Although the government fully recognized the huge economic potential presented by environmental services, including in carbon trading and forest carbon schemes, it was still lagging behind in providing the right budgetary framework as well as preparing the incentives to promote the growth of business in those fields, experts said.
Talking in a webinar organized by the Madani Berkelanjutan Foundation on the economic value of Carbon on Wednesday (12/8), Joko Tri Haryanto, a researcher with the Fiscal Policy Agency (BKF) admitted that the government, especially the financial ministry was still lagging behind when dealing with environmental economic values, including in carbon financing, and other environmentally-related economic values, such as the payment of environmental services (PES) or even values from waste processing..
“Because this is something new for our friends at the tax office,” argued Haryanto, explaining that the tax office was still unfamiliar environmental terminology and language and in how to deal with the economic potentials of the environment. Besides unfamiliarity, the Indonesian state financial system especially when it concerned state and regional budgets, do not yet recognize nomenclatures for environmental services.
Indonesia which has committed itself to reduce its glass house gas emission by 29 percent by 2030 or by 41 percent if it received the support of international cooperation, is currently working on a draft presidential regulation on a Carbon Pricing Instrument which would provide the legal foundation for Indonesia’s efforts to meet its Nationally Determined Contributions (NDC) and support a low carbon development.
A draft version of the presidential regulation prepared by the Ministry of the Environment and Forestry Affairs saw carbon as a constitutional right and therefore “Carbon rights and the economic value of carbon must be under the control and be protected and managed by the state and be regulated by the Government of Indonesia.”
But Haryanto admitted that problems were still there, including in terms of nomenclatures and how to incorporate revenues from environmental services into the regional budgets.
Haryanto said that when speaking of environmental services provided by local governments, they would earn a management fund, and the problem would arise as to where and how to register this fund in the budget under the current system.
He said that environmental services received by regional administrations could be registered under “Other Legal Original Local Government Revenues.”
“The problem is when registering incomes or revenues from environmental services, the existing conditions of this Other Legal Original Local Government Revenue budget part does not yet recognize nomenclatures for environmental services,” Haryanto said
He said that the BKF was currently actively coordinating with the Home Affairs Ministry which is the government body that has the authority to actually add new nomenclatures. “Those who can open the lock on nomenclatures are our friends at the home affairs ministry,” he said.
Dharsono Hartono the CEO of PT Rimba Makmur Utama (RMU) which has been dealing with carbon finance in Indonesia since 2013, also spoke of the need for the government to encourage businesses in this field, including by providing incentives.
PT RMU manages the Katingan Mentaya Project in Central Kalimantan where it provides verified glass house gas emission reductions through avoided deforestation and forest degradation associated with agricultural conversion, illegal logging, peat drainage and burning.
Hartono said that so far, his company had managed to operate independently without receiving any incentive from the government but that if the government wanted to develop the carbon finance business sector it needed to make it sustainable and encourage it with the provision of incentives, such as tax relief.
“The problem is that this is a new business, and our friends at the directorate general of tax actually do not yet understand it.,” Hartono said, adding that the office was not yet sure whether to classify carbon finance as a commodity or a service.
He aired hope that the government would see the real potential of carbon finance and other environmental services.
“In reality, a tax incentive should be granted for companies that really operate in this sector,” Hartono said, leaving the matter to the tax office.
However, Haryanto said that it was here that the tax office was lagging behind and he pledged to facilitate discussion between the tax office and the private sector on the matter.
He also said that the government had yet to appoint the institutions that would administer, coordinate and manage fund in carbon finance and other environmental services.
But he said that one existing potential candidate was the Environmental Fund Management Agency (BPDLH) which the government established in October last year and BPDPLH was established to manage funds related to the environment and It has just begun to become effective on June 1, 2020.
Haryanto said that BPDLH was a good option as it was so far, the only government institution officially dealing with environmental funds.