Reaching for the sky?

Frank Jotzo

When President Yudhoyono declared at the September 2009 Pittsburgh G20 meeting that Indonesia was taking on greenhouse gas emissions target, it sure made a splash. The commitment was to cut emissions by 26 per cent relative to business-as-usual voluntarily and unilaterally, and by up to 41 per cent with international assistance. And this from a developing country with big challenges in poverty, health and education, at time when it was still unclear what the developed countries would commit to.

But what does the emissions target mean, and how might it be achieved? It depends on how the pledge will be interpreted. And it depends to what extent the Indonesian government will be able to harness the many opportunities to reduce greenhouse gas emissions that exist in the country. As with many other areas of policy, the difficulty is not coming up with a vision, but implementing it. The challenges are enormous. But if things go well, Indonesia could make a substantial contribution to the global public good of climate change mitigation, and also benefit economically.

A global stage

Developing countries pledging cuts to greenhouse gas emissions is a new phenomenon. For decades, a principle in the global climate change negotiations was that developed countries would act first, and developing countries later. Emissions reductions projects were initiated in many developing countries under the Kyoto Protocol, but this has been only patchwork, and there have been no national-level programs in the developing world.

This changed in the lead-up to the Copenhagen climate change conference of December 2009. Countries including Brazil, South Korea, Mexico, and South Africa made pledges to reduce their emissions relative to business as usual by 30 per cent or more, while China and India pledged to reduce their emissions intensity, that is the amount of emissions per unit of national economic output.

By choosing to join this group of major countries with climate pledges, Indonesia sent an important signal about the country’s readiness to engage on this global issue. Taking this stance was also in line with the Indonesian government’s desire to gain enhanced international status as a member of G20.

Inevitably, questions are asked about the seriousness of countries’ carbon reduction pledges, including Indonesia’s. The Copenhagen climate targets are not legally binding, so they will really only count if they are seen to be credible. What is needed is a reliable system of measurement, reporting and verification of emissions, as well as a realistic strategy to actually achieve the targets, and steps to put them into practice.

Why pledge action?

One reason why developing countries may see it in their interest to cut greenhouse gas emissions is the danger that they may suffer badly from future climate change. This is likely to be the case for Indonesia. But the incentive to act is tempered by more pressing concerns in the here and now, and partly depends on whether a country’s own action can trigger commensurate action by others.

A second reason is to aspire to leadership in clean technologies. This is a strong factor for countries like China and South Korea, who see their industries as potential suppliers to new world markets in advanced ‘green’ equipment. For Indonesia, this is not really a factor – the relevant energy technologies are mostly imported, and much of the action will be in the land use sector where technology is less of an issue.

A third motivating factor is to reap direct economic benefit from climate action, by way of attracting additional investment, or even selling surplus emissions reductions to developed countries. Indonesia has potential on this front, as we will see below.

A fourth factor is international prestige and global citizenship. For Indonesia, the emissions target was a logical conclusion to its engagement in international climate negotiations, following on from its diplomatic success with the 2007 UN climate conference in Bali. In Bali, arguably for one of the first times in Indonesia’s modern history, the country was at the forefront of global action on a key international issue, with world leaders flocking to the island, and the host helping ensure success in a difficult international negotiation. The Pittsburgh 26 – 41 per cent target also gave the president himself extra limelight on the global stage, which surely was welcome seeing that Yudhoyono is thought to aspire to the post of UN Secretary General from 2016.

What’s in a target?

Indonesia’s target, like the Copenhagen pledges of most other developing countries, is framed relative to the level of business-as-usual emissions – that is, the emissions level that would be reached at 2020 if it was not for efforts to cut back in the meantime. If this sounds vague, that’s because it is. To be operational, the target needs a baseline, which is an estimate of what things would be without climate policy action.

It is clear that if business does proceed as usual then energy use, especially in power generation and transport, will keep growing fast, and with it carbon dioxide emissions. Yet the trajectory for emissions from deforestation and peat lands and fires, which are thought to have accounted for as much as two thirds of Indonesia’s total emissions in recent times, is unclear. Will such emissions stay roughly the same over time? Or will they fall as forests are running out and as fire management improves? Or could they increase as rising resource prices make forest conversion ever more profitable?

Reports released in 2010 by Indonesia’s Ministry of Environment on the one hand, and the National Council on Climate Change (Dewan Nasional Perubahan Iklim, DNPI) on the other, show projected emissions growth between 2005 and 2020 at 65 per cent and 23 per cent respectively. This is a huge discrepancy. The ‘26 per cent below business as usual’ target then translates either to a roughly one-quarter increase relative to 2005, or a slight decrease. The difference matters greatly for the credibility and ambition of Indonesia’s target.

It is understood that further work on the business-as-usual scenario is being done at the Ministry of Forestry. The hoped for political and economic benefits of Indonesia’s climate target can only materialise if Indonesia’s chosen official reference point for its target is not seen as inflated by the international community.

Keeping carbon in the landscape

Deforestation is what comes to mind first when thinking about climate change and Indonesia. With its huge forests and fast expanding agriculture, including palm oil plantations, Indonesia has one of the highest deforestation rates in the world. When loggers and farmers remove trees and disturb soils, they release large amounts of carbon dioxide. Various measures could make a big difference: protecting forest lands, developing plantations on already degraded land rather than in prime forest, gentler methods of logging in production forests, and planting new forests.

The strongest scope for fast improvements however is in peatlands. There are areas in Sumatra and Kalimantan where the top layer of soil consists of peat, which can release vast amounts of carbon dioxide when it burns, and also through decomposition when it comes into contact with air. Many peat swamps have been drained to allow conversion to agricultural land, and fires frequently occur in these regions, sometimes lasting for months at a time. Stopping the conversion of peat swamps, and re-flooding previously drained peatlands could prevent very large amounts of emissions. It could also avoid harmful smoke from fires. And it could often be done at relatively low costs per tonne of carbon dioxide avoided.

Stopping the conversion of peat swamps, and re-flooding previously drained peatlands could prevent very large amounts of emissions

But making these kinds of changes in practice is hard, as it runs against local economic interests, and because local players often simply ignore national laws and regulations. A decree issued in Jakarta may not have much effect at the forest frontier. The best hope is probably schemes to buy out such local economic interests, coupled with programs to foster local development. Innovative mechanisms are needed that provide local governments, people and businesses with direct financial and development benefits in reward for protecting forests and peatlands.

Norway has promised one billion dollars to support efforts to reduce deforestation in Indonesia. This partnership received considerable political attention, with the President travelling to Oslo to sign the agreement in May 2010. As part of the deal, the Indonesian government recently issued a decree for a moratorium on new concessions for conversion of natural forests. To what extent this will slow deforestation remains to be seen.

Other donors, including Australia, have pilot projects for forest and peat land protection, and plans to trial financial incentive systems. Meanwhile, the UN climate change negotiations have made progress in defining global mechanisms for reducing emissions from deforestation and forest degradation (REDD in the jargon). But large scale action is still missing on the ground.

Taming the fossil fuel tiger

Burning coal, oil and gas is what will dominate Indonesia’s emissions profile in the long run. Indonesia’s energy use is on a relentless growth path, normal for a developing country. As the country becomes richer, people will be able to afford to use more electricity in the home and to travel, and businesses that use energy – from cement plants to shopping malls – will thrive.

Most of the extra energy is supplied from fossil fuels, causing carbon dioxide emissions. Indonesia has large supplies of low-cost coal, and so it is little wonder that coal use for power production has shot up. Total coal use more than doubled between 2003 and 2008, and emissions from coal are poised to overtake emissions from petrol and diesel (which are also growing fast) within the next few years.

There are alternatives. Gas could replace coal, cutting in half the emissions from each kilowatt-hour of electricity produced. But gas can be very profitably exported to East Asian markets. The most attractive option is geothermal power. Indonesia is one of the best places in the world to generate power from the earth’s heat, with many of the best sites on the ring of fire in Java and Sumatra, close to where the power demand is. Recognising this, the government has an ambitious target for geothermal power expansion, scaling up from 1.2 gigawatts capacity in 2010 to six gigawatts by 2020. For comparison Indonesia’s annual total increase in power supply capacity was on average just over one gigawatt per year over recent years.

But meeting the target in practice, as so often, is a different matter. Building a coal plant typically is cheaper, especially with a host of hidden government subsidies. And institutional tangles make it unusually difficult to get geothermal plants built.

What needs to happen is power sector reform that puts geothermal power on a level playing field, and that pays a premium for avoided emissions to geothermal plants, hydropower, and other renewable sources. This is not just a medium term consideration for meeting the 2020 emissions target. Rather it will set the direction for Indonesia’s emissions profile for decades to come.

Finally, there is plenty of scope to improve energy efficiency, in business, homes and on the road. A big economic benefit could be had from getting rid of the remaining subsidies for electricity and petrol. Programs to raise awareness of energy use, and set efficiency standards, could do more still.

Exporting emissions reductions?

President Yudhoyono stated that emissions could be cut by up to 41 per cent ‘with international support’. That means money. It is widely accepted that developing countries cannot be expected to pay the full costs of reducing their emissions, seeing that they are contributing to a global public good. Meanwhile, developed countries are not only more able to pay, but they also shoulder much greater historical responsibility for the climate change problem.

In principle, it would be quite possible for Indonesia to make greenhouse gas emissions reductions an export commodity: Indonesia could reduce emissions by more than the 26 per cent target and offer the extra reductions for sale to developed countries who would count it towards their own targets. Such climate change investment inflows to Indonesia could be much larger than current project based finance and grants and loans from donors. Demand from developed countries, including Australia, could be sizeable when the time comes to comply with their own emissions targets.

Indonesia’s Copenhagen target can provide the framework. But hard yards are ahead for Jakarta to make the target credible and operational – and most importantly, to implement policies that will make a difference in practice.

Frank Jotzo (frank.jotzo@anu.edu.au) is Director of the Centre for Climate Economics and Policy at the Australian National University’s Crawford School. He advised Indonesia’s Ministry of Finance on climate change policy.

Inside Indonesia 105: Jul-Sep 2011