The impact of UK overseas aid on environmental protection and climate change adaptation and mitigation

Written evidence submitted by DfID office Indonesia

1. Please outline the specific developmental challenges Indonesia faces (both environmental and non-environmental) and DFID’s country office approach and priorities.

A: Indonesia: Key Facts

· Population: 240 million

· GNI per capita: $3830

· People living on less than $1 per day: 13 million

· People living on less than $2 per day: 105 million

· Life expectancy: 68.6 years

· Net enrolment in primary education : 85%

· People living with HIV and AIDS: 293,000

· Children dying before the age of five: 1 in 22

· Mother dying in childbirth: 1 in 438 births

B: The context and development challenges in Indonesia

In the last 10 years Indonesia has moved swiftly from an autocratic regime to an open, vibrant and decentralised democracy , with over 530 local governments . It is a member of the G20 and increasingly aims to spread its influence beyond its pivotal role in ASEAN.

Indonesia is the sixth largest country in the world. It has huge oil, gas and coal resources, the world’s third largest area of tropical forest, 12% of the world's mammals, 16% of the world's reptiles and amphibians, 25% of the world’s fish and it is the richest country in the world in terms of biological wealth.

Indonesia is one of the most disaster-prone countries in the world, in terms of incident and loss of life only behind Bangladesh. Its topography and geographical position mean that it experiences daily earthquakes and volcanic eruptions with dangerous impacts on densely-populated areas.

Indonesia survived the economic crisis inc redibly well, averaging over 5 % growth throughout , with predictions for 6.5% growth in 2010/11. The economy is driven by the export of primary commodities and domestic consumption. Main constraints on growth are a continuing lack of quality infrastructure, the high cost of capital and a poor business climate, precluding direct investment in real sectors: the 2009 Doing Business Report of the World Bank ranks Indonesia 122nd of the 183 countries. The President confirmed in his 2011 New Year’s Day speech that equity remains the basic principle in the government’s long-term economic policy.

Governance and market failures mean the economy under-performs on poverty reduction and investment in well-being for the poor. Although Indonesia has made progress against MDGs, 33 million people or 14% of all Indonesians, live below the national poverty line of $1.55 per day whilst 105 million people live on less than $2 a day . Indonesia is the sixth largest contributor to maternal deaths worldwide and 20,000 women die as a result of childbirth each year in Indonesia. The maternal mortality rate is three times that of Vietnam and six times that of China. Over a quarter of all children under 5 in Indonesia are undernourished. Less than 1% of Indonesians have access to piped sewerage services. Only one in two households has access to clean water. Only 63% of all households have access to sanitation

As the world’s 3rd largest CO2 emitter and 2nd largest contributor to deforestation, Indonesia presents both a global problem and a global opportunity. Emissions are predicted to rise above 3,500 million tonnes of CO2e by 2020, at least 2/3 originating from forests and peat lands. Genuine saving rates - the amount of national revenue gained from natural resource extraction reinvested in human development - have dropped from 12% to less than 3%, suggesting the current pattern of growth is unsustainable [1] . Economic consequences of climate change could amount to annual losses between 2.5 and 7.0% GDP by 2100.

Indonesia's GHG emission mix is driven by a complex set of economic and governance factors and is characterised by the fact that its 75% is from land use, land-use change and forestry. In relative terms, the energy sector is the fastest growing emitter. Energy capacity is expected to grow 5-fold by 2025 and resulting emissions are expected to grow 7-fold due to an increase of coal in the national energy mix under business-as-usual (BAU). National policies on energy aim for a 17% share of renewables in the national energy mix by 2025. The Government of Indonesia, in particular the Office of the President, is well aware of the above issues and made a strong political commitment to combating climate change: a 26% reduction of GHG emission through national action or a 41% reduction with international assistance against business as usual by 2020.

Indonesia has the opportunity to craft an increasingly green economy, that protects and invests in biodiversity and that delivers sustainable and equitable growth for its citizens.

C: Country Office Approach and Priorities

DFID is in the final few months of its country strategy for 2008-2011. The attached country plan sets outs the three main priorities for DFID Indonesia: the development of stronger and more accountable institutions; greater progress against off-track MDGs, in particular maternal health; and progress on climate change in Indonesia.

In December 2009 DFID exchanged letters with the Government of Indonesia agreeing to a five year programme focusing on climate change over 2010-2015, with a budget of £50 million. This commitment and the future direction for DFID Indonesia have been part of DFID’s Bilateral Aid Review. The intention is that from 2011 onwards DFID focuses exclusively on issues of climate change in Indonesia, and delivers this by forming a joint UK Climate Change Unit with other government departments located in the British Embassy and withdraws from development work in other areas. Conclusions of the Review have not yet been announced by the Secretary of State.

D: DFID Results in Indonesia

· DFID provided £38 million over 5 years for post-tsunami reconstruction of Aceh and Nias, helping to make possible the rapid rebuilding of 140,000 new and rehabilitated houses, 3,500 km roads, 100 health facilities and 1,488 schools.

· A DFID grant to a UK-based NGO and its Indonesian counterpart helped them train local NGOs to record illegal logging and log smuggling from Papua to China, enabling them to report this to law enforcers who acted to bring this to an end.

· In 24 districts, DFID support helped train 5,500 midwives to provide emergency care to mothers and babies immediately after birth.

· Innovative analytical work funded by DFID on decentralised service delivery led the Government to introduce its flagship $1.5 billion annual national community empowerment and social protection programme – the world’s largest.

· DFID support for the Extractive Industries Transparency Initiative has led to the drafting of a Presidential Regulation which will mean that large oil, gas and mining firms will report the revenues they pay to the government, the government will publicise the revenues received from those firms, and both sets of information will be independently verified.

· DFID support to local government has led to 14 districts, covering five million people, adopting poverty reduction strategies integrated into the district development plans.

· A DFID-funded study on Indonesian peat lands has shown that significant reductions in carbon emissions can be made through: prevention of uncontrolled fires on peat land; conservation of natural forest; better management of plantations on peat; and revisions of local land use plans.

2. Has DFID Indonesia undergone the Strategic Climate Programme Review yet? If so, what were the outcomes? If not, when is your Strategic Programme Review scheduled?

Due to the intention to focus exclusively on climate change from 2011 onwards it was judged that a Strategic Climate Programme Review was unnecessary.

3. How does DFID Indonesia manage the tensions between development and environmental protection?

DFID Indonesia has never treated development and environmental protection as being automatically in tension. Our current focus is to help build the economic and political cases for sustainable growth: that is growth that treats Indonesia’s vast environmental wealth as a long-term asset rather than the short-termism that dominates economic and political thinking currently. Our current work includes economic analysis on how best to protect Indonesia’s peatlands, technical assistance to develop green investment funding mechanisms with the Ministry of Finance and analysis of the political economy of natural resource management at local and central levels with a view to influencing it to a more sustainable footing. At provincial level DFID-funded technical assistance is helping the Governor of Papua to develop a plan that seeks to save 5.1 million ha of forest currently legally designated for conversion to other use, and avoid up to 1 gigatonne of carbon emissions at the same time it focuses on increasing returns to local small-holders and reducing the high levels of poverty in Papua. The long-running Indonesia Multi-Stakeholder Forestry Programme from 2001 onwards has focused on supporting local stakeholders to both protect their environment through community management of local resources and sustainable forest management and to increase their well-being and incomes. It has also had an impact on illegal logging itself part of the environmental damage being done in Indonesia. See http://www.mfp.or.id/. We have also sought to include environmental work in broader development programmes so for example the Decentralisation Support Facility that we have established and funded to deliver better services and improve the quality of Indonesia’s governance has included work to build local government capacity on sustainable management of their natural resources and on spatial planning. Similarly within our support to Indonesia’s National Community Empowerment Scheme we specifically earmarked £1 million of funding for green projects on waste and energy production at community levels. Where we have seen tensions, such as the allegations in 2009 that the post-tsunami rehabilitation programme in Aceh had led to high rates of deforestation we have ensured that our implementing partners, in this case the World Bank, have investigated these thoroughly and taken action to address greater sustainability in their programming. It is worth noting that also under the MDF programme projects for forestry conservation have been approved. For existing projects, environmental issues have been addressed as necessary through Environmental Screening Note.

4. What is DFID’s environmental impact in Indonesia? How do you ensure DFID Indonesia does not have a detrimental environmental impact?

It is impossible to say exactly what DFID Indonesia’s environmental impact is. We aim to have a positive impact by producing analysis and action that helps conserve environmental resources, particularly those related to land use and forestry whilst achieving poverty reduction but this is un-quantifiable. At an overall strategy level we consider environmental protection as an important part of impact analysis. At project and programme level environmental screening notes provide a ‘first line’ of analysis on environmental impact. DFID Indonesia has just recruited its first Sustainable Development Adviser from the Environment cadre who will offer advice on environmental impact. We also work closely with Indonesian and international organisations to help inform us on potential environmental risks, including WWF. At office level we monitor air miles and utility bills with a view to year-on-year reductions.

5. Please provide details of the major projects funded by multilateral donors in Indonesia

Please see attached Excel sheet, drawn from the Government of Indonesia’s own reporting systems.

6. Please could you provide details on the projects listed below:

1. Indonesia Tsunami: Multi Donor Trust Fund for Aceh and Mias (107149)

2. Support for the Indonesia climate change trust fund (201672)

3. CCAP mobilising actions in Indonesia (220494)

4. EITI Senior Advisor to Indonesia (201052)

5. Support to climate change programme in Indonesia (114437)

6.1 Indonesia Tsunami: Multi Donor Trust Fund for Aceh and Nias (107149)

The project’s rationale and objectives

The areas of Aceh and Nias were hit by a tsunami in December 2004. DFID has been a major contributor to the reconstruction of Aceh and Nias: DFID Ministers allocated £55 million for emergency assistance to Indonesia in the immediate aftermath of the tsunami, which was managed by CHASE and then allocated a further £59 million for longer term reconstruction. The great majority of this, i.e. £38.5 million, is channelled through the Multi Donor Fund for Aceh and Nias (MDF), where UK is the third largest contributor. The contribution to MDF was managed by DFID Indonesia staffs and closed under DFID system in January 2010.

Project goal

The reconstruction of Aceh and Nias results in improved economic and social welfare of the entire population.

Project’s purposes

To respond effectively and efficiently to the immediate and longer-term needs of the population in Aceh and Nias affected by the tsunami and earthquakes that have been identified through the GoI Agency for Reconstruction and Rehabilitation of Aceh and Nias (BRR), local governments and the population

The project’s environmental impact

All infrastructure-related projects in the MDF conduct appropriate impact assessments and meet adequate environmental standards (as determined at design stage) after completion. One of the project outputs of the MDF is "To contribute to sustained environment in the recovery process". The impact weighting of this output was 15%. This output scored 2 - ‘Likely to be largely achieved’ - in DFID’s Project Completion Report. The output covers indicators on solid waste management, forest conservation and management (one is example: Percentage of natural forest cover in existing designated conservation and protection forests in the target area retained at end of project). In 2009 there was criticism about the tsunami response causing deforestation. This criticism was levelled at the National Agency for Reconstruction, the BRR. DFID along with other partners contributing to the MDF raised this issue at the MDF Steering Committee and asked for further analysis and a response from the MDF. This analysis showed that MDF projects filled the critical need to protect the environment from the impacts of the US$7 billion reconstruction program.

Whether these environmental impacts were deliberate or unplanned:

Deliberate as part of the project

A breakdown of the project’s funding

Total DFID’s contribution to MDF was £38,511,571, which is around 10% of total MDF budget. The fund has been used for projects under MDF, including AFEP (Aceh Forest and Environment Project), IREP ( Infrastructure Reconstruction Enabling Program), IRFF (Infrastructure Reconstruction Financing Facility), RALAS ( land titling project), REKOMPAK (housing project)

Any requirements placed upon / standards required of the government of Indonesia or other aid recipient agencies:

There was no conditionality attached to this project.

Who is implementing the project: Multi Donor Trust Fund (MDF) managed by the World Bank

Environmental screening note: QUEST Doc. No. 807226

6.2 Support for the Indonesia climate change trust fund (201672)

The project’s rationale and objectives

In September 2009 the Ministers of Finance and Development Planning launched the Indonesia Climate Change Trust Fund (ICCTF), nominating UNDP as an interim trustee until a national institution is ready to take on this role in 2011. DFID has worked with other donors to establish a common set of objectives for the way the Fund will operate i.e. it should:

· be a strategic tool to reduce emissions and build resilience;

· support priority actions agreed across government within a coherent framework;

· focus on catalytic, transformational, demonstration or analytic products;

· have convening power and provide development partners with an opportunity for high-level policy dialogue and influence on climate change (unavailable through bilateral programmes alone);

· have a strong results framework that can demonstrate impact. It must include local government and civil society;

· have an effective and transparent governance mechanism;

· have strong political backing from senior ministers in government.

Project goal: Indonesia achieves low carbon, equitable and climate resilient development

Project purpose: To ensure the GoI can provide more effective leadership and management of climate change programming to deliver emissions reduction and poverty reduction outcomes

The project’s environmental impact: being a project related with climate change, its proper and effective implementation will make it able to achieve the project’s goal and purpose, which will create positive impact to environment.

Whether these environmental impacts were deliberate or unplanned: part of the project

Project funding: DFID has contributed £4.7 million, pooled with the AusAid’s AUD 2 million and the Swedish Embassy’s SEK 2 million. ICCTF has approved a programme on peat land management for reduced emissions by Ministry of Agriculture, an energy efficiency programme by Ministry of Industry and public awareness raising programme by Meteorological and Climatology Agency.

Any requirements placed upon / standards required of the government of Indonesia or other aid recipient agencies: There was no conditionality attached to this project.

Who is implementing the projects: UNDP (interim fund manager)

Environmental screening note: QUEST Doc. No. 2554674

6.3 CCAP mobilising actions in Indonesia (200494)

The project’s rationale and objectives: Indonesia is the fourth most populous country in the world and possesses an ecologically diverse and fragile ecosystem, including about 10 percent of the world’s remaining tropical rainforests.  Indonesia is among the top three GHG emitters in the world, in large part due to land-use change and deforestation (LUCF).  While GHG emissions in other sectors in Indonesia are much lower than the LUCF emissions, their contribution is significant and increasing. The country’s GHG emissions from non-LUCF sources in 2000 were 500 Mt CO2e, equal to one-fourth of India’s total, with about 60 percent from fossil-fuel combustion CO2. The electricity sector is very important in terms of climate change strategies in Indonesia. With more than 80 percent of Indonesia’s electric power capacity being fossil-fuel fired (and two-fifths of its annual generation from coal) and a large renewable energy potential, there is significant promise for achieving emissions reductions in this sector. In cement and other minerals, process CO2 emissions in Indonesia totaled 11 Mt in 1994. Other important sectors in Indonesia are iron and steel, pulp and paper, and transportation.  With a population over 200 million, rising per capita incomes and rapidly expanding consumption of fossil fuels, Indonesia’s importance in global efforts to combat climate change will continue to increase in the coming years. 

The objective of this study is to explore the possibilities of developing and applying a sectoral approach for GHG mitigation in key industries in Indonesia, to encourage climate actions in this country, and to facilitate their participation in potential international climate change frameworks under consideration. The project will also aim to propose appropriate types of sectoral actions and approaches under two defined timeframes: i) Present to 2012, and ii) Post-2012 at the national and international levels.  This approach, based on reducing emissions in one or more individual strategic sectors, offer a promising way forward for Indonesia. 

The project’s environmental impact: being a project related with climate change, its proper and effective implementation will make it able to achieve the project’s goal and purpose, which will create positive impact to environment.

Whether these environmental impacts were deliberate or unplanned: planned

A breakdown of the project’s funding: Accountable Grant, £450,000

Any requirements placed upon / standards required of the government of Indonesia or other aid recipient agencies: Nil. There is no conditionality attached to this project.

Who is implementing the projects: Center for Clean Air Policy (CCAP)

Environmental screening note: ESN is not required for project up to £1 million

6.3 EITI Senior Advisor to Indonesia (201052)

The project’s rationale and objectives: EITI provides an outstanding opportunity for Indonesia to raise the standard of reporting and transparency of its extractive industries to international levels, in an effort to strengthen governance and the investment climate. In 2006 the IMF mission recommended that the adoption of EITI would help Indonesia tackle the lack of transparency and risk around extractive industry revenues. The purpose of this project is to support initial stages of implementation of the Extractive Industries Transparency Initiative (EITI) in Indonesia . The project has been successful in that Indonesia has now met the criteria to become an EITI Candidate country. In October 2010, Joseph Stiglitz a Nobel laureate in economics said, " Indonesia is to be congratulated on joining the EITI . It has special significance given the importance of natural resources in Indonesia 's economy and the example Indonesia will set for other countries in their struggle to ensure that the fruits of their natural resources are enjoyed by all citizens".

The project’s environmental impact: Extractive industries in Indonesia clearly have massive environmental impact, more responsible companies seek to limit and/or mitigate against those impacts, and less responsible companies do not. If EITI is fully successful Indonesians will be able to track the revenues paid by companies to government alongside the revenues received by government from those extractive industries. This will reduce the amount of corruption in the industry and it will also make fully clear for the first time the revenues that Indonesia is receiving in return for both the resources and the environmental impact of the extraction of those resources. NGOs have been strongly supportive of EITI because they believe that knowing the scale of resources paid and received enables them to be more successful in arguing for those resources to be re-invested in environmental protection. It is also the case that generally the least responsible and therefore most environmentally damaging companies are also those where corruption is most present. By making revenues more transparent some of those companies may be forced to leave the sector.

Whether these environmental impacts were deliberate or unplanned: Deliberate

A breakdown of the project’s funding: Total of DFID funds is £700,000 for the period of 2006 – 2010.

Any requirements placed upon / standards required of the government of Indonesia or other aid recipient agencies: Nil. There is no conditionality attached to this project.

Who is implementing the project: An EITI consultant/Adviser was appointed and funded by DFID to implement this project in close collaboration with the World Bank which hosted him in the Indonesia Resident Mission.

The environmental screening notes: Nil. Since this project budget is below £1m an environmental screening note is not required.

6.4 Support to climate change programme in Indonesia (114437)

The project’s rationale and objectives: In December 2008 DFID signed a Letter of Agreement (LoA) with the Government of Indonesia to support poverty reduction through national responses to climate change. DFID committed up to £10 million until 2011, and around £1.2 million has been allocated to Project No. 114437, which includes:

· the provision of in-house expertise (a DFID adviser seconded to the Government Investment Centre and to the Fiscal Policy Unit in the Ministry of Finance. He focuses on "green" investments through Indonesia’s sovereign wealth fund while seeking to generate evidence-based advice on fiscal policy)

· specialist consultancy inputs to: BAPPENAS to help define approaches to mitigate emissions from peat lands; Min. of Finance on legal analysis of the finance for climate change; and the National Climate Change Council (DNPI) to develop their capacity to plan for adaptation to climate change

· consultancy on Indonesia Low Carbon Planning

· study on LULUCF

Project’s goal: Improve Indonesia's investment and policy framework for climate change adaptation and mitigation

Project’s purpose: BAPPENAS/DFID committee receive high quality technical support to achieve project goal

The project’s environmental impact: being a project related with climate change, its proper and effective implementation will make it able to achieve the project’s goal and purpose, which will create positive impact to environment.

Whether these environmental impacts were deliberate or unplanned: part of the project

Breakdown of the project’s funding

Any requirements placed upon / standards required of the government of Indonesia or other aid recipient agencies: Nil. There is no conditionality attached to this project.

Who is implementing the project: British Council, The Asia Foundation, consultants

The environmental screening note: QUEST Doc. No. 1922179

31 January 2011