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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Making a case for climate in 100 days

ROAD to COPENHAGEN, Fitrian Ardiansyah, Jakarta   |  Tue, 10 Nov 2009 12:39 PM  |  Environment , page 21

In the midst of a political storm brewing over the arrest of suspended leaders of the Corruption Eradication Commission (KPK), President Susilo Bambang Yudhoyono (SBY) launched a National Summit followed by a week of back-to-back meetings, which resulted in a “100 days” program for his Cabinet.

Overall, the President laid out 45 programs, earmarking 15 as priorities. The 11th on the list of priorities is a program dedicated to addressing climate change and environmental issues.

SBY and his Cabinet have committed to formulating a five-year action plan addressing climate change and environmental degradation. More specifically, the President has put the emphasis on managing forests in a sustainable manner, furthering actions against illegal logging, preventing forest and land fires and preserving the remaining forest protections.

With this program, he hopes Indonesia will reduce its greenhouse gas (GHG) emissions, which mostly come from deforestation and forest degradation.

The question remains, nevertheless, whether the upcoming five-year action plan on climate change and the environment will be adequate and sufficient enough to act as a basis for achieving Indonesia’s aspiration outlined in the G20 leaders meeting in Pittsburgh.

At the G20 meeting, the President stated the government was devising a policy to cut emissions by 26 percent by 2020 from “business as usual” (BAU) levels. The President expressed confidence that, with international support, Indonesia could cut emissions by as much as 41 percent.

SBY added that his administration was committed to changing the status of Indonesia’s forests a net-emitter sector to a net-sink sector by 2030.

Rather than wait “100 days” to achieve its objective, the government can immediately extrapolate and strengthen existing policies, including the National Actions Plan on Mitigation and Adaptation on Climate Change (RAN-MAPI) 2007, which the State Ministry of Development Planning (Bappenas) is currently refining into the Climate Change Road Map.

With regards to deforestation, SBY can declare the remaining peatlands as well as natural and high conservation value forests as critical, hence preventing them from being converted for oil palm, pulpwood, mining or any other land uses.

These lands and forests represent one of the world’s most significant stock of terrestrial carbon and most threatened habitats of endangered species.

The President needs to explore and use policy incentives, as well as request additional bilateral and multilateral assistance to support Reduced Emissions from Deforestation and Degradation (REDD) initiatives, with an emphasis on building strong forest measuring and monitoring systems and good governance capacities in key forested countries.

The President can request his minister of forestry and other relevant ministers – in partnership with the private sector, civil societies, community groups and with bilateral and multilateral donors – to leverage the resources needed for REDD programs and projects.

Using the existing Indonesia Climate Change Trust Fund (ICCTF), the President needs to encourage his Cabinet to coordinate government agencies and private partners’ efforts to save these remaining peatlands and forests through innovative approaches, such as increasing incentives and sustainable financing to avoid deforestation, conservation as well as sustainable management of forests.

These coordinated actions, if planned and carried out properly, will not only enrich SBY’s 100-day program but also gradually address the problems of climate change.

In addition to priority number 11, there are at least three other priorities in this “100 days” program that are linked to climate change and environmental issues.

Priority number four aims at increasing the capability of electricity to meet the energy demands of the industrial and commercial sector, households and transportation for the next five years. In 100 days, the government will map deficiencies in electricity provision for each province.

At various occasions, SBY stated he would devise a policy that would allow Indonesia to fulfill its aspiration to reduce emissions by stepping up investment in the energy sector, especially to boost energy efficiency and renewable energy.

To do this, SBY can ask the minister of energy and mineral resources to develop a policy and incentives framework that will accelerate the development of large-scale renewable energy and the adoption of efficient energy.

An immediate obstacle to using renewable energy and increasing energy efficiency is energy pricing. The energy pricing process in this country needs to be reformed to reflect the total economic value of utilizing respective energy sources.

Energy pricing so far has led to irresponsible use of energy sources, and to some extent, rendered some energy sources scarce. It has become difficult to use renewable energy or promote energy efficiency because of the competition with some highly subsidized energy sources, noticeably fossil fuels.

A fifth priority focuses on food security, in which the government will outline a “grand-design” to achieve self-reliance in several staple foods. The design will depend on supporting factors including irrigation systems, fertilizers, interest subsidies for farmers and research and development.

As Indonesia’s population continues to grow, the government needs to increase its support for long-term agricultural development. The focus should be on developing environmentally friendly, sustainable methods of production – incorporating climate change projections and vulnerability assessments – and on the creation of policies and market institutions benefiting small farmers and the rural poor.

Finally, priority number seven, which deals with the complexity of land use and spatial planning, strongly relates to the 11th priority. In 100 days, the government plans to synergize the overlapping uses and status of land among forestry, mining and the environment. From an institutional point of view, SBY will coordinate actions with different sectors and layers of governments to untangle this challenge.

One immediate option for the government to succeed in achieving this priority is to optimize the use of abandoned lands. Various statistics currently indicate that between 7 and 14 million hectares of land can be considered degraded, abandoned and/or idle.

Not all of these lands are likely to be available for development. Hence, comprehensive analysis will be needed to ensure these lands can be sustainably and responsibly developed, which then takes the pressure off forests and peatlands.

Overall, getting the “100 days” program off the ground will not be easy given the complex challenges we face, especially with regards to climate change.

If these challenges can be dealt with, and concrete options explored as well as incorporated in the government’s policies and actions, prospects for Indonesian development will be much brighter. If these challenges are resolved, a huge opportunity to address climate change will become reality.

The writer is program director of climate & energy at WWF-Indonesia, and adjunct lecturer at Paramadina Graduate School of Diplomacy. He can be reached at

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Helping Indonesia advance as its emissions decrease

ROAD to COPENHAGEN, The Jakarta Post, Fitrian Ardiansyah, Indra Sari Wardhini and Muhammad Suhud |  Tue, 10/27/2009 12:51 PM  |  Environment

For the world to be a livable place – indeed for the human race to survive – climate protection and economic development must go hand in hand.

The million-dollar question that needs to be answered now is this: “Is it technically possible for the world’s economic development to continue, leading to increased energy demand and changes in land use, by using clean and sustainable energy sources and technologies and by ensuring a healthy and balanced environment?”

Answering this question is a daunting task. Currently, as reported by Ernst and Young, global infrastructure spending exceeds US$8 trillion per decade, a significant proportion of which is being spent in the Asia-Pacific region but not necessarily in a way that will secure a low-carbon trajectory.

For Indonesia, economic development typically implies larger dependence on climate-sensitive sectors, in particular the energy and land-use sectors.

Energy plays an important role in boosting a country’s economy and social welfare. It supplies the fuels that transform raw materials in production systems for domestic and export commodities. This process has created many job opportunities; in 2008, state revenue from oil and gas was at approximately Rp 211 trillion, or about 22 percent of the total country’s revenue.

Historical data from the Energy and Mineral Resources Ministry show that domestic demand for energy has been increasing faster than the average population growth. From 1990 to 2006, the compound annual growth rate of total final energy consumption (excluding biomass) was about 5.5 percent, or an increase from 245 to 577 million Barrel Oil Equivalent (BOE).

A large amount of this demand was met by fossil fuels. The obvious consequence of the current rate of the use of fossil fuels is high greenhouse gas emissions, especially CO2. From 1990 to 1997, CO2 emissions increased at a rate of 7 percent per year; since 1997, emissions have been increasing at 6 percent per year.

In terms of land use, many of the remaining areas of extensive natural forests in the tropics are under increasing and competing pressures. This has led to deforestation, which is estimated to be responsible for 18 percent of current greenhouse gas emissions.

As a country with large areas of rainforest and peatland, Indonesia is facing a serious rate of deforestation and forest degradation as well as peat fires and degradation.

Pressured by the demand to provide land for agriculture, settlements, infrastructure and mining operations, the country lost around 2.8 million hectares of forest a year from 1995 to 2000, 1.09 million hectares a year from 2000 to 2005, and 0.8 million hectares a year from 2006 to 2008, according to the Forestry Ministry.

The country’s primary forests are estimated to store around 230 tons of carbon per hectare, while secondary forests store around 176 tons of carbon. The current rate of forest cover loss may significantly contribute to the country’s greenhouse gas emissions.

Wetlands International shows that drainage of peatlands – intensified in many areas to establish large scale plantations-results in very rapid peat decomposition causing emissions of 70 to 100 tons of carbon dioxide per year per hectare. In addition to these, more carbon may be released into the atmosphere if fire is used to clear forests and prepare for other land uses.

With economic growth at around 6 percent per year, Indonesia’s projected greenhouse gas emissions – based on the “business as usual” (BAU) development pattern – will definitely make the country one of the largest emitters in the world in the next century.

A study conducted by McKinsey, commissioned by the National Council on Climate Change, estimates that Indonesian greenhouse gas emissions may increase from 2.3 Gt CO2e in 2005 to 3.6 Gt CO2e by 2030. The biggest emitter sectors consecutively are peatland, forestry, energy and transportation.

Nevertheless, decoupling economic development from greenhouse gas emissions is not impossible.

The same report mentions that Indonesia has the potential to reduce its CO2 emissions to 2.3 Gt per year by 2030. There are more than 150 possible ways that can be explored and implemented to achieve this.

A recent study by WWF-Indonesia also demonstrates that there is considerable potential to reduce emissions from the energy and forestry sectors. The potential emission reduction by 2050 from the forestry sector ranges between 55 to 74 percent and from the energy sector around 26 to 38 percent compared to BAU.

This can only be achieved if Indonesia puts its developmental policies and governmental interventions in the direction of low carbon economy.

Immediate interventions can include breaking the link between energy services and primary energy production: large-scale energy efficiency measures (getting more energy services per unit of energy used) are a priority; halting and reversing loss and degradation of forests as well as promoting forest landscape restoration; promoting concurrent growth of low-emissions technologies such as geothermal, solar PV, micro-hydro, wind and bio-energy, but within a set of environmental and social constraints to ensure their sustainability; and displacing high-carbon coal with low-carbon gas as a “bridging fuel”.

To strengthen these, there is an urgent need to promote incentives for forest protection and sustainable forest management as well as financial and technological support for renewable energy and energy efficiency measures.

A low-carbon-economy regime will have positive and significant impacts on the economy and society. This can help secure Indonesia against the threat climate change poses to development and seize the economic opportunity it presents.

Fitrian is program director of climate & energy, Indra Sari is energy officer and Suhud is energy coordinator at WWF-Indonesia. They can be reached at, and This weekly column features articles related to developments in the lead up to the UN Climate Change Conference in Copenhagen, Denmark.

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