Can Green Program Donors Ignore All They Have Learned?

Alan Oxley, Jakarta Post

There is a tussle among government agencies in Jakarta over how Indonesia’s move to a climate-friendly, low carbon economy is to be achieved.

Environmentalists will tell you the best plan will be the one that greens Indonesia.

Farmers, miners, oil palm workers and businesspeople will tell you it will be the plan that keeps Indonesia growing.

It appears the government is considering a strategy which is likely to put reduction of emissions ahead of economic growth.

This would be the consequence of the plan to restructure the economy of Central Kalimantan to a low carbon model.

It was released by the government’s climate change office (DNPI) last year and is meant to be a pilot for reducing emissions from other provinces.

The Central Kalimantan economy has been doing quite well, with growth closely tracking the national economy.

It has the sixth-lowest poverty rate of the 33 provinces. So will the low carbon plan increase economic growth in Central Kalimantan?

It would be a brave person who says so. One of the leading growth industries in the province is palm oil. The plan freezes further growth of that industry.

One of the aims is to reduce greenhouse gas emissions from activity in Central Kalimantan. The biggest generator of emissions is said to be clearance of forest. That will cease: Any expansion of palm oil will have to await land reform. Then palm oil will only expand if suitable degraded land is made available.

The government’s own analysis concludes that, in the short term at least, the economy will slump

unless there is a major injection of finance.

That is what aid donors have promised. That will not work. Foreign aid or government money never replaces the economic benefits of private enterprise.

The amount of growth lost is likely to be much greater than that forecast in the Plan. Palm oil prices, already at near record highs, are forecast to go through the roof.

World food prices have surged again recently — one of the drivers being a 22 percent hike in soy bean prices.

Demand for palm oil will remain strong because food production has to expand to meet the world’s rapidly growing population. These benefits will be lost to the people of Central Kalimantan.

When these plans to move to low carbon economies were hatched, the expectation was that money would flow to developing countries that halted deforestation because they would have large quantities of forest carbon credits to sell into global markets.

No such market is in prospect. It is clear from the UN climate change negotiations that it will not be part of any final deal. The US, China and India will not support it.

Foreign donors, the World Bank included, have instead promised to stump up over US$1 billion if the Indonesian government sticks with the plan to convert Indonesia into a low carbon economy. Thirty million is the initial contribution to get the program underway.

To generate new economic activity in Central Kalimantan, three new industries are proposed. First is tourism. The plan is that tourism will generate for Central Kalimantan the same contribution to the provincial economy as tourism in Bali within the next 20 years. That is incredulous. Bali is an internationally renowned destination that has built its international standing and tourism infrastructure over many decades.

The other two are to foster farming of tropical fruit and prawns.

It is assumed the average annual rate of output from those industries in Central Kalimantan can equal the average for Southeast Asia.

That is very unlikely in the short term. Especially since government corporations, funded by foreign aid donor money, are to be established to implement these plans.

The end of the Soeharto era demonstrated that it is private enterprise operating in a competitive environment which produces robust growth, not government or donor sponsored corporations.

The Central Kalimantan Plan looks like a tropical version of an old fashioned Soviet five or 10-year plan. With the hundred years of accrued experience in trying to promote economic growth, it appears the donors who are funding this Plan are ignoring all they have learnt.

The major donor, Norway, does not even feature economic growth in its aid program for Indonesia — its priorities are those of Norway’s NGOs — environment and climate change, gender, governance and transparency and a tiny private sector program. It does not even mirror the UN’s Millennium Development Goals. Yet it is offering up to $1 billion if Indonesia follows its priorities.

The amazing thing about this is that the assumptions used to calculate deforestation emissions from Indonesia — on which the Central Kalimantan Plan is based — are wrong.

At the UN climate change meeting in Mexico last December, new research commissioned by the Norwegian Government and the World Bank was made available.

It indicated that deforestation was responsible for between 5 and 12 percent of the world’s greenhouse gas emissions at best — not the 17 to 20 percent assumed by the Central Kalimantan Plan — and was likely to be between 2 and 7 percent even lower.

It appears the government is considering a strategy which is likely to put reduction of emissions ahead of economic growth.

The writer is chairman of World Growth, based in Washington.

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