Building up green fiscal policy in Indonesia

Discussion panel

On the event in Jakarta, the participants discussed the possibilities of building up a green fiscal policy for Indonesia. Photo: GIZ

The Minister of Finance of Indonesia has encouraged the Fiscal Policy Agency (BKF) to develop proposals for innovative fiscal policies to raise revenue for low-carbon development. In response to this request, the IKI funded GIZ-UNEP global project “Green Economy Transformation” (GET) together with the Centre for Climate Change and Multilateral Policy (PKPPIM) of the Fiscal Policy Agency (BKF) organised four days of outreach and training just before the Covid-19 pandemic hit. Activities included meetings, seminars and capacity building to facilitate peer-to-peer exchange and enhance the capacity of Ministry of Finance staff to develop innovative proposals for green fiscal policy reforms such as carbon pricing.

In Indonesia, a country with a tax-to-GDP ratio of just 13%, political awareness is high that new sources of climate finance are urgently needed. Carbon pricing is an efficient and effective fiscal policy instrument which has the potential to meet this need, as it can both mitigate greenhouse gas emissions and mobilise revenue for low-carbon transition.

Seminar on green fiscal policy for low-carbon development

The seminar provided a forum for a wide range of stakeholders – including representatives of planning, environment, industry, trade and finance ministries, the private sector, universities, development partners and NGOs – to exchange views on how Indonesia can use green fiscal policies to enhance incentives for low-carbon development. Speakers shared insights on carbon pricing mechanisms and their potential role in incentivising private investment in low-carbon development, explored the Indonesian experience with market-based instruments and discussed their potential to mobilise domestic revenue.

An open and informative peer to peer exchange took place on the basis of inputs by national and international experts. Keynote speeches were given by Mr. Dida Gardera, Assistant Deputy Minister for Environment Conservation, Coordinating Ministry for Economic Affairs and Professor Paul Ekins, Director of the Institute for Sustainable Resources, University College London.

Capacity building workshop on green fiscal policy for low-carbon development

The workshop was developed on the basis of a GIZ training on Environmental Fiscal Reform and was closely tailored to the political context in Indonesia. Topics included green fiscal policy in theory and practice, carbon pricing (taxes and trading), fossil fuel subsidy reform, policy design and development, stakeholder engagement, and communication. The interactive methodology gave participants the opportunity to discuss the political economy of carbon pricing in depth with their peers, and to reflect on strategic approaches to policy design and consensus building with a wide range of stakeholders.

During the opening session, Mr. Noor Syaifudin, coordinator of the fiscal policy taskforce of the Fiscal Policy Agency (BKF) said: "To respond to the challenges of increasing the state revenue as well as to reduce carbon emissions, we must create the right green fiscal policy. I believe green fiscal reform is an effective way to achieve low carbon development."

Participants came from a range of entities within the Ministry of Finance such as the General Directorate of Taxes, Excise, Treasury, and the Fiscal Policy Agency. The training was held on 19-20 February in Bogor and developed and implemented by Jacqueline Cottrell, Green Budget Germany/FÖS and Prof. Paul Ekins, UCL.