Mainstreaming climate change into investments through climate budget tagging

19/07/2022 - Indonesia has geographical conditions that are vulnerable to climate change. Two-thirds of the territory consists of the sea, and has 17 thousand islands, many of which are small islands.

Along the time, Indonesia has been facing a crucial climate change issue that jeopardises the sustainable development process in the country. There is a potential economic loss predicted due to climate change and climate disaster in 2100 is predicted to be 6,1% - 10% from GDP according to data published by World Bank, 2010. Furthermore, the condition will worsen by the fact that Indonesia’s GHG emission is predicted to increase from 2,1 to 3,3 GtCO2e between 2005 and 2030, based on data published by the Ministry of Finance Indonesia.

Aligning with Indonesia’s commitment in reducing carbon emission, the central government enacted the Indonesia Nationally Determined Contribution (NDC) that interrelated with National Mid-Term Development Plan 2020-2024, as well as National Action Plan on Sustainable Development Goals. Within this strategic policies, Indonesia is committed to reducing emission by 29% below business as usual by 2030 or 41% with international assistance”

Recently, Indonesia’s investment climate has been improved by the central government initiatives in increasing the budget effectiveness. There are several priority actions conducted in order to easing the climate finance in the country, such as Budget Tagging for tracking climate change-related direct and indirect activities; Scoring & Performance-Based Budgeting to monitoring the effectiveness & efficiency of expenditure as well as to prioritise the climate activity based on cost-effectiveness including poverty and gender benefits; and Green Planning & Budgeting that consists of the issuance of fiscal policies, and mechanisms for financing prioritised and effective climate change activities. 

The Climate Budget Tagging (CBT) is reserved as the tracking document for the government on climate change related projects budget and spending. CBT will help the government to establish a legal basis for the climate finance tracking system. Indonesia is the first country in the world to have adopted this new climate finance tracking system which is based on recommendations from the Low Emission Budget Tagging and Scoring System (LESS) study that was conducted by the United Nations Development Programme (UNDP) and United Nations Environment Programme (UNEP).

In addition, the CBT was also completed with the Landscape of Public Climate Finance in Indonesia study conducted by Climate Policy Initiative (CPI). Seven Indonesia Ministries are legally required to implement the budget-tracking system for climate mitigation activities by 2015. This requirement is stipulated under the Finance Ministerial Decree Number 136/PMK.02/2014, according to the news published by the Climate Policy Initiatives (CPI) in 2014.

Furthermore, CBT is considered an essential instrument that should be carried out at the time of preparing the government work plan and state budget since the Climate Budget Tagging include a National & International Report; Input Data of MRV; Underlying assets of Sovereign Green Sukuk; and Public Climate Finance Landscape. By benchmarking the green framework from Poland, Fiji, and France, Indonesia has become one of the countries that already show improvement in regulating the sustainable finance and development plan onwards. This Climate Budget Tagging (CBT) is expected to help the government in measuring the reduction of greenhouse gas emissions for national and regional scale in the future that at the same time will increase and broaden more of sustainable finance initiatives.


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