Cities and local government have potential to generate climate financing based on national government regulations. The detailed mechanisms on how cities or local government could access climate financing were brought into light by M. Zainul Abidin from Ministry of Finance.
Zainul Abidin, a Policy Analyst from BKF, during Climate Resilient and Inclusive Cities Discussion Panel, 3 March 2023, in Surabaya mentioned that there are four options to optimise local government’s fiscal capacity to finance “climate action”.
First, national government has provided specific allocation fund (DAK/dana alokasi khusus) part of fiscal transfer to local government and villages (Transfer ke Daerah dan Desa/TKDD). Local governments and villages will use these fundings to finance activities handled by local governments. For example, to support different sectoral actions in agriculture, irrigation, health and sanitation, marine and fisheries, environment and forestry and water management. Further analysis shows that these sectoral actions could also be linked to climate mitigation and adaptation actions.
However, realisation of fiscal transfer to cities/local governments and villages (TKDD), was still based on potential analysis. “We don’t have fiscal transfer mechanism based on climate change specific issues put into consideration of other instruments like specific allocation fund for waste management, sharing of forest resources revenue, including geothermal revenue and village funding,” Zainul said.
Second option is designing ecological fiscal transfer or fiscal transfer based on ecology. Kalimantan Utara becomes the first provincial government that applies ecological fiscal transfer to its cities and local governments. The ecological fiscal transfer according to Zainul could also be implemented in form of carbon economic value (result-based payment).
The third option to optimise local government’s fiscal capacity to finance climate related action is by promoting eco-tourism that promotes environmental nature conservation, social, cultural and economic empowerments and job creation. The way is by conserving natural resources and their ecosystems to increase local, regional and even national revenues.
The fourth option is local alternative financing by expanding financing options in the form of loan and bond - both based on conventional or Islamic principles. For these solutions, local governments will have to work closely with Ministry of Home Affairs and Ministry of Finance before they could issue bond or thematic Islamic bond (sukuk). The process according to Zainul could take minimum at 6-7 months before this alternative financing is settled.
Climate Financing Institutions
Cities/local governments could also access climate financing through climate related financing institutions. There are three climate financing institutions that provide funding for climate actions. These institutions are The Indonesian Environment Fund or Badan Pengelola Dana Lingkungan Hidup (BPDLH), SDG Indonesia One and Green Climate Fund.
The Indonesian Environment Fund provides and manages funding not only for environmental and forestry protection and conservation but also for climate mitigation and adaptation. Funding from The Indonesian Environment Fund could also be used in energy sector, agriculture, transportation, marine and fisheries industries. Cities and local government could access financing opportunities and information directly from BPDLH website: https://bpdlh.id/.
SDG Indonesia One is integrated financing platform that is managed by PT. Sarana Multi Infrastruktur (SMI). SDG Indonesia One’s financing facility is a blended funding combining public and private financing that support achievements of 16 0f 17 SDGs. SDG Indonesia One sources of funds come from the private sector, donors/philanthropies, financial institutions, institutional investors, and bilateral and multilateral institutions. Information on funding opportunities from SDG Indonesia One could be accessed here: SDG Indonesia One Website: https://ptsmi.co.id/sdg-indonesia-one.
Last but not least is Green Climate Fund. The Green Climate Fund (GCF) is the implementing entity of the UNFCCC financial mechanism established at the Conference of Parties (COP) in 2010. The GCF is the world's largest global climate finance mechanism. The GCF has the potential to help Indonesia achieve its NDC targets without burdening the state budget and has a balanced target between mitigation and adaptation.
GCF works through Accredited Entities - among them are Kemitraan and PT. SMI - to channel funding to projects or programmes. The Fiscal Policy Agency representing the Minister of Finance is designated as the National Designated Authority of GCF Indonesia based on the Decree of the Minister of Finance (Number 756/KMK.10/2017). More information could be obtained from Green Climate Fund Website: https://fiskal.kemenkeu.go.id/nda_gcf/.
Zainul in his closing statements said that Indonesia is vulnerable to the impacts of climate change, so it is necessary to increase efforts to achieve national goals, both adaptation and mitigation of climate change. “The National Budget plays an important role in supporting environmentally sound and sustainable development at the national and regional levels,” he said. However, “It is necessary to optimise the utilisation of potential sources of innovative climate action financing, considering the relatively limited capacity of the National Budget and Regional Budget.”
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