Inviting Developing Countries to Participate in Climate Change Mitigation and Economic Growth

Forest surrounding Wae Rebo village.

Climate change is a fatal issue facing the world today. Starts from Rio Declaration in 1992, Kyoto Protocol in 1997, and The Climate Change Summit in Copenhagen in 2009, there have been delivered some global regulations, including the commitment of climate change fund action from donor countries or developed countries to aid the developing countries. This aid comes from combined sources such as Green Climate Fund, Amazon Fund, Climate Investment Fund, Adaptation Fund and many other bilateral agreements.

Indonesia current emissions production is dominated by land-use change, forest and peat degradation. Nevertheless, as the industries in Indonesia grow and contribute to the economy of the nation, emissions from the energy sector are also growing worrying. As one of the biggest newly industrialized country, Indonesia produces mount of pollution on earth.

The global regulation applied where Indonesia must also pay for carbon price as much as the carbon produced. The carbon price is being paid across the generation to avoid the disadvantage for the next generation both in financial and environment. There are originally two ways of payment of carbon price which are Fee-and-Dividend model payment and Cap-and-Trade. Indonesia uses both models though in various innovative ways. Through Fee-and-Dividend, the tax revenues are distributed in entirety back to the public, for example in increasing oil and gas price to public people. Currently, we are facing the fluctuating of oil and gas price (or BBM). This affects the costly living need prices to people under development.

In the long term, however, it is less clear whether a tax is preferable, because big changes in the stock of greenhouse gases in the atmosphere may cause substantial environmental damage.[1] Basically, tax would less limit the production of emissions from many sectors that cause damage, but Cap-and-Trade might limit the emissions if the industries are obedient to the global regulations. Through Cap-and-Trade, Indonesia start some collaborative climate mitigation projects with some countries. The projects are mostly included exchanging carbon and tax between Indonesia and partner country, namely sector crediting or trade scheme.

In an increasingly carbon-constrained world, there is likely to be an expansion of both private market (Cap-and-Trade) and public finance (Fee-and-Dividend) to support climate change mitigation in developing countries. Indonesia could be a major recipient of such finance. [2]

Public finance is particularly important in the short term, before private market is fully functional. Public finance should be used to support capacity building in the mitigation, institutional reform, the up-front financing of mitigation initiatives, and to facilitate transformational change of the government regulations on climate change. Private markets driven by demand from developed countries emissions trading scheme, could provide the mainstay of carbon finance in the medium term. Indonesia can take benefit from selling carbon to the developed countries. The tax would be used for the mitigation projects and to maintain the sustainable environment.

In parallel of the climate change funding, divestment campaign is applied. The fossil free divestment movement aims to put pressure on public institutions to divest from fossil fuels. Globally, a good number of institutional investors now have this on their agenda. But investors might be hesitated because government often changes renewable energy tariffs which don’t give the stability that the investors look for.[3] One of the concerns is the price of coal coming down in countries with less stringent environmental policies in place. One of the ways to counter that is through a global climate change funding.

The enactment of the Environmental Law is a step forward to provide better protection for the environment as much as monitoring the fund from carbon price.[4]  Hopefully, future implementing regulations to the Environmental Law, which have not been issued, can provide clear clarification on how to efficiently implement the new requirements of the 2009 Law and strike a balance between environmental management and economic growth.

To sum up, here are some point suggestions:

  • Apply more sustainable projects by Indonesian youth and professional with technology and innovation for the mitigation initiatives and make sure that the world public carbon finance could count towards these Indonesian sustainable projects. But the ownership of the projects is still under the local community in partner with the expert from global agencies. This is also for the purpose of youth empowerment, as much as the empowerment of developing countries.
  • Public finance is needed for two or three years before removing energy subsidies over time and introducing a price for carbon emissions. Regarding the upcoming issue of oil and gas price regulation to change every fortnight. The increased price of fuel, gas and basic needs to public should be accompanied by the increased of salary for the nation employees and officers to escalate the nation competitiveness in global economy. It would also uplift the company economy stabilization that investors need.
  • A carbon tax could yield both a reduction in poverty rates and increased GDP. The cash is transferred to the poor household and compensate the industries for losses incurred through the carbon tax. The government should subsidize solar for developing communities, because most of the energy sources in the marginal village is from solar. This will act as comprehensive energy access for them.
  • The government should erase the commodity subsidy regulation to raise the subsidy regulation for developing communities.
  • Strengthening the global trade regulation to avoid the illegal trade, animal, plant, and marine smuggling for the action of environmental protection in Indonesia.
  • Besides law and regulations, Indonesian environmental protection through deforestation and forest preservation will also bolster the sustainability while earning a steady flow of carbon credits. Profit from the sale of those credits would go to project investors and partners, local communities and the Indonesian government.
  • Lastly, one of the environmental sustainability projects to concern is setting a new innovation for palm oil business land use to avoid the forest and peat degradation. Inviting local farmers to join the new urban farming projects in Indonesia.

[1] The.guardian.com. “carbon-tax-cap-and-trade”
[2] Ministry of Finance Green Paper
[3] TheGuardian.com “Keep The Climate, Change The Economy”
[4] SSEK Indonesian Legal Consultants “2011 Indonesian Law Review: Environmental Protection & Management”

Blogpost submitted by Tri Rahayu Handayani (Indonesia) – triihandayani(at)gmail.com
Photo courtesy Aulia Erlangga (Center for International Forestry Research – CIFOR).

The content, structure and grammar is at the discretion of the author only.


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