Indonesia is vulnerable to disasters and climate change. More than 20,000 disasters occurred in Indonesia between 2020 and 2024. Most were water-related disasters that can be linked to climate change, including floods, landslides, extreme weather events, droughts, and peat fires. These incidents have led to significant fatalities, losses, and damages, posing a serious threat to the country’s Sustainable Development Goals.
Almost 60 percent of Indonesia’s population lives in urban areas, and this proportion is expected to rise as cities offer better opportunities. Disasters and climate change disproportionately affect the most vulnerable. In urban settings, people living in poor conditions, blue-collar workers, people with disabilities, older people, women, and children are among the groups whose vulnerability increases when disasters strike.
Although Indonesia has low per capita greenhouse gas emissions, it is among the Asia-Pacific countries with the highest cumulative emissions. Home to more than 270 million people, the country emitted 1.2 Gt CO2e in greenhouse gases in 2022, excluding land use, land-use change, and forestry. This accounted for 2.3 percent of global emissions (Crippa and others, 2023).
According to the Ministry of Environment and Forestry’s 2024 GHG Emissions Inventory Report, the two sectors that contributed most significantly to greenhouse gas emissions between 2000 and 2022 were energy and forest and other land use.
CLIMATE TARGETS AND FINANCING NEEDS
The Government of Indonesia has estimated that approximately US$285 billion will be needed between 2018 and 2030 to meet its original Nationally Determined Contributions. This estimate was considered conservative and needs to be updated to reflect the country’s enhanced NDCs.
In 2022, Indonesia enhanced its NDC target to a 31.89 percent reduction using domestic resources and a 43.20 percent reduction with international support (Government of Indonesia, 2022).
ABOUT THE ASSESSMENT
Creating the right enabling conditions at the national level can increase the funding available to subnational governments for climate action. Enabling framework conditions are essential for scaling subnational climate finance by strengthening local institutional capacity, mitigating investment risks, and promoting stakeholder engagement.
Urban-Act and the Cities Climate Finance Leadership Alliance have assessed Indonesia’s national enabling framework conditions for subnational climate finance in light of these challenges.
This work is part of the Urban-Act project, which aims to strengthen enabling framework conditions for collaborative climate action and cities’ capacity to participate in climate dialogue and action in five countries: China, India, Indonesia, the Philippines, and Thailand.
The assessment is intended to help national government officials and other stakeholders identify gaps and opportunities in Indonesia’s enabling framework and mobilize subnational climate finance.
ASSESSMENT CATEGORIES
The assessment focuses on four categories:
- Climate policy
Assess how the national government supports climate policy and planning processes for subnational governments.
- Budget and finance
Assess the country’s national and subnational financial architecture, including the assignment of expenditures and responsibilities and the incentives available for subnational fiscal autonomy.
- Climate data
Assess how the national government can help subnational governments access good-quality climate data and use it in climate policy and planning.
- Vertical and horizontal coordination
Assess how the national government can work with subnational governments to strengthen climate policy and planning coordination, both horizontally and vertically.
URBAN AND SUBNATIONAL CLIMATE FINANCE IN INDONESIA
Urban climate finance encompasses all financial resources directed toward cities and urban areas to strengthen their capacity for climate change adaptation and mitigation.
In Indonesia, there is no distinction between urban and non-urban climate action or finance. This assessment therefore considers subnational climate action and finance as its primary context, while giving greater attention to urban-related issues.
Because climate change is a cross-sectoral issue, climate-related activities at the subnational level can be funded through regular financing mechanisms. Sources include national and subnational budgets, international finance, private and public funds, and community resources.
From 2018 to 2021, line ministries participating in climate budget tagging allocated approximately 4.3 percent of their budgets, or around US$6.3 billion annually, to finance the country’s climate action.
International finance has also been mobilized to support Indonesia in achieving its climate targets. From 2018 to 2022, an average of US$2.6 billion annually was mobilized from various sources to finance climate-related activities through debt, grants, equity, and other financial instruments.
Indonesia has established several off-budget financing platforms for climate-related action, including the Indonesia Environment Fund, known as BPDLH; SDGs Indonesia One; and the Indonesia Climate Change Trust Fund.
These institutions manage funding from sources including the private sector, multilateral development banks, foreign governments, and philanthropic organizations. International climate finance platforms also operate in Indonesia through national focal points, including the Green Climate Fund, Adaptation Fund, and Global Environment Facility.
These financing institutions have distributed funds across sectors including forest and other land use, disaster management, energy, marine and coastal systems, industrial processes and product use, agriculture, water, health, and waste.
KEY FINDINGS
Climate policy
Indonesia’s commitment to combating climate change is becoming more ambitious, as reflected in the stronger targets included in overarching national development plans. Synchronizing subnational target indicators with national indicators has therefore become imperative.
Climate policy is mainly implemented through a sectoral approach. Most legally binding policy instruments do not explicitly mention climate benefits, even when they contribute to combating climate change.
Climate-related and broader development targets are not divided between urban and non-urban areas. However, Indonesia recognizes development challenges related to urbanization.
Monitoring and reporting mechanisms are available, but there is no enforcement mechanism at any level of government when progress deviates from established targets.
Budget and finance
Subnational infrastructure financing comes mainly from the national budget through line ministry budgets or intergovernmental transfers. Despite fiscal decentralization, revenue generation by subnational governments remains limited.
Private finance, debt, and other innovative financing mechanisms account for only a small portion of subnational revenue and the financing available for climate-related activities. Municipal bonds have been regulated, but subnational governments have not yet successfully issued any.
Although there is no dedicated intergovernmental transfer mechanism for climate action, most public finance instruments can be used for activities that contribute to combating climate change. However, enforcement mechanisms are absent, and incentives for climate-related activities remain limited.
Conditions intended to incentivize private capital in support of national climate targets are also largely limited to renewable energy.
International finance has been mobilized to implement subnational climate action through debt, grants, equity, and guarantees. This funding is channeled through national government budgets, nongovernmental institutions operating in the country, or national focal points.
Climate data
The national government conducts an annual greenhouse gas emissions inventory as part of its monitoring and reporting mechanisms and to support evidence-based planning.
Several digital platforms have also been established to support subnational governments in climate data reporting and analysis, although participation levels vary between platforms.
Assessing the effectiveness of these platforms for evidence-based planning, monitoring, and evaluation was beyond the scope of this assessment.
Vertical and horizontal coordination
Horizontal and vertical coordination follows the existing hierarchy governing relationships between national and subnational governments.
Cross-jurisdictional collaboration is mainly initiated by the national government as part of national strategic priorities. Public participation is mandatory in regulation-making and development planning, including processes related to efforts to combat climate change.
Indonesia also participates in many multicountry projects that facilitate peer learning among participating countries and beneficiaries.
RECOMMENDATIONS
Based on the assessment’s findings, the following recommendations are proposed to improve Indonesia’s enabling framework conditions:
- Translate relevant policy instruments into practical guidance and capacity-building activities. These may cover climate data and analysis for planning, monitoring, and evaluation; programmatic theories of change or results frameworks; financing mechanisms and sources; fund management; and relevant national and international good practices.
- Expand incentives for climate-related activities that benefit urban areas.
- Leverage blended finance and identify sectors and geographic areas in which private finance could be more attractive.
- Explore digital platforms that allow institutions to align greenhouse gas emissions-reduction targets, the positive or negative climate impacts of programs and activities, and associated budget requirements.
- Encourage cross-jurisdictional collaboration to support the development of low-carbon, climate-resilient cities.
- Strengthen the consideration of urban issues in national climate strategies.