9268 8960 7460 7506 4750 4225 Low Carbon Development: A Paradigm Shift Towards a Green Economy in Indonesia PERSON IN CHARGE SUPPORTING TEAM Prof. Dr. Bambang PS. Brodjonegoro, Minister of Sudhiani Pratiwi, Ersa Herwinda, Erik Armundito, Fatoni, Risnawati, Anggi Pertiwi Putri, Budi Yoko, Anak Agung Development Planning Agency (Bappenas) Ngurah Agung, Priyono Eka Pratiekto, Denny Indrabrata, Suriany Ida, Su-Lin Garbett-Shiels, Helen Mountford, LCDI COMMISSIONERS Nirarta Samadhi, Hanny Chrysolite, Reidinar Juliane, Atjeng Prof. Dr. H. Boediono, Prof. Mari Elka Pangestu, Kadaryana, Andi Abikusno, Putra Dwitama, Egi Suarga, Ph.D, Prof. Lord Nicholas Stern Sonny Mumbunan, Arief Wijaya, Himayatus Shalihah and Rusdian Lubis. STEERING COMMITTEE Dr. Ir. Gellwynn Daniel Hamzah Jusuf, M.Sc, DESIGN TEAM Deputy Minister SPECIAL THANKS AND APPRECIATION TO Line Ministries AUTHORS AND EDITORS Ministry of Environment and Forestry, Ministry Leonardo Garrido, Medrilzam, Anna Amalia, Irfan of Agriculture, Ministry of Energy and Mineral Darliazi Yananto, Molly McGregor, Jessica Brand, Sarah Opitz Stapleton, Paul Sayers, Rebecca of Industry, Ministry of Public Works and People’s Nadin, Adriana Quevedo Housing, Ministry of Marine and Fisheries. Development Partners SYSTEM DYNAMICS MODELLING TEAM UK Department for International Development (DFID) KnowledgeSRL: Andrea Bassi. through the UK Climate Change Unit in Indonesia Bandung Bootcamp System Dynamics: M. Tasrif, (UKCCU), the Government of Norway, the Government of Ina Juniarti, Fauzan Ahmad, Praditya Rahadi, Denmark, the Government of Germany and USAID. Nurika, M.Anwari Leksono. The New Climate Economy Partners BAPPENAS: Medrilzam. The New Climate Economy, the World Resources SPATIAL DYNAMICS MODELLING TEAM: Sarana Prima Data, PT: Prihyono, Hardi S, Suluh for Deliverology (IDeA), Overseas Development Tjiptadi, Bagus Indrawan, Sajatmiko, Nanang Hermawan, Agus Ruswilana. Sustainable Development (IISD), and The Nature Conservancy (TNC). SUPPORTING MODELLING TEAM Analysis (IIASA): Florian Kraxner, Esther Boere, Ping Yowargana, Juraj Balkovic, Dmitry Andrey Krasovskii, Johannes Pirker World Agroforestry (ICRAF): Sonya Dewi Santoso, Andree Ekadinata, Feri Johana, Betha Lusiana, Ni’matul Khasanah Foreword n recent years, Indonesia has enjoyed steady economic growth and significant Isocio-economic progress. Despite these achievements we are still heavily dependent on natural resources. With these achievements—and by disregard- ing natural resources constraints—we predicted that in the future Indonesia could maintain its economic development and gain higher economic growth. But what if we were wrong? With our current business-as-usual approach, that continuously degrades our natural resources and natural carrying capacity, can we keep our productivity, economic growth and development prospects on the right track? The findings of this Report suggest we cannot. Moreover, the Government of Indonesia realizes the opportunities that can be gained by transforming our development model from business-as-usual growth to a more innovative approach that puts in place sustainable development principles that balance economic, social and environmental aspects. There is no need to make a trade-off between economic growth and environmental protection. But we must act on this transformation now, otherwise we will lose our opportunity to shift towards a low carbon economy. Therefore, in 2017 the Ministry of National Development Planning (Bappenas), in close collaboration with development partners, initiated Indonesia’s Low Carbon Development Initiative (LCDI). We launched the -Ini tiative during the IMF-World Bank Annual Meetings in Bali last year, and the process to mainstream the low carbon development framework into our next five-year medium-term development plan has started. As the new platform for Indonesia’s development, LCDI aims to maintain economic growth through low emissions development activities, while minimizing exploitation of our natural resources. In this regard, development policy interventions that have the co-benefit of emissions reductions or climate resilience will be prioritized. I was pleased that the LCDI has been welcomed and supported by many stakeholders, both national and international, including from local government in Indonesia. It means that we have strong commitment on the ground to transform our country’s economy to consider environmental sustainability, resource efficiency and social equity. This Report was formulated through an extensive process of analytical work and scientific modelling to provide alternative scenarios for Indonesia in transform its economic growth model towards a low carbon economy. My highest appreciation to LCDI Commissioners, H.E. Prof. Lord Nicholas Stern, H.E. Prof. Boediono and H.E. Prof. Mari Elka Pangestu for their commitment and guidance during the formulation of this Report. We realize that transforming Indonesia towards a low carbon economy will require tremendous effort. What is needed next is to strengthen policy and governance, monitoring, evaluation and reporting mechanisms, investment strategy, and communication at all levels of government, including at the provincial level. I hope that this Report, as a result of good collaboration between the Government of Indonesia, the New Climate Economy, World Resources Institute and other partners, along with strong support from the United Kingdom, Norway, Germany and others, can inspire people in Indonesia and other countries to shift their paradigm towards a low carbon and green economy, as a means to achieve sustainable development. March, 2019 Minister of National Development Planning/ Head of National Development Planning Agency (Bappenas) Prof. Bambang P.S. Brodjonegoro, Ph.D Low Carbon Development: A Paradigm Shift Towards a Green Economy in Indonesia 1 From the LCDI Commissioners Honorable Boediono, Lord Nicholas Stern, Former Vice President of Indonesia: Co-chair of the Global Commission on Economy and Climate and IG Patel Professor of Economics “We are embarking on a new development pathway and Government at the London School where for the first time, Indonesia will systematically of Economics (LSE) mainstream low carbon growth into our develop- ment planning. Our progress will be measured not “The Low Carbon Development Initiative presents only by GDP growth, but also environmental sus- an important case study for the world. The fact that tainability, resource efficiency, and social equity. This Indonesia—a major G20 economy and the 4th larg- transformation is both exciting and challenging. The est carbon emitter—can deliver climate action and success of the Low Carbon Development Initiative growth at the same time demonstrates that other technical work and the analysis in this report will countries can too. Indeed, effective climate action depend on the full involvement and participation of can drive strong growth, poverty reduction, and the Indonesian government, and other stakeholders, the delivery of the Sustainable Development Goals. including the domestic and foreign private sector and But Indonesia’s leadership and efforts alone will the wider community.” not be enough to make this new growth story come true. Development finance institutions and bilateral funders must support Indonesia’s ambitions. Now Honorable Dr. Mari Elka Pangestu, is also the time for private capital, both domestic Former Minister of Trade and of Tourism and and foreign, to invest in sustainable infrastructure, Creative Economy in Indonesia helping to shape a cleaner, more inclusive and more prosperous future for Indonesia.” “The Low Carbon Development Initiative is the basis for identifying the investment needs of a strong, sustainable and inclusive economy in Indonesia. Dr. Andrew Steer, To achieve these goals, we need a decisive shift in President and CEO of World Resources Institute government policies, investment and finance. With clear government policies, and partnerships with all “This report leaves us in no doubt that Indonesia stakeholders, investment and innovative financing has everything to gain from taking a low carbon structures are possible. As stated in this report, now development pathway. These aren’t just numbers is the time to move. The cost of business as usual on a page. The policies and actions described in the is high. It is imperative that we all work together to Low Carbon Development Initiative report are the deliver the benefits of low carbon development to key to better lives for millions of Indonesian people. all people.” With this report, the Government of Indonesia is demonstrating global leadership in the revolution underway—that climate action and economic growth can support each other. Indeed, Indonesia is becom- ing a living, breathing example of the reality that countries can, and indeed must, achieve climate action and economic growth together.” 2 Low Carbon Development: A Paradigm Shift Towards a Green Economy in Indonesia 9268 8960 7460 7506 4750 4225 Low Carbon Development: A Paradigm Shift Towards a Green Economy in Indonesia Low Carbon Development: A Paradigm Shift Towards a Green Economy in Indonesia 3 PHOTO: RAFAL OLKIS /SHUTTERSTOCK 4 Low Carbon Development: A Paradigm Shift Towards a Green Economy in Indonesia Table of Contents Introduction to the Low Carbon Development Initiative in Indonesia . 8 1. Summary: A Change of Paradigm for a Strong, Equitable and Low Carbon Economy. 11 2. Growing Pains: A Characterization of Indonesia’s Growth Process, Natural Capital Depletion