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Final Assessment Report FINAL ASSESSMENT REPORT PES/REDD+ FINANCE ASSESSMENT AND DEVELOPMENT OF STRATEGIES TO INCENTIVIZE LANDSCAPE SCALE LEDS JAKARTA, MARCH 31, 2016 This publication was produced for review by the United States Agency for International Development. It was prepared by Tetra Tech ARD. This publication was prepared by PT. Hydro Program International and supported by the USAID LESTARI program. This publication was prepared for review by the United States Agency for International Development under Contract # AID-497-TO-15-00005. The period of this contract is from July 2015 to July 2020. Implemented by: Tetra Tech P.O. Box 1397 Burlington, VT 05402 FINAL ASSESSMENT REPORT PES/REDD+ FINANCE ASSESSMENT AND DEVELOPMENT OF STRATEGIES TO INCENTIVIZE LANDSCAPE SCALE LEDS JAKARTA, MARCH 31, 2016 DISCLAIMER This publication is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this publication are the sole responsibility of Tetra Tech ARD and do not necessarily reflect the views of USAID or the United States Government. USAID LESTARI Final Assessment Report - PES/REDD+ Finance Assessment and Development of Strategies to Incentivize Landscape Scale LEDS P a g e | 1 TABLE OF CONTENTS LIST OF TABLES ................................................................................................................. 4 LIST OF FIGURES ............................................................................................................... 5 ACRONYMS AND ABBREVIATIONS .................................................................................. 6 EXECUTIVE SUMMARY .................................................................................................... 12 RINGKASAN EKSEKUTIF ................................................................................................. 14 1. INTRODUCTION ............................................................................................................ 16 Payment for Environmental Services (PES) concept .................................................. 17 HPI’s activities in accomplishing the SOW objectives ............................................... 18 2. FINANCIAL ARCHITECTURE FOR RURAL LOW EMISSION DEVELOPMENT IN FOREST AND AGRICULTURE .......................................................................................... 20 2.1. Nationally operated financing supports ................................................................ 26 2.1.1. The Indonesia Climate Change Trust Fund (ICCTF) ........................................ 26 2.1.2. Forest Management Unit (FMU) Fund ................................................................ 28 2.1.3. Shared Revenue Fund (Dana Bagi Hasil – DBH) on Forestry .......................... 30 2.1.4. Village Fund (Dana Desa) ................................................................................ 32 2.1.5. National Community Empowerment Program (Program Nasional Pemberdayaan Masyarakat PNPM – Mandiri Kehutanan) .................................................................... 33 2.1.6. People’s Business Credit Program (Kredit Usaha Rakyat - KUR) ..................... 34 2.1.7. Timber Harvesting Postponement Credit (Kredit Tunda Tebang - KTT) ........... 36 2.1.8. Watershed Fund (Dana Daerah Aliran Sungai - Dana DAS) ............................ 37 2.1.9. Grant from the Central Government to Local Government (Hibah Daerah) ...... 38 2.1.10. National Park Fund (Dana Taman Nasional) .................................................. 40 2.2. Internationally operated financial support mechanisms ..................................... 41 2.2.1. Norway – Indonesia REDD+ partnership .......................................................... 44 2.2.2. Forest Investment Program (FIP) ..................................................................... 46 2.2.3. Forest Carbon Partnership Facility (FCPF) ...................................................... 51 2.2.4. REDD Early Movers (REM) .............................................................................. 55 2.2.5. Green Climate Fund (GCF) .............................................................................. 56 2.2.6. Global Environment Facility (GEF) managed funds .......................................... 59 2.2.7. BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISFL) ............... 62 2.2.8. Bilateral commitments financing support .......................................................... 63 2.2.9. Market-based payments for emission reductions (compliance & voluntary) ...... 68 2.3. Private sector & civil society financial support mechanisms.............................. 72 2.3.1. NGOs (national and international) .................................................................... 72 2.3.2. Private companies............................................................................................ 75 3. DEVELOPMENTS TO BE MONITORED ........................................................................ 78 4. INSTITUTIONS WITH A MANDATE TO IMPLEMENT PES AND REDD+ ...................... 80 4.1. Context and relationship between implementing institutions ............................. 80 4.2. Readiness of actors at the landscape level .......................................................... 87 USAID LESTARI Final Assessment Report - PES/REDD+ Finance Assessment and Development of Strategies to Incentivize Landscape Scale LEDS P a g e | 2 4.2.1. Readiness of actors in Aceh ............................................................................. 87 4.2.2. Readiness of actors in Central Kalimantan ....................................................... 88 4.2.3. Readiness of actors in Papua .......................................................................... 89 5. GOVERNMENT REGULATIONS ON PES AND REDD+ ................................................ 91 a) Draft Regulation on Environmental Economics Instruments ................................. 91 b) Law No. 23 of 2014 on Regional Governance (Article 14) ..................................... 93 6. CONCLUSIONS ............................................................................................................. 95 6.1. Focal point of coordination for funding opportunities......................................... 95 6.2. Financing opportunities and mechanisms for LESTARI ...................................... 95 6.3. Maintaining the potential for renewable energy development ............................ 97 6.4. Challenges of regulatory frameworks and institutional readiness ..................... 98 6.5. Challenges of PES/REDD+ design and implementation ...................................... 99 7. RECOMMENDATIONS ................................................................................................. 101 7.1. Incorporating PES in the utilization of domestic funds ..................................... 101 7.2. Supporting the establishment of Climate Change BLU under the MoF ............ 102 7.3. Accessing the GCF and Norway funds ............................................................... 102 7.4. Designing PES scheme ........................................................................................ 103 7.4.1. PES design on water in Southeast Aceh (including. Gayo Lues) .................... 104 7.4.2. PES design on water in the buffer zone of Cyclops Nature Reserve .............. 104 7.4.3. PES design in Central Kalimantan ................................................................. 105 8. REKOMENDASI-REKOMENDASI ............................................................................... 106 8.1. Mengintegrasikan PJL dalam pemanfaatan dana domestik .............................. 106 8.2. Mendukung pembentukan BLU Perubahan Iklim ............................................... 107 8.3. Mengakses dana GCF dan dana Norwegia ......................................................... 107 8.4. Skema pengembangan pembayaran jasa lingkungan ....................................... 109 8.4.1. Desain PJL air di Aceh Tenggara (termasuk Gayo Lues) ............................... 110 8.4.2. Desain PJL air di kawasan penyangga Cagar Alam Cyclops ......................... 110 8.4.3. Desain PJL di Kalimantan Tengah ................................................................. 110 9. BIBLIOGRAPHY .......................................................................................................... 112 ANNEXES: ....................................................................................................................... 116 Annex 1. Funds Profile ................................................................................................ 116 Annex 2. ICCTF Project Management Cycle .............................................................. 123 Annex 3. KUR Application Procedure and Distribution Mechanism ........................ 124 Annex 4. Questionnaires for LESTARI Site Visit ....................................................... 126 Annex 5. List of Stakeholders Consulted .................................................................. 134 Annex 6. Government Regulations Related To PES And REDD+ ............................ 136 Annex 7. Indicative Work Plans .................................................................................. 149 USAID LESTARI Final Assessment Report - PES/REDD+ Finance Assessment and Development of Strategies to Incentivize Landscape Scale LEDS P a g e | 3 LIST OF TABLES Table 1: Financial barriers, types and mechanisms ............................................................
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