Unlocking Urban Climate Finance: Key insights from Indonesia

Credit: ESCAP Photo/Nur Hamidah

By Nur Hamidah, Rebecca Purba and Anna Amalia
BANGKOK, Thailand, Oct 24 2024 (IPS)

Over half of Asia-Pacific’s population now live in cities. While urbanization brings people closer to opportunities and better services, many urban dwellers are also experiencing the adverse impacts of climate change such as floods, urban heat and infectious diseases. Urban activities are among the major contributors to greenhouse gas (GHG) emissions.

Consequently, building adequate capacities to adapt and promoting low-carbon and climate-resilient urban development are strategic priorities to reduce the region’s GHG emissions and safeguard its people. ESCAP, through the Urban-Act project, is supporting cities in Asia to identify important local actions to increase resilience and transition to climate-sensitive urban development.

Moving from business-as-usual to climate-sensitive development requires substantial investment and good enabling conditions. To meet Indonesia’s climate target, for example, the country needs ~USD 285 billion in total financing for 2018-2030 – a significant amount for a country facing a myriad of urbanization challenges.

In 2024, ESCAP and the Cities Climate Finance Leadership Alliance (CCFLA), assisted countries including Indonesia, to assess their national enabling conditions for urban climate finance.

The assessment evaluates four dimensions of the enabling conditions: climate policy, budget and finance, climate data, and vertical and horizontal coordination. In Indonesia, assessing national enabling conditions for subnational climate action in the urban context is part of an integrated approach to scale up climate action.

First, from the policy perspective, climate change is an important aspect of Indonesia’s national development. Climate-related targets gain prominence in the latest national medium-term development plan and will become even more so in the upcoming long-term development plan.

At the subnational level, however, the capacity to mainstream climate action varied. Lack of awareness, competing priorities and limited funding are among the main challenges that create significant gaps between budget allocation and achieving climate targets.

Second, despite the fiscal decentralization policy that allows subnational governments to manage their revenue and expenditures, reliance on central government transfers remains a common practice. In general, subnational governments face difficulties in generating revenue.

This reality exacerbates the challenge of allocating sufficient funding to build cities’ adaptive capacity and mitigate GHG emissions. Public-private partnership as a potential source of infrastructure financing has not made a significant contribution to subnational finance. Debt is not prevalent among subnational governments. Municipal bonds, introduced nearly twenty years ago, have not seen successful issuance by any subnational government.

A recent regulation on carbon pricing allows subnational governments to generate revenue from carbon trading, but effective implementation requires technical guidance and capacity building – a similar issue with thematic global climate funds.

Officials from cities participating in an Urban-Act workshop expressed that their cities received limited information about the mechanisms and had limited technical capacity to access the funds.

Third, Indonesia has developed several information systems facilitating subnational climate analysis and/or progress reporting, including AKSARA and National Registry System which record mitigation and adaptation activities, SIGN SMART records GHG emissions inventory at the provincial level, and SIDIK which allows analysis of adaptive capacity disaggregated at the village level.

Subject to data availability and quality, the analysis produced by these platforms could aid subnational governments in their development planning and efforts to access financing.

Finally, on vertical and horizontal coordination, Indonesia’s development planning forum, Musrembang, which fosters inclusive and participatory community discussions mandates for development aspirations to be discussed at all levels of government. However, the extent of climate discussions within these forums varies.

To improve conditions for Indonesian cities to access climate finance, there is a need for enhanced technical support to align subnational development planning and budgeting with national climate targets.

This includes strengthening institutional capacity to internalize climate adaptation and mitigation strategies into development programmes/activities, starting from understanding cities’ vulnerability to climate change and the major contributing sectors of GHG emissions all the way to monitoring and evaluation.

Such improvements would enable subnational governments to set measurable targets, prioritize actions, mobilize funding, and follow a clear and trackable roadmap. Policy to enable subnational governments to generate revenue from activities contributing to GHG emissions to finance climate action could be explored further. Incentives provision can also encourage private and subnational governments to move in this direction.

Climate data reporting platforms can be utilized and optimized better by encouraging more participation of subnational governments and relevant stakeholders – which should be accompanied by building technical capacity in data management to improve quality and evidence-based planning.

As climate change is a multistakeholder and multijurisdictional issue, national and subnational governments must facilitate cross-jurisdictional and collaborative urban climate actions to effectively tackle its potential impacts.

Climate action cannot be delayed any longer as the cost of inaction is far outweighing the cost of action. Assessing the enabling conditions at the national level is a crucial first step in understanding the challenges and opportunities of mobilizing urban climate finance. Member States can start by utilizing the tool to foster local climate actions.

Nur Hamidah is Urban Climate Change Specialist, ESCAP; Rebecca Purba is Associate Economic Affairs Officer, Environment and Development Division; Anna Amalia Senior Planner, Ministry of Development Planning of the Republic of Indonesia.

Source: ESCAP

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