The Economic Challenge of Climate Change

Asia Views, In Focus Column, Fitrian Ardiansyah, Edition: 40/VI/January2010

People, economies and the natural environment are now being affected by human-induced climate change. Climate change can lead to damages to natural, communal and business assets.

Some studies typically place damages in the range of 1-1.5 percent of Gross Domestic Products (GDP) per year for developed countries, and 2-9 percent for developing countries if the average temperature increases between 1.5 and 4.0oC.

This is also true for Indonesia. The observed and projected impact of climate change in the country include the increase in the severity of droughts, flooding, fires, coral bleaching, the gradual increase in sea level rise, and the increase in frequency of extreme weathers including storms which will be destroying natural and human-made systems in the area.

For instance, a WWF report released in May 2009 set out the full extent of the threats to the coral reefs of Indonesia, which are part of the Coral Triangle region of the Pacific Ocean.

The report further shows that climate change challenges are increasing, and how unchecked climate change will ultimately undermine and destroy ecosystems and livelihoods of hundreds of million people in the Coral Triangle.

Another study conducted by the World Resources Institute has estimated that due to climate change, Indonesia’s agricultural productivity may decline by 15 percent by 2080 at the time when our population is expected to grow to around 300 million.

Avoiding the Worst

There is a growing need for investing urgently in climate change action in order to avoid escalating costs in the future. Public funding needs to be the core source of funding to meet the incremental costs of adaptation.

UN Framework Convention on Climate Change (UNFCCC) calculates the need for US$ 49-171 billion a year – to adapt to climate change alone until 2030 – in which US$28-67 billion is required to help efforts in developing countries.

The existing provision of funds to cope with these impacts, however, is not at the level that is sufficient to meet these requirements.

Special Climate Change Fund (SCCF) and the Least Developed Countries Fund (LDCF) only allocate US$114 million and the Adaptation Fund established last year can only accumulate and provide around US$200 million.

Therefore, Indonesia together with other countries need to forge a deal in Copenhagen which will guarantee additional fresh and predictable financial support coming from developed countries, not only from 2010 to 2012, but also through 2020 and beyond.

Domestically, Indonesia needs to also seriously prepare its sectoral, regional and domestic plans to adapt to climate change. Vulnerable sectors – e.g. agriculture, marine and coastal, forestry and infrastructure – and other areas need to be assessed, prioritized and strengthened with sufficient budgets.

On the other hand, economic development in Indonesia typically implies a larger dependence on climate-sensitive sectors, in particular the energy generated from coal, oil and other fossil fuels, and greater land use leading to deforestation.

Energy plays an important role in boosting the country’s economy and improving its social welfare. Historical data from the Ministry of Energy and Mineral Resources show that domestic demand for energy has been increasing faster than the average growth of population.

With the current rate of the use of fossil fuels, the obvious consequence is high GHG emission, especially CO2. During the period of 1990-1997, the CO2 emission increased at a rate of 7 percent per year, while afterwards it increased to 6 percent per year.

Indonesia’s economies are also a key location for – and driver of – large-scale deforestation.

Pressured by the demand to provide land for agriculture, settlements, infrastructure and mining operations, the country has lost around 2.8 million hectares (1995-2000) and currently 0.8 million hectares (2006-2008) forest cover, according to the Forestry Ministry.

An official document from IFCA (Indonesia Forest Climate Alliance) indicates that Indonesia requires US$ 4 billion in five years to ensure enabling conditions prior to concretely addressing deforestation and forest degradation.

With the economic growth around 6 percent per year, the projected GHG emission of Indonesia – based on business as usual (BAU) development pattern – is definitely going larger than today.

Nevertheless, decoupling economic development from GHG emission is not impossible.

Adequate, sufficient and sustainable financing is required to significantly reduce GHG emissions.

A global financial architecture for climate change is needed to be agreed in Copenhagen to shift public and private finance and investment flows towards decoupling economic growth from increasing emissions to a low carbon economy.

Domestically, Indonesia needs to put its developmental policies and governmental interventions in the direction of a low carbon economy and promote incentives for sustainable development.

President Susilo Bambang Yudhoyono’s pledged intention to cut GHG emissions by 26 percent by 2020 from “business as usual” (BAU) levels is a good start for this country to embrace a low carbon economy.

This of course needs to be backed up by concrete actions and a clear budgeting system, which in the end support these actions and determine the pathway Indonesia’s development.

If this is chosen, Indonesia’s future can be secured against the threat climate change poses to its people and to its economic development.

Fitrian Ardiansyah is Program director of climate & energy at WWF-Indonesia, and adjunct lecturer at Paramadina Graduate School of Diplomacy

Asiaviews, Vol.III No.8 December 2009 – January 2010, This article is published in AsiaViews a monthly magazine covering Southeast Asia Region. The magazine is a joint collaboration between Tempo, Bangkok Post, Today, News Break and Malaysian Business.

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