This document discusses the concept of a low carbon economy and why it is becoming more relevant, using Indonesia as a case study. It outlines that climate change is causing economic losses and that limiting global warming requires economic policies focused on stabilizing greenhouse gas emissions. Indonesia is highly vulnerable to climate change impacts and is a significant emitter of greenhouse gases. Indonesia's approach involves mainstreaming adaptation and mitigation policies, taking advantage of global efforts and climate finance, and incentivizing shifts to renewable energy and low carbon development through policies like carbon pricing. The document analyzes Indonesia's emission reduction targets and sectoral strategies around forestry, energy, and transportation.

1. Why Low Carbon Economy
Becomes More Relevant?
Indonesia case study
Mubariq Ahmad
Presented at
E-Idea Regional Event and Training
British Council Indonesia
Jakarta, 3 October 2011
Outline
• Overview of Low Carbon Economy Concept
• Basic premise
• Approaches
• Why LCE becomes more relevant
• Indonesia Case Study
• Closing note

2. LCE Basic Premise
• Increased GHG emission is caused by
increased economic activities and growth
• Global temperature rises as human
economic activities instensified
• Global warming/climate change induces
economic losses
• Therefore, must be responded with
economic policies
Concentration of Carbon Dioxide in Atmosphere
over 1000 years Tracks Global Temperature
Cli
4
ma

3. Range of CC impacts on economy
Impacts on physical
Climate Change Effects condition => economy
Loss of lands and small Islands
Sea Level Rise
Salt Water Intrusion
Ocean Warming Decline in Fisheries Harvest
Loss of Biodiversity
Increased
Temperature Increased Fire Risk
Increased Disease Risk, Range
Increased Rainfall Floods and Land Slides
Changes in Planting Season
Increased
Drought, Food Security
Evaporation
Transport Vulnerability
Increased Food and Water Scarcity
Tropical Storms
Understanding Ecosystem Services,
Biodiversity and Economic Values
NR &
Eco-
system
Use
OECD
Domestic
Baseline
policies
scenario Change
Change in
in Change
Economic
Land use, in
Change Value
Climate, Biodiversity
Pollution, In
Water use Ecosystem
International Services
Policies Change
in
Ecosystem
functions
Values can only be realized if ecosystem services and biodiversity is measured,
managed and transformed into ‘economic’ products and services

4. Approach toward LCE
• Goal of LCE as a strategy:
– Help stabilize global GHG emission to 450 ppm
CO2e to maintain the global warming within 20 C
• The move toward LCE growth path:
– Changing the growth path from baseline
toward growth with less carbon footprint,
• i.e. less GHG emission associated with production and
consumption
– Decarbonizing the economy
• Changing/adopting low carbon production technology
• Changing people’s lifestyle
– Taking advantage of new path and
technology for the planned growth
Why LCE becomes more relevant
• Potentially costs of CC impact: 2.5 - 7% of GDP in
Asian countries due to high vulnerability (ADB)
• Greatest impacts on poor people (WB):
– More frequent climate related natural disaster (flood, draught)
– Shift in cropping seasons and lower agricultural productivity
– Decline in fishery productivity (due to coral bleaching)
– Lost of productive land due to inundation
– Damage on infrastructure
– Over the longer term: food security and settlement
– At least livelihood of 500 M people exposed to the CC risks
– Most Asian countries are developing countries
– Emission is on the rise with increasing industrialization and
income

5. Why LCE becomes more relevant (2)
• Market for low carbon products is developing
fast regardless of state’s position in UNFCCC
• > 70% consumers in developed countries are
willing to shift their purchase toward low carbon
content products
• More retailers are cleaning their supply chains
toward low carbon products
• Finance for non low carbon investments and
ODA are drying out
• More commercial funds looking for opportunities in
low carbon investment and leaving high-risk
traditional investment
• More ODAs are used to encourage investment in
low carbon sectors and options
Case Study:
A deeper look into Indonesia’s
opportunity and move toward
Low Carbon Economy

6. LCE: key messages
• Indonesia is highly vulnerable to CC and currently (+
potentially) emits GHG at significant level
• Investment to control GHG emission and ecosystem-based
adaptation is a win-win opportunity
– Greening the economy in the framework of pro-growth, pro-job,
pro-poor
– Adaptation to build resilience and to protect the people and the
economy
• The whole GOI policies comprise a set of strategy that is quite
coherent at the top level
– Market-based instruments are deployed to change/influence
incentive structure
– Climate finance facilities are being used offset adjustment and
investment costs toward key development priorities
• Implementation challenge: making operational policies
coherent
– Dealing with political economy interests 11
Indonesia’s emission profile
Source: SNC, 2010

7. Forest sector emission profile
Indonesia’s Energy (Fossil Fuel) Emission Profile
• Emission growth > energy cons. growth > GDP growth
• BAU scenario: emission double every 12 years
• Coal is current primary source => increasing carbon intensity
• (despite) current low level of total and per capita emission
Industry = largest emitter
ID: Emissions by Fossil Fuel and Using Sector
(Source: IEA 2004 in MtCO2e) • Inefficient fuel use
Fastest
• Subsidized energy prices
80.0
70.0 Largest
Growing
Component
Largest
Compont
Power = fastest growing
• Need to shift out of coal in
Using Sector
60.0
50.0
Gas “10,000 MW” 2nd and 3rd to
40.0
Oil avoid increases in Carbon
30.0
Coal intensity
20.0 Renewable Energy Options
10.0 Coal • Geothermal: Large
- Oil
Potential
Industry Gas
14
Electricity
Transport • Investment needs: $12
Residential
billion!

8. Indonesia’s Approach Toward LCE
• Strategy:
– Mainstreaming the adaptation and mitigation policies to medium
term and annual sustainable development agenda
• Framing the climate change policy within the pro-growth, pro-job,
pro-poor development principles
• Shifting the economy toward low carbon growth path
– Getting more pro-active internationally and ahead of competition
in finance and possibly, future product competitiveness through
LCE
• The 26% voluntary emission reduction commitment
– Taking advantage of global mitigation efforts and supports
• CIF (FIP+CTF) + REDD+
– Mainstreaming economics into National Environmental Law no
32/09 (a GovReg on Economic Instrument is coming up)
• Planning instrument: mandatory internalization of externalities, green
procurement, SEA
• Financing: PES, trust funds, public-private partnership, etc.
• Incentives/disincentives: green taxes, green banking, etc
– Institution: Establish DNPI, ICCTF, and REDD Agency
Indonesia’s Approach Toward LCE (2)
• The 26% voluntary emission targets of baseline by
2020 to jump start the transition process:
– Sectors involved: forestry, peat land
management, energy, waste management,
agriculture, transportation, energy efficiency in
manufacturing sector.
– To be financed by domestic resources
(government + private)
– Additional 15% target can/will be delivered with
international funding support
• Market-based means influence/change the incentive
structure faced by the players
16

9. Indonesia’s emission
and the 26% & 41% reduction target
17
Emission distribution with 26% reduction target
2005 Emission 2005 2020 Emission under BAU scenario
Distribution of emission reduction 2020 Emission under 26%
18
burden under 26% scenario reduction scenario

10. Indonesia’s Approach Toward LCE (3)
• Overarching LULUCF policy under REDD+ Strategy
– Control forest land conversion through strengthening of spatial
plan and forest land use policy
– Strengthen sustainable forest management efforts through
establishment of forest management units
– Control of forest and land fires
– Peat land management and rehabilitation
– Increase forest’s carbon sink capacity
– Strengthen forest law enforcement
– Promoting and implementing REDD+
• Providing incentives for regional governments for better forests
and land use management
– Fiscal transfer mechanism
• Adopting low cost/grant FIP (Forest Investment Program) for
forest revitalization
19
– Strengthening Policy and Investment Program
Indonesia’s Approach Toward LCE (4)
• Energy sector development
– Accelerate the increase in the share of renewable energy in
power sector by promoting investment
• Priority: geothermal (large and small scale, taking
advantage of technology divisibility)
– From 1,100 MW in 2010 to 5,000 in 2014
– 12 contracts (USD 5 B) were signed on 26/04/10
• Providing tax incentives for investments in geothermal
and other renewable energy
• Providing budgetary support for renewable exploration
• Providing pricing and off-take policies for geothermal
energy
• Adopting low cost climate financing facility for
geothermal and other renewable energy.
– USD 400 millions CTF (Clean Technology Fund) for
leveraging other capital investments for geothermal
20

11. Indonesia’s Approach Toward LCE (5)
• Gradual removal of fuel subsidy
– Studies show:
• Consistent with pro growth, pro-job, pro poor
• Reallocate resources more fairly and for more productive
use,(60%+ subsidy is enjoyed by non-deserving recipient)
• Positive growth impacts on GDP/GRDP, Private and
Government consumptions
• Positive impact on poverty eradication
– Need to compensate the poorest affected through direct well
targeted transfer program
• MTI: only public commercial vehicles need subsidy
– Remove price distortion so as to encourage investment in
renewable energy
21
Indonesia’s Approach Toward LCE (6)
• Energy efficiency and conservation
– Targeting energy-intensive industry (cement, metal, pulp &
paper) in manufacturing sector
– Established Energy Audit System for industry
– Developing Master Plan for Energy Conservation including
energy efficiency standards
• Transportation sector
– Move toward mass rapid transportation system
– Move toward higher vehicle technology and fuel standard
– Improvement in vehicle taxation and import duty
• Developing Green Procurement Policy
– Greening government’s offices
22

12. Local Governments & Cities:
Future Challenges for Going Greener and
Becoming Climate Resilient
• Pop’n growth, urbanization: Urban growth 4%/yr è greater
concentration, greater vulnerability to environmental threats
• Weak zoning enforcement & poorly maintained infrastructure
contribute: 25 million people lives in slums, informal settlements
• More frequent disaster events + increased exposure + lower
coping capacity = higher impacts.
• Climate variability/change increases risk level: impacts on food
production, uncertainty, frequency of floods and drought
• Strategy:
• Mapping of vulnerability, identifying priority threats & opps.
• Assessment and development of tools and capacities based
on local perspectives
• Develop and implement ecosystem-based adaptation
Closing notes
• Shifting in development planners’ mind set is key:
– Individual country’s pro-activeness is for the
global common good, time to free ride is over
• Expenditure in LCE/mitigation actions is investment:
– To generate future incomes
– To secure market access
– To avoid future economic costs due to the need
for adaptation
• Government leadership is essential
• LDC must strategically take advantage of low cost
climate finance

13. Terima kasih
Mubariq Ahmad
mubariqa@cbn.net.id