Indonesia Environment Fund: Bridging the Financing Gap in Environmental Programs
Tasked with managing funds related to environmental protection and conservation, Indonesia’s Environmental Fund Management Agency provides a unique financing mechanism to help meet the country’s climate goals.
Indonesia’s economy is growing at 5-6 percent annually, almost twice the global average. And as the world’s fourth most populous country, it is also one of the world’s largest emitters of greenhouse gas (GHG) emissions. This makes Indonesia a key player when it comes to tackling climate change. But it can’t do it alone.
By committing to reduce its GHG emissions to 29% unconditionally and 41% with international assistance, Indonesia has progressively set itself on a low-carbon development pathway. Responding to this commitment, the international community – through multilateral donors – has pledged financial support to help Indonesia meet these climate goals. But to manage this multilateral funding – as well as its national funds – Indonesia needs an efficient institution capable of implementing GHG reduction projects from the central government down to the grassroots level. This is a job for Indonesia’s newly launched Environmental Fund Management Agency, known by its Indonesian acronym BPDLH.
The BPDLH – the Indonesian version of the Amazon Fund, the largest source of international climate finance in Brazil – is unique in that it can receive and manage both state and non-state funds for climate change management. As a public service agency (Badan Layanan Umum or BLU), it is designed to be more autonomous than government institutions, but more regulated than state-owned enterprises. As a result, the BPDLH can be more flexible and effective when it comes to managing funds from domestic and international sources.
A recent Climate Policy Initiative study explains in detail the role and potential of BPDLH as the “financing hub” for environmental programmes in Indonesia. BPDLH is not the first management fund of its kind in Indonesia, but it is unique because – compared to other existing BLUs whose main source of funding comes from the state budget – it is allowed to accept international donor funds.
In addition to the primary capital raised from the state budget and interested donors, BPDLH can raise other sources of revenue from grants, investments and fees from the provision of their services in accordance to existing laws. These revenues, categorized as non-tax state revenue, can be disbursed without first depositing into the state treasury. Because of this flexibility, BPDLH should be able to sustain itself financially.
Similar to the country’s well-known Education Fund, BPDLH is also allowed by regulation to include investment as its service, develop its investment portfolio and broaden its funding coverage. But whereas the Education Fund uses revenues to cover scholarship and research, BPDLH will use revenues to fund forest conservation, pollution reduction and other environmental programmes.
With such a flexible and strategic design approach, BPDLH has the potential to mobilize billions of dollars for climate change mitigation and adaptation programmes. To illustrate the flexibility, imagine BPDLH as a big “house” in which donors have their own “rooms”. Potential recipients can navigate the “house” to find the room they find most suitable. Eligible recipients in this case may vary from government ministries and local government to civil society organizations, including indigenous people. In the BPDLH scheme, the “house” will not only be the intermediary for channeling the donor’s funds, but also implementing rules of transparency and upholding fiduciary duties.
Another benefit of this flexibility is the ability of BPDLH—albeit being a national public service agency—to better cater to donors’ specific requirements, including those of international donors. Learning from the Amazon Fund, the flexibility of a Fund is imperative since each donor normally has specific requirements, while there are constraints for potential recipients to meet them. The newly established BPDLH should be able to manage this obstacle through its flexibility: making both ends meet by being flexible enough to bridge the donor-recipients gap.
As an emerging market country with a vast supply of natural resources, Indonesia continues to be a main destination for global climate investment, and strengthening the role of BPDLH will be key to connecting global support with local actions on the ground. This should be doable through ensuring the flexibility of BPDLH as a public service agency. Ultimately, the presence of BPDLH should shape the landscape of environmental funding in Indonesia, and help the country meet its climate and overall environmental goals.
A version of this blog first appeared on Green Growth Knowledge Platform (GGKP), a global network of international organizations and experts that identifies and addresses major knowledge gaps in green growth theory and practice.