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Climate and Environmental Financing at Regional Level: Amplifying and Seizing the Opportunities

Author

Listed:
  • Nauli A. Desdiani

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Fachry Abdul Razak Afifi

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Amalia Cesarina

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Syahda Sabrina

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Meila Husna

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Rosalia Marcha Violeta

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Adho Adinegoro

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

  • Alin Halimatussadiah

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))

Abstract

The establishment of national climate policy targets has forced the local government to set ambitious climate goals supporting the national government to achieve its proposed target. Besides low awareness of climate change and environmental risk impacts, the biggest challenge faced by the local governments to exert climate actions lies in the financing of the programs. This paper aims to analyze the current local government budget on climate and environmental activities and identify available potential financing sources to finance local government climate and environmental initiatives. We found that the local budget allocation for environmental spending increased from 1% in 2016 to 3% in 2020, yet it is still relatively low and insufficient for achieving the climate target. With a limited budget, local governments must find additional potential financing sources for financing their climate actions. Through case study analysis, insights from several regions that have gained harness of potential from various climate and environmental financing initiatives to overcome environmental issues in their areas and reach climate and environmental goals were attained. To address local budget shortages problem for climate and environmental activities, several strategies for the local government are proposed: (1) optimizing and improving the quality of spending from intergovernmental fiscal transfer; (2) adopting Climate Budget Tagging (CBT); (3) increasing local-own source revenue from natural resource and environmental based activities; (4) valuing regencies and/or cities with high ecological value with more fiscal support through TAPE and TAKE schemes; (5) optimizing the role of SOEs and private sectors through CSR and PPP; (6) optimizing multilateral financing; and (7) utilizing other financings from the central government such as through environmental fund management agency (BPDLH), disaster pooling fund, ICCTF, and SDGs Indonesia One.

Suggested Citation

  • Nauli A. Desdiani & Fachry Abdul Razak Afifi & Amalia Cesarina & Syahda Sabrina & Meila Husna & Rosalia Marcha Violeta & Adho Adinegoro & Alin Halimatussadiah, 2021. "Climate and Environmental Financing at Regional Level: Amplifying and Seizing the Opportunities," LPEM FEBUI Working Papers 202167, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2021.
    • Handle: RePEc:lpe:wpaper:202167
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    File URL: https://www.lpem.org/repec/lpe/papers/WP202167.pdf
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    References listed on IDEAS

    as
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    2. Jane Ellis & Sara Moarif, 2017. "Enhancing transparency of climate finance under the Paris Agreement: Lessons from experience," OECD/IEA Climate Change Expert Group Papers 2016/3, OECD Publishing.
    3. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
    4. Kissinger, Gabrielle & Gupta, Aarti & Mulder, Ivo & Unterstell, Natalie, 2019. "Climate financing needs in the land sector under the Paris Agreement: An assessment of developing country perspectives," Land Use Policy, Elsevier, vol. 83(C), pages 256-269.
    5. Nauli Aisyiyah Desdiani & Syahda Sabrina & Meila Husna & Amalia Cesarina Budiman & Fachry Abdul Razak Afifi & Alin Halimatussadiah, 2022. "Local Budget Resilience in Times of COVID-19 Crisis: Evidence from Indonesia," Economies, MDPI, vol. 10(5), pages 1-18, May.
    6. Riatu M. Qibthiyyah, 2017. "Provinces and Local Government Revenues Structures and Intra-Province Economic Disparity," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 63, pages 81-96, June.
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    More about this item

    Keywords

    climate change — environmental risk — climate and environmental financing — local budget;

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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