REPUBLIC OF INDONESIA

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Ashlynn Daniel
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1 i P age

2 ACKNOWLEDGEMENT Deutsche Gesellschaft fuer Technische Zusammenarbeit ii P age

3 FOREWORD BY MINISTER OF NATIONAL DEVELOPMENT PLANNING/ CHAIRMAN OF NATIONAL DEVELOPMENT PLANNING AGENCY: 20- Year Indonesia Climate Change Sectoral Roadmap H. Paskah Suzetta iii P age

4 FOREWORD BY MINISTER OF FINANCE/ ACTING COORDINATING MINISTER FOR ECONOMIC AFFAIRS: Years Indonesia Climate Change Sectoral Roadmap Sri Mulyani Indrawati iv P age

5 TABLE OF CONTENTS Acknowledgement... ii Foreword by Minister of National Development Planning/ Chairman of National Development Planning Agency:... iii Foreword by Minister of finance/acting Coordinating Minister for Ecnomic Affairs: iv Table of Contents... v Glossary... vii List of Figures... ix List of tables... ix Executive Summary... x 1. Introduction... 1 Options In Climate Change Financing The Indonesia Climate Change Trust Fund (ICCTF) Institutional and Management Arrangement of the ICCTF NEXT STEPS v P age

6 6. References ANNEX 1: Definition of Trust fund ANNEX 2: Overview Characteristics of Multi Donor Funds ANNEX 3: Assesment of Three ICCTF Trustee options ANNEX 4: Regulatory Framework ANNEX 5: Proposed Members of Advisory Committee, Steering Committee, Technical Committee and Secretariat ANNEX 6: Priority windows vi P age

7 GLOSSARY Badan Perencanaan dan Pembangunan Nasional Badan Layanan Umum Badan Pemeriksa Keuangan Badan Usaha Milik Negara Gesellschaft für Technische Zusammenarbeit Kreditanstalt fuer Wiederaufbau Kantor Pelayanan dan Perbendaharaan Negara Kementerian/Lembaga Lembaga Swadaya Masyarakat Program Nasional Pemberdayaan Masyarakat Peraturan Menteri Keuangan Peraturan Pemerintah Rencana Kerja Pemerintah vii P age

8 Rencana Program Jangka Menengah Rencana Strategis Undang-undang viii P age

9 LIST OF FIGURES LIST OF TABLES ix P age

10 EXECUTIVE SUMMARY 20 Years Climate Change Sectoral Roadmap Indonesia Climate Change Trust Fund x P age

11 1. INTRODUCTION mitigate Climate Change National Action Plan (Rencana Aksi Nasional Perubahan Iklim or RAN PI) National Development Planning: Indonesia Responses to Climate Change the Yellow Book ) National Development Planning Agency a National Council on Climate Change (NCCC) (Rencana Kerja PemerintahRKP Rencana Pembangunan Jangka Menengah Nasional RPJMN Development Planning: Indonesia s Response to climate change 1 The Yellow book and RAN PI are living documents and together serve as a policy umbrella. They can be improved and updated from time to time. 2 Known as Badan Perencanaan Pembangunan Nasional or BAPPENAS. 3 Known as Dewan Nasional Perubahan Iklim (DNPI). 1 P age

12 Yellow Book Yellow Book Box 1.1: CLIMATE CHANGE SECTORAL ROADMAP the Yellow Book 4 The detailed study of the economic impact such as how much GOI needs in terms of the total budget for mitigating climate change impacts, the possible allocation by the GOI budget and the size of the gap which may be filled by the ICCTF currently in process and is to be elaborated on in the forthcoming study of the climate change Roadmap. 5 Previously known as donor agencies. 2 P age

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14 OPTIONS IN CLIMATE CHANGE FINANCING Yellow Book Public financing from GOI state budget (Dana Alokasi Khusus DAK) Public financing from bilateral cooperation sources on grants basis. Reducing Emissions from Deforestation and forest Degradation Public financing from bilateral cooperation on loan basis. 4 P age

15 Multilateral financing on grants basis. special funds Private financing. Multi-Donor Trust Fund Aceh and Nias. Multi-Donor Fund for supporting Elections 2009 PNPM Support Facility. 5 P age

16 REPUBLIC OF INDONESIA Ǧ ͳǥ Table 1: Review of Indonesia experience on Multi Donor Trust Fund ǡ Ǥ ʹ ȋ Ȍ ȋ ǡ ǡ ȋ ȌȌǤ Ǥ ǡ Ǧ Ǥ ǡ ǡ Ǧ ǡ Ǥ ǡ ȋ Ȍ Ǧ ǡ ȋ Ȍ Ǯ ǯ Ǥ ʹǤ Ǧ ǡ ǡ Ǥ ǡ Ǧ ǡ ǡ ȋ Ȍ Ǥ Paris Declaration on the Aid Effectiveness ǡ ǲ ǳǥ 6 Pa g e

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18 Box 2.1: Amazon Fund: Learning Experience a non-tradable diploma 6 It might be also useful to look at Annex 3 as it provides modalities, strengths and weaknesses of the multilateral agencies, private sector and government as Trustee. 8 P age

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20 4. THE INDONESIA CLIMATE CHANGE TRUST FUND (ICCTF) 7 Low carbon economy is a concept that refers to an economy which produces a minimal output of greenhouse gas (GHG) emissions into the biosphere, but specifically refers to the greenhouse gas carbon dioxide. Recently, most scientific and public opinion has come to the conclusion there is such an accumulation of GHGs (especially CO2) in the atmosphere due to anthropogenic causes. The over-concentrations of these gases is producing global warming that affects long-term climate, with negative impacts on humanity in the foreseeable future. Globally implemented low carbon economies therefore, are proposed as a means to avoid catastrophic climate change, and as a precursor to an ideal, zero carbon society and renewable energy economy (source: Wikipedia.org and Stern review 2006) 10 P age

21 Jakarta Commitments Paris Declaration on Aid Effectiveness not to supplementbut to complement themaid catalytic roleaccess international knowledge and best practice. Jakarta Commitments Paris Declaration on Aid Effectiveness 11 P age

22 REPUBLIC OF INDONESIA Table 2: Priority areas identified in the Yellow Book (Bappenas 2008) 8 Data over period , Second National Communication UNFCCC (LH, 2009) 12 P age

23 9 Data over period , Second National Communication UNFCCC (LH, 2009) 13 P age

24 Innovation Fund 14 P age

25 Figure 1: ICCTF Design Transformation Fund 10 This investment strategy and financial architecture are part of the roadmap activities, which are currently under development. 15 P age

26 Figure 2: Concept of ICCTF development 16 P age

27 ICCTF Phase Estimated starting time Executing Institutions Phase 1 (Innovation fund) 2009 Sectoral Ministry (K/L) Phase 2 (Innovation fund) Sectoral Ministry (K/L), Regional/local government, Private Firm (through Public Private Partnership), NGOs, Universities Phase 3 (Transformation fund) 2012 Harmonize Public Sector involvement (Loan, reflow of Transformation fund, Capital market etc) Table 3: ICCTF Financing Phases. Industrial Efficiency and Pollution Control (IEPC) Box 3.1: Fund Channeling under IEPC The IEPC program is intended to provide soft loans to help small and medium enterprises (SMEs) invest in prevention and control of pollution, enhance energy and production efficiency and related technical assistance. It is run through a revolving fund scheme with the stipulation that repayments to the fund be used for the purposes of industrial efficiency and pollution control. Ministry of Environment with the support of Kreditanstalt für Wiederaufbau (KfW), a German government-owned development bank, is administering this program. In correlation with the ICCTF, the emphasis is placed on the disbursement process of the fund. In the IEPC case, the Ministry of Finance acts as the responsible party to disburse the money to the selected national financial institution. This selected financial institution will further disburse the fund to the selected SMEs once the technical and financial assessments are accepted by both Ministry of Environment and National bank respectively. 17 P age

28 REPUBLIC OF INDONESIA Badan Layanan Umum BLU 11 A BLU is a Public Service Entity. Given the current legal framework, the BLU is the only entity that would be allowed to receive and administer foreign grants as a trustee without the need for GOI to issue a new PP. This is because a BLU is not a separate legal entity, but forms an integral part of the government agency that established it (even though a BLU operates under a different set of rules and regulations). If a central government agency establishes a BLU, the BLU is eligible to apply for a foreign grant and, if approved, utilize that grant cf. PP2/2006. It would be sufficient to establish the BLU by ministerial decree, the preparation of which normally requires 3-6 months (compared to 2-3 years for a PP). 18 P age

29 Box 3.2: Frequently Asked Questions on the ICCTF design: Would the ICCTF become the only funding mechanism/ option to finance climate change related activities in Indonesia? Answer: No. The ICCTF is one of the financing options to finance climate change related activities in Indonesia. Development partners may contribute through the existing cooperation channels such as bilateral or multilateral cooperation. However, it is strongly recommended that development partners contribute to the ICCTF to streamline all efforts leading towards the same global climate change objectives. What policy frameworks have been used to design the ICCTF activities? Answer: The current reference documents for the design of the Blue Print for the ICCTF are the Yellow Book (2008), the Annual Government Work plan 2009 and the Policy Matrix for Climate Change (designed for Climate Change Program Loan). Therefore, any proposed ICCTF activities should refer to those documents as their base reference. Once the National Mid-Term Development Plan and 20 years Climate Change Sectoral Road Map is finalized, these documents will become the major references for ICCTF activities replacing previous mentioned documents. How will the ICCTF activities link with other climate change initiatives in Indonesia? Answer: Currently, there are several climate change initiatives being conducted in Indonesia. The new proposed ICCTF activities could support and strengthen the achievement of current initiatives. However, because there is a range of issues related to climate change in Indonesia, new ICCTF activities could be proposed without linking ICCTF to the on-going initiatives. Will the ICCTF priority areas be developed or expanded further? Answer: Yes. The ICCTF design is a process of learning by doing. Therefore, the GOI will start the ICCTF with only a few priority areas. After the GOI has more experience in managing the ICCTF, the priority areas will be expanded covering a range of climate change issues in Indonesia. Will local governments, universities, and NGOs be able to propose activities to the ICCTF? Answer: Yes, they could submit proposals when phase 2 of the ICCTF begins in P age

30 4. INSTITUTIONAL AND MANAGEMENT ARRANGEMENT OF THE ICCTF Steering Committee a Technical Committee and a Secretariat Ministerial Steering Committee on Coordination of ICCTF Figure 3: Coordination Mechanism of ICCTF 20 P age

31 Policy Forum and Management Forum In the Policy Forum In the Management Forum Jakarta Commitment The Paris Declaration on Aid Effectiveness. 21 P age

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33 Permanent experts On-call experts 23 P age

34 Step 1: submit prospective proposals: Step 2: pre-appraise prospective proposals: Step 3: assessment of the project proposal by the TC: Step 4: submit project proposals for approval by the SC: Step 5: approve a proposal: Step 6: sign project agreement: 24 P age

35 Step 7: implementation of the approved activities: Step 8: disbursement of the fund: Step 9: organize monitoring, evaluation and auditing: 25 P age

36 Figure 4: Simplified ICCTF project cycle GOI s prevailing laws and regulations. Grant agreements between GOI and a development partner. Contractual agreements between GOI and service providers. 26 P age

37 Annual policy compliance audit ICCTF service providers. 27 P age

38 5. NEXT STEPS 28 P age

39 6. REFERENCES 29 P age

40 ANNEX 1: DEFINITION OF TRUST FUND 30 P age

41 ANNEX 2: OVERVIEW CHARACTERISTICS OF MULTI DONOR FUNDS 31 P age

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44 ANNEX 3: ASSESMENT OF THREE ICCTF TRUSTEE OPTIONS 34 P age

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50 ANNEX 4: REGULATORY FRAMEWORK Laws: Government Regulations: 40

51 Ministry Decree/ Ministry Regulations: Deputy Minister/ Director General Decree/ Regulations: 41

52 ANNEX 5: PROPOSED MEMBERS OF ADVISORY COMMITTEE, STEERING COMMITTEE, TECHNICAL COMMITTEE AND SECRETARIAT Ministerial Steering Committee on Coordination of ICCTF Steering Committee (SC) as a Policy Forum, i Management Forum, 42

53 Technical Committee (TC) 43

54 Secretariat Two types of experts are identified, namely: Permanent experts On-call experts 44

55 ANNEX 6: PRIORITY WINDOWS A. Investment Rationale for the Energy Window of the Indonesia Climate Change Trust Fund I. Introduction II. Overview of Commercial Energy Use in the Indonesian Economy 45

56 III. Biomass Energy Systems IV. Geothermal V. Large and small hydropower VI. Solar energy 46

57 VII. Greenhouse Gas Emissions from Indonesia s Energy Sector VIII. Required fund and financing strategy Accelerate investments in Renewable and Geothermal Energy b. Accelerate investments in Energy Efficiency in the Industry and Residential Sectors c. CO 2 Emissions Reductions from Improved Transport avoidingshifting improving 12 Data over period , Second National Communication UNFCCC (LH, 2009) 47

58 IX. Conclusion B. Sustainable Forestry and Peat Land Management Background Investment Strategies First tranche: The sustainable management of peatlands 48

59 Second tranche: Reducing emissions from deforestation and forest degradation (REDD) and enhancement of carbon stocks, C. Resilience 49

60 Data and information management Awareness raising and capacity building Integrated spatial planning Local response plans and actions 50

NATIONAL CLIMATE FINANCE INSTITUTIONS SUPPORT PROGRAMME CASE STUDY: THE INDONESIA CLIMATE CHANGE TRUST FUND (ICCTF)

NATIONAL CLIMATE FINANCE INSTITUTIONS SUPPORT PROGRAMME CASE STUDY: THE INDONESIA CLIMATE CHANGE TRUST FUND (ICCTF) ACKNOWLEDGMENTS This case study has been prepared as part of the Frankfurt School - UNEP