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Systems Dynamics Economic Modelling of the Fiscal Impacts from the Indonesia’s 1st Nationally Determined Contribution (NDC)

Author

Listed:
  • Kindy R. Sjahrir

    (Fiscal Policy Office, Ministry of Finance. Republic of Indonesia)

Abstract

The Indonesian commitment has been declared in negotiations in the Conference on climate change (COP24) in Katowice, Poland, December 2-14, 2018. It is estimated that around 45,000 delegates from 197 countries attended the United Nations Session discussing status and efforts to control the impact of climate change in the world. The Indonesian delegation is ready not only for negotiation but also for "soft diplomacy" that Indonesia has made much progress in the implementation of the Paris Agreement on climate change. The Paris Agreement is implemented in Indonesia through cooperation of all concerned. The Indonesian Government is consistent with its commitment to bring down the greenhouse gas emission and the program of adaptation to climate change as mentioned in the document of Nationally Determined Contribution (NDC) as a product of the Paris Agreement. Indonesia also has ratified the Paris Agreement. Through NDC, Indonesia is committed by itself to reducing Green House gas emission by 29 percent in 2030 and with international cooperation by 41 percent. Data in 2016, Indonesia succeeded in reducing gas emission by 8.7 percent through various sectors. In 2017, the reduction already reached 16 percent – according Ministry of Forestry and Environment. In reaching the 29 percent target Indonesia has good modality in fulfilling NDC commitment, this paper reports the fiscal capacity in achieving Indonesia’s NDC. The important role of budgetary finance in providing funding according scenarios related to climate change and the development of a green economy is nonetheless crucial to consider the stability of the state's financial condition in order to remain in a prudent condition sustaining drive for other sectors of economic growth and equity. This study developed a system dynamics economic model to explore impacts of implementing National Determined Contribution (NDC) to fiscal space using Indonesian data. The exploration includes (1) finding the financial capacity of the country at the baseline; (2) finding the state of the fiscal balance in applying funding policies for climate change-based activities; (3) finding the most effective climate change scenarios to be financed by the state. Simulation results show that climate change financing does not significantly impact state finance. Indonesia's revenue growth can still overcome the influx of financing needs for climate change. Thus, through this model, it can be concluded that the national budget is still in capacity to finance the needs for climate change’s 1st NDC.

Suggested Citation

  • Kindy R. Sjahrir, 2018. "Systems Dynamics Economic Modelling of the Fiscal Impacts from the Indonesia’s 1st Nationally Determined Contribution (NDC)," Working Papers in Economics and Development Studies (WoPEDS) 201805, Department of Economics, Padjadjaran University, revised Dec 2018.
    • Handle: RePEc:unp:wpaper:201805
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    File URL: http://ceds.feb.unpad.ac.id/wopeds/201805.pdf
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    References listed on IDEAS

    as
    1. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801.
    2. Arief Anshory Yusuf & Ahmad Komarulzaman & Wawan Hermawan & Djoni Hartono & Kindy R. Sjahrir, 2010. "Scenarios for Climate Change Mitigation from the Energy Sector in Indonesia: The Role of Fiscal Instruments," Working Papers in Economics and Development Studies (WoPEDS) 201005, Department of Economics, Padjadjaran University, revised Jul 2010.
    3. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fiscal Policy; Systems Dynamic; Indonesian Data;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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