belonging to the Tolo-1 Wind Power Plant (PLTB) in Jeneponto Regency, South Sulawesi, Saturday (2/2/2019), with the background of farmers planting rice.
JAKARTA, KOMPAS — Developing a green economy faces the challenge of reducing poverty and unemployment in the country and at the same time, it is also expected to improve the quality of the environment. However, financing the development of the green economy in Indonesia is not cheap, as it requires a large investment.
The United Nations Environment Programme (UNEP) defines “green economy” as an economy that is low in carbon, resource-efficient and socially inclusive. The National Development Planning Agency (Bappenas) includes developing the green economy as part of its strategic plan for Indonesia’s economic transformation. In addition to the green economy, other strategies include developing competitive human resources, economic productivity, digital transformation, economic and domestic integration, and relocating the nation’s capital city.
Bappenas environment director Medrilzam said in Jakarta on Thursday (4/8/2022) that in addition to improving environmental quality, developing the green economy is also projected to increase Indonesia’s per capita income, reduce poverty, and create jobs. By 2030, the green economy is expected to create 1.8 million new jobs.
"The green economy program is one of the economic transition strategies to get Indonesia out of the middle-income country trap before 2045," Medrilzam said in his presentation on the green economy development program.
With the primary forest restoration program, the expansion of mangrove areas, and the development of renewable energy in Indonesia, Medrilzam said the green economy would be able to increase community economic productivity. Likewise, waste management could also become a new source of income.
“So, it is not only the environment that can be saved through the green economy program, the community can also be able to reap the benefits, namely increasing income and reducing unemployment. Poverty can also be reduced,” he said.
Citing data from Statistics Indonesia (BPS), the percentage of poor people in Indonesia as of March 2022 reached 9.54 percent, or 26.16 million people. This figure was a decrease of 0.6 percentage points, or 1.38 million people, compared to that in March 2021.
With a land rejuvenation program from the government or the private sector, then human resources get paid, [and] the agriculture sector can absorb many workers.
Contacted on Sunday (7/8) in Jakarta, executive director Mohammad Faisal of the Center of Reform on Economics (CORE) Indonesia said that if the green economy principle was implemented well, the agriculture sector would become the sector with the highest labor absorption rate. However, at present, the nation’s labor-intensive agriculture and plantation sector was still minimal in terms of productivity.
Faisal said the productivity of a number of strategic export commodities, such as coffee, cocoa and rubber, was still relatively low. In order to increase production, farmers usually have to clear new land, which often caused ecological damage. "With a land rejuvenation program from the government or the private sector, then human resources get paid, [and] the agriculture sector can absorb many workers," he said.
KOMPAS/RHAMA PURNA JATI
A farmer walks in the middle of a stretch of plantation field in the Kibuk area on the slopes of Mount Dempo, Pagar Alam City, South Sumatra, Thursday (21/7/2022). This area has been designated as a Community Forest in 2018 and is managed while maintaining a conservation area of 30 percent of the total area of 320 hectares.
Financing
According to Bappenas estimates, low-carbon development financing in Indonesia per year amounts to 6 percent of gross domestic product (GDP).
With the country’s 2021 GDP reaching Rp 16.97 quadrillion (US$1.13 trillion), Indonesia will need at least Rp 1 quadrillion a year. The state budget does not have sufficient capacity for this financing need.
“Funding to reduce carbon emissions should not only come from the government. The government will play a role, but the role of the private sector and international financing agencies is also important," Finance Minister Sri Mulyani Indrawati said at a discussion titled "Sustainable Finance: Instruments and Management in Achieving Sustainable Development in Indonesia".
Alin Halimatussadiah, the head of environmental economic studies at the Institute for Economic and Community Research at the University of Indonesia business school, said the government needed to involve the private sector in developing the green economy, which required a large investment. Attractive incentives should also be provided so that the private sector would be willing to invest, she added.
Aside from encouraging the private sector to support the energy transition, continued Alin, the government also needed to encourage the private sector to implement environmental, social and governance (ESP) business practices. This would help reduce environmental damage as an impact of business processes.
Promotion and investment deputy Nurul Ichwan at the Investment Ministry said on Friday (5/8) that the government also offered an investment opportunity in the green economy, not only to produce goods and services, but also to encourage an inclusive and sustainable economy.
The government's main program at present in green economy development is to attract investment to build an electric car industry worth $9.8 billion, or Rp 146.47 trillion. "This pilot project for both the upstream and downstream is expected to attract electric car investment to Indonesia," said Nurul.
From the industry side, the awareness in reducing carbon emissions and transitioning to a green economy was increasing in line with the demands of the global supply chain competition. Muhammad Yusrizki, the chairman of the standing committee on new and renewable energy at the Indonesian Chamber of Commerce and Industry (Kadin), said that the nation’s export-oriented companies were aware of the urgency for decarbonization and the transition to a green economy. Industry players that did not reduce carbon emissions would find it difficult to compete in the global supply chain.
However, such awareness has just begun. In fact, 76 percent of the manufacturing industry still uses fossil energy to operate. The total energy consumption in the manufacturing sector comes from electricity (23 percent), coal (33 percent), gas (33 percent), fuel oil (10 percent), and LPG (1 percent).
Yusrizki said that most Indonesian companies were still readying programs to reduce carbon emissions. According to their plans, as many as 100 companies would declare their commitments to a decarbonization program by November 2022.
This article was translated by Hendarsyah Tarmizi.
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