Discussion Notes

Strategic Asia Policy Interchange:

 “Environment and Renewable Energy”

The sixth Strategic Asia Policy Interchange held on Thursday 8^th October 2009 on Environment and Renewable Energy” featured  Dr. Yetti Rusli MSc (Senior Advisor to the Minister for Forestry), Dra. Masnellyarti Hilman MSc (Deputy Minister for Natural Resources Conservation and Environmental Damage Control, State Ministry of Environment), and Mr. Prabowo (Director, Strategic Asia Indonesia). Mr. Harry Sudarsono, Strategic Asia’s Associate Director of Operations moderated this discussion

In the Introduction, the moderator explained that the key objective of the session is to focus on feasibility of green economy in Indonesia and priority policy instrument, framework to implement the policy, growing competition for energy and raw materials which later on increase environmental cost, and the options of renewable energy.

Taking the cue from that introduction, the first speaker, Mrs. Yetti Rusli highlighted the following points:

• Indonesia ranks as the third biggest CO₂ emitter in the world due to unmanageable peat land forest fire even though it’s industrial CO₂ emission is still smaller compared with other countries.
• Technological breakthroughs facilitated development of new biomass energy system. Trees are one of the sources for renewable energy which have the potential to be implemented in Indonesia since Indonesia is endowed with tropical climate. Aside from that, wood product is green product (e.g. furniture), that can act as a carbon sink for a long time.
• The development of production forest as the source of renewable energy should be prioritized to tackle the growing need of energy in Indonesia and also as one of the key strategies to deal with climate change.
• Meanwhile, Mrs. Masnellyarti Hilman highlighted the following points:
• The linkage between environmental to social and economic developments should be recognized, in the sense that environmental crisis could lead to social and economy crisis. Therefore, it is imperative to approach environmental issues and policy intervention holistically.
• An example of this interlinkages is land use and land use change (LULUCF). This should be managed using comprehensive spatial planning tool that are sensitive to social, environmental and economic interests.
• In order to achieve the 2025 goal to cut CO₂ emission to 26 percent of business as usual (BAU) from the 2005 emission level, as indicated by President Yudhoyono at the G20 meeting in Pittsburgh, Indonesia’s development paradigm should beshifted to low carbon economy. 
• The fuel subsidy should be reallocated to develop renewable energy. The use of renewable energy and the implementation of energy efficiency will have positive impact on the economy as well as on decreasing poverty level. 

Mr. Prabowo concluded the presentation session with the findings of a recent study done jointly by the Ministry of Environment, Padjajaran University and Strategic Asia. The study, titled “Menuju Ekonomi Hijau: Alternatif Strategi Mencapai Pembangunan yang Pro-Job, Pro-Poor dan Pro-Environment” focuses on the estimation of the green economy regime impact on output, environment and poverty. The scope of the study includes two major carbon emitter sectors: energy and forestry. Key findings from the are:

• Low carbon economy has a significant impact on the economy and on the society. According to the study, the best case scenario of energy efficiency, fuel switch and carbon tax could yield 27 percent of carbon emission reduction, increased the GDP up to 2.8 percent (in 2008 prices). Therefore government target of 26 percent emission cut by 2025 is feasible, but its success will depend on political commitment.
• National energy mix of 2025 scenario still relied heavily on fossil fuel energy (83 percent). This scenario should be reviewed regarding the future fossil fuel energy price, and national energy security.
• The GDP gained from avoided deforestation is still very small compared to energy efficiency interventions, but if positive externalities (i.e. ecosystem services, air filtration, biodiversity, etc) are also computed then the non market benefit gained from this measure will be huge.

Highlights of the Discussion

• Indonesia’s target to cut carbon emission up to 26 percent (2005 level) in 2025 is feasible as long there’s consistency in implementing the agreed plan especially in energy efficiency and forestry sector   ( i.e. avoided deforestation, decreasing forest fire occurrence, law enforcement, etc)
• There’s a need to replace the fuel subsidy policy. The opportunity costs in  continuing existing energy subsidy is enormous, especially given that  70 percent of this subsidy is enjoyed by the rich. It is therefore necessary to restructure the subsidy target, energy mix and public transportation strategies.
• Policy on environment should also address the poverty alleviation. Environmental conservation targets can be attained by involving the local community much more in promoting renewable energy and environmental protection.
• Other issues related to the forestry sector that should be addressed are:
  • Consensus on forestry related carbon emission.
  • Law enforcement related to illegal logging and forest fires.
• There are other schemes that should be explored in addition to the existing Kyoto Protocol (REDD, CDM) and can be incorporated into national policy. This scheme includes the development of energy production forest, the improvement of forest management, and the improvement of energy supply management.
• Market mechanism as a tool in coping with environmental issues should be approached by strengthening the institutional capacity in mapping, planning and exploring the potential opportunities While at the same time, measures should also be taken to resolve current conflicting, overlapping and unclear legal framework on property rights law, sectoral laws, and local government powers and mandates.

 Conclusion and Recommendation

• There’s a need to establish a sustainable social and environmental regime which is pro poor, pro growth, and pro environment. Priority areas for reform in the energy and forestry sectors are improvements in the legal framework; establishing efficiency target, preparation of an inclusive policy, design of an economic mechanism (incentive and disincentive) and ensure sufficient budget allocation.
• It is imperative to streamline regulative regime governing the environment and to ensure a holistic, consistent and broad based framework, there is a need to prepare a white paper on environment which reflects common consensus and provides guidelines for all related parties (government, private sector, public sector and NGOs).
• To ensure effective policy implementation, it is highly recommended to establish a viable institutional framework which includes the establishment of a lead agency with adequate mandates and powers to synchronize regulation and coordination.