1

C LIMATE CHANGE FI NANCI NG

FOR CITIES I N I N D ONESIA

Case study : Kupang City

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CONTRIBUTOR

Author:HENRIETTE IMELDA

Editor:FABBY TUMIWA

Design and Illustrator:MARTIN DIMA

This document is an output from a project commissioned through the Climate and Development Knowledge Network (CDKN). CDKN is a programme funded by the UK Department for International Development (DFID) and the Nether-lands Directorate-General for International Cooperation (DGIS) for the benefit of developing countries. The views expressed and information contained in it are not necessarily those of or endorsed by DFID, DGIS or the entities managing the delivery of the Climate and Development Knowledge Network, which can accept no responsibility or liability for such views, completeness or accuracy of the information or for any reliance placed on them.

The Climate and Development Knowledge Network (“CDKN”) is a project funded by the UK Department for International Development and the Nether-lands Directorate-General for International Cooperation (DGIS) and is led and administered by PricewaterhouseCoopers LLP. Management of the delivery of CDKN is undertaken by PricewaterhouseCoopers LLP, and an alliance of organisations including Fundación Futuro Latinoamericano, LEAD Pakistan, the Overseas Development Institute, and SouthSouthNorth.

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C LIMATE CHANGE FI NANCI NG

FOR CITIES I N I N D ONESIA

Case Study: City of Kupang

KUPANG

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Cities attract people with its ad-vanced public facilities, such as schools, health facilities, high-er education institutions, and economic opportunities, which leads to urbanization. ASEAN cities have become thriving met-ropolitan cities with combined population of more than 630 million people in 2015, and will continue to grow to 660 million people by 2020, and 720 mil-lion by 20301.

CITIESANDCLIMATE CHANGE

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Due to the urbanization, cities will then need to cope with the challenge of rapid population growth by meet-ing the basic needs of their inhabit-ants. Aside from providing their basic needs, cities need to also ensure that available public services are suffi-cient and of good quality, but at the same time, cities need to manage the existing space for different needs. Urbanization and climate change are connected to one and another. Ur-banization leads to increasing energy demand, which means that along with it, the role of cities will be more significant in terms of greenhouse

gases emissions. At the same time, climate change also poses a threat to urban infrastructure, such as roads, bridges, utilities, and other related. Other hazards, such as sea level rise and extreme weather events, have in-creased the risks for climate-related disasters that threaten the daily lives of city dwellers, such as flooding and droughts. IESR and Perkumpulan Pikul, in collaboration with Germanwatch, con-ducted an assessment on potential climate change financing at the city level, and taken Kupang City, East Nusa Tenggara, as a case study.

1 Population growth and rural exodus in Southeast Asia, diambil dari http://aseanup.com/inforgraphic-top-cities-urbanization-asean2 Largest and fastest growing cities in ASEAN, diambil dari http://aseanup.com/infographic-top-cities-urbanization-asean

C I T Y C O U N T R YP O P U L AT I O N I N M I L L I O N S

( 2 0 1 5 )

Manila

Jakarta

Bangkok

Ho Chi Minh City

Kuala Lumpur

Singapore

Yangon

Philippines

Indonesia

Thailand

Vietnam

Malaysia

Singapore

Myanmar

12.9

10.3

9.3

7.3

6.8

5.6

4.8

Source: ASEAN up2

Tabel 1: Populations in ASEAN Cities

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High winds Damages to coastal structures and infrastructure

C L I M AT E C H A N G E D I S A S T E R S B I O - P H Y S I C A L E F F E C T S

Sea level rise Coastal flooding

C L I M AT E D I S A S T E R S – P R I M A R Y A N D S E C O N D A R Y I M PA C T S

Irregular rainfall/droughts

• Wellsandseptictanks are sinking

• Waterpoolingwithout drainage

• Contaminatedwater

• Vegetationdamage

CLIMATE CHANGE IN KUPANG CITY: IMPACTS AND SOLUTIONS

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•Coastalecosystemsare damaged, such as mangroves

•Abrasionandlossofcoastal soil

•Damagestophysicalfacilities and coastal property

•Poverty

•Economicinterruptioninsettlements, harbors, and tourism•Disruptiontoroadsystemsthatlead to economic loss

•Damagestobusinessesand households due to economic loss

•Coastalcommunitieslose their homes

•Communitieslosetheirspaces

•Declineinfishcatch

•Impacttofisheriesindustry and local markets•Increaseoflivingcosts

P R I M A R Y I M PA C T S S E C O N D A R Y I M PA C T S

• Water-borneandmosquito-borne diseases

• Damagestoproperty and infrastructure

• Heatstrokeamongst the elderly

• Declininginlocalfood supplies

• Declininginwater availability

• Declininginharvestyield• Localfoodsscarcityand

impacting poor communities• Waterscarcitythatleadsto

increasing water price• Disruptiontotheeconomy• Newmigrationfrom rural areas

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3 Climate change disasters and its impacts on Kupang

City, Kota Kita & UNDP-SCDRR, 2015

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Kupang faces an increase in extreme weather events, such as more intense rainfall in shorter rainy seasons (Faqih, D.J., and Geru, 2015). Extreme weath-er events lead to flooding in a number of locations. Meanwhile, shorter rainy seasons can dry water springs and lower water tables in wells (Kota Kita and UNDP-SCDRR, 2015). The climate projections that were undertaken in East Nusa Tenggara, suggested that City of Kupang will ex-perience fewer extreme dry seasons, as experienced by other areas in East Nusa Tenggara. On the other hand, however, this will result in more fre-quent extreme rainy seasons, a jump from once in 20 years to once in 10 years (Boer, Faqih, Perdinan & Situ-morang, 2015). The Climate Change Vulnerability Assessment of Kupang City unfolds the fact that hydro-meteorological hazards that are faced by the city, are high winds, coastal abrasion, flooding and landslides. The assessment also stated that City of Kupang is vulner-able to slow onset climate change di-sasters, such as droughts.

Increased droughts will reduce the availability of fresh water, which af-fects the access to drinking water for the city residents. Currently, 38% of the population of Kupang receive their drinking water through drinking water pipes. However, this water distribu-tion system is considered unreliable, as piped water is only received around two or three days a week.

MITIGATION AND ADAPTATION

SOLUTIONS FOR KUPANG CITY

T here are two sources of green-house gas emissions in Ku-pang: energy use (including

transportation and electricity) and city waste. The energy consumption of Ku-pang increases every year, whereby most of the electricity is produced by fossil fuel (coal and diesel) plants. The current rate of electricity use of Kupang and its vicinity has reached 55 MW.

55MW

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City waste is also a source of green-house gases, and to date, Kupang still practices open dumping in the land-fills. The volume of Kupang’s domes-tic waste is 382 m3/day, but only 268 m3/day is transported and disposed at the landfills. The followings are several climate change adaptation and mitigation measures that can be applied in City of Kupang:

M itigation actions: the use of energy efficient biomass stoves, use biogas digest-

ers as a substitute for kerosene, portable solar-powered water desali-nator, solar home system (SHS), 3R-driven waste management and waste banks, replacing street lights with energy efficient LEDs and installment of on-grid metering, expanding green open spaces, and monitoring of air quality from vehicular air pollution. These actions can be undertaken by the government, as well as the pri-vate sector and civil society. Adaptation actions: waste man-agement using the 3R principle (re-duce, reuse, recycle), composting, household-level urban farming, infra-structure for controlling flooding and landslides, coastal mangrove rehabili-tation and conservation, catchment area rehabilitation and conservation, ground water management through monitoring and licensing the use of ground water, clean water distribu-tion system during the dry season, fire prevention, empowering local econo-mies, empowering coastal economies, disaster area mapping and fire contin-gency planning, as well as empower-ing poor communities. However, these actions should be undertaken not only by the city govern-ment, but also as other actors.

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COSTOFCLIMATE CHANGE ACTIONS

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T he estimated cost for global climate change actions is widely varied. For mitigation

actions, the incremental cost required until 2030 is around USD 265-565 trillion per year, while the projected cost for adaptation actions reaches up to USD 70-100 trillion per year between 2010-2050. The cost for implementing Nation-al Action Plan for Reducing Green-house Gas Emissions (RAN-GRK) as it is stated in Presidential Regulation No.61 year 2011, is expected to reach Rp. 244 trillion between 2010 and 2020.

mitigation actionsRAN GRK

2010 – 2020

IDR244 trilion

2030

IDR265–565 trilion

2010 – 2050

IDR70–100 trilion

adaptation actions

mitigation actions

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S E C T O R / S U B - S E C T O RR E Q U I R E D F U N D I N G( T R I L L I O N R U P I A H )

1. Economic resilience, including food security and energy independence

2. Livelihood resilience, including health, settlement and infrastructure.

3. Ecosystem resilience

4. Special area resilience, including urban area, coastal and small island areas

5. Supporting system

TOTAL

176.600,1

193.764,2

428.124,8

40.290,9

1.532,0

840.312,0

Sumber: National Planning and Development Agency (Bappenas)5

4 Syurkani Ishak kasim, Ph.D. Climate Finance: Experience from Indonesia. Badan Kebijakan Fiskal, Kementerian Keuangan. Presentaion on IESR FGD, March 31, 20165 Bappenas. Funding Institutions and Funding Strategies for Climate Change Adaptation Actions in Indonesia (Institusi Pendanaan dan Strategi Pendanaan Kegiatan Adaptasi Perubahan Iklim di Indonesia). Presentation on IESR FGD, July 26, 2013

S E C T O RK E Y A C T I O N S ( I N T R I L L I O N S O F R U P I A H )

S U P P O R T I N G A C T I O N S( I N T R I L L I O N S O F R U P I A H )

Forestry and peat-land

Energy and transportation

Agriculture

Industry

Waste

Others

TOTAL

94.654,18

48.357,89

36.804,07

1.000,00

44.709,33

-

225.525,47

6.955,54

2.286,10

882,10

1.290,00

4.949,52

2.129,26

18.492,52

Source: Fiscal Policy Agency, Ministry of Finance4

Tabel 2: Estimated cost to Implement National Action Plan on Emission Reduction (2010–2020)

Tabel 3: Estimated cost to Implement National Adaptatiom Plan (2010–2020)

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VARIOUS CLIMATEFINANCE

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Climate finance are available at three levels: international, national, and lo-cal. At the international level, these include the Global Environment Fa-cility (GCF), the Green Climate Fund (GCF), and the Adaptation Fund (AF). At the national level, in Indonesia case, there are financing through national budget, Indonesia Climate Change Trust Fund (ICCTF), as well as financing through private sector. While at the local level, financing may come from local budget, civil society organizations, private sector, and also other potential funds.

CLIMATE FINANCE AT

THE INTERNATIONAL LEVEL

Global Environment Facility (GEF) is available through a number of modali-ties: (i) Full-sized projects, with an investment value of over USD 2 mil-lion, which can be accessed by the Government and Civil Society Groups; (ii) Medium-sized projects, with an investment value of less than USD 2

million, which can be accessed by the Government and Civil Society Groups; (iii) enabling activities; (iv) activities with programmatic approach; and (v) through a Small Grants Program with maximum investment value of USD 50,000 per project. Green Climate Fund (GCF) is es-tablished as a fund under the Cli-mate Change Convention, that to date, holds the largest amount of fund amongst other climate change funds. The GCF operates through two windows of actions: emission reduc-tion (climate change mitigation) and increased resilience (climate change adaptation). The GCF has five invest-ment priorities that cover eight result areas, which serve as guidance for GCF to channel its funds. GCF funds can only be accessed by organiza-tions that have been accredited by the GCF, either through direct access or international access.

$

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Health,food and

watersecurity

Increasedresilience

of

Livelihoodsof people andcommunities

Ecosystemsand

ecosystemservices

Infrastructureand built

environment

Energygenerationand access

Reducedemissions

from

Transport

Forestand

land use

Buildings,cities,

industriesand

appliances

Climate-compatible cities

Sustainablelow-emission climate-resilient agriculture

Scaling up finance for forest and climate change

Enhancingresilience in small island developing States (SIDs)

Transforming energy generation and access

Source: Green Climate FundFigure 1: GCF’s Investment Priorities and Results Areas

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Figure 2: Financing through national budget 6

6 Center for Climate change Funding and Multilateral Policy, Badan Kebijakan Fiskal,Kementerian Keuangan. Presentation on IESR FGD on August 18, 2015.

The Adaptation Fund (AF) is an in-ternational funding mechanism that are directly allocated for climate change source of actions, in the form of fund. However, similar with GCF, only organizations that are accredit-ed by the Adaptation Fund, that can access the fund.

CLIMATE FINANCE AT

THE NATIONAL LEVEL

There are three sources of climate fi-nance at the national level: financing that are based on the budget of the national government, trust funds, and other funding organizations, such as PT SMI (Sarana Multi Infrastruktur), a state owned enterprise.

TotalGrant

SOURCE OFFUND

Local transfer

LocalGovernment

Authority

RECORDINGIN THE

NATIONAL BUDGET

FINANCIALINSTRUMENT

DEFININGALLOCATION

Trust Fund

Loan

Income from Tax

Country Non-taxIncome

Other Income

Domesticand

InternationalIncome

Loan

Forwarded Grant

Local Grant

SpecialAllocation

Fund

PerformanceIncentive

fund

Foreign Grant

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Source: ICCTF

Fund Transfer

Agreement Register /

Open Account

ICCTF(BAPPENAS)

Implementing CSO / University / Private*

Beneficiaries:LocalGovt

Beneficiaries:Line

Ministries

Beneficiaries:Local

Community

Ministryof

FinanceDONORS

BANK MANDIRI(Fund Manager)

Figure 3: Funding through the Indonesia Climate Change Trust Fund (ICCTF)

Fund Transfer

Gol MECHANISM

Execution

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7 PT Sarana Multi Infrastruktur: Climate Change Funding for Cities. Presentation on IESR FGD, July 18, 2016

LOCAL GOVERNMENT NEEDS ON INFRASRUCTURE

‘FINANCING FOR LOCAL GOVERNMENT’ (financial closing)

LOCAL GOVERNMENTFINANCING

Direct financing to local government in accordance to the priority infrastrucutre project at the local level

INCREASING THE CREDIT WORTHINESS OF LOCAL INFRASTRUCTURE PROJECT

SERVICES FOR LOCAL

INFRASTRUCTURE

DEVELOPMENT

Technical assistance and support to the local government to increase their capac-ity and the project readiness including through training, capacity building, proj-ect selection and prioritization, developing the financing modalities

• Supporttothelocalgovernmentindevelop-ing investment plan/project financing

• IntermsofPPPproject,PTSMIprovidessupports in the project preparation and as-sistance in the investment auction process

ASSISTANCE TO

ACCELERATE LOCAL

INFRASTRUCTURE

DEVELOPMENT

Figure 4 The role of PT SMI to increase the creditworthiness of local governmentand urban development

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Figure 5: PT SMI’s model of cooperation with international organizations in funding and

developing projects7

Refund/Donor

PTSMI

Structurethe project& manageTA Grant

TrainingCoordinator

Loan

PTSMI

PTSMI

Special/Esc. Account

REProjects

Assign forfund manager

Funddisbursement

Fund management

Fund

Loan/GrantLoanrevolving

Loan/TALoanrepayment

Co-financing

Refund/Donor

Refund/Donor

Loanrepayment

Loanrepayment

REProjects

REProjects

CO-FINANCINGMODEL INTERMEDIARY

FUNDMANAGEMENT

CAPACITYBUILDING

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Tabel 2: Regional tax and regional retribution of Kupang city

R E G I O N A L TA X A N D R E T R I B U T I O N E S T I M AT I O N ( R U P I A H )

Land and building tax / property tax

Ground water tax

Type C Extraction tax (sand, rocksand gravel)

Retribution Total (parking services, waste services, vehicle testing,septic-tank, etc.)

Street lighting tax

Rp. 6.5 billion (2016)

Rp. 120 million (2016)

Rp. 915 million (2016)

Rp. 7,522 million (2015)

Rp. 18 billion/year

CLIMATE FINANCE AT THE LOCAL LEVEL

APBDof

Kupangcity

(Local budget)

CivilSociety Groups

Cooperative

Self reliance

Privatesector

CSR

Bank credit

OthersTechnical AssistanceCrowd funding

FINANCINGCLIMATECHANGEACTIONS

INKUPANG

CITY

APBN(National Budget)

(70%)

Local revenue(27%)

Figure 6: Climate finance at the local level

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GAPSIN CLIMATE FINANCEININDONESIA

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GOVERNANCE

Governance at the city-level can be en-sured when there is a strong coordi-nation among intermediaries in chan-neling the fund for appropriate actions, which ideally would support the imple-mentation of low carbon and climate change resilient development efforts as planned by the regional government. To ensure its governance, an op-tion to have a specific body to manage the fund, can be an alternative. How-ever, this body should have its own mandate and capacity to manage and coordinate the climate change invest-ment in the area.

This body can be established by:1. Arranging the existing institu-tions and budgeting system as well as planning process that is used for regular development planning

2. Establishing a Trust fund

There are two options to implement this:1. By mainstreaming climate change into regional development planning, which will ensure the availability of funding at the local level. To do this, development planning must be based on science related to the potential cli-mate change impacts in the next 5, 10, and 25 years;

2. Financing from non-development budgets or other possible funding sources.

SUFFICIENCY

Although there are many sources for climate finance, the question now is whether those funding will be suffi-cient to support climate change ad-aptation, or to contribute to low car-bon development including climate change mitigation. The government of Kupang City, through its Drinking Water and Envi-ronmental Health Working Group, has projected the estimated cost required by the City of Kupang to meet the water and sanitation needs until 2020.

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Billion

s of

Rup

iahs

120

100

80

60

40

20

02015 2016 2017 2018 2019

Year

Drainage Garbage Wastewater management

F U N D I N G R E Q U I R E M E N T F O R S A N I TAT I O N I N K U PA N G C I T Y

Funding gap Required funding Available funding (regional budget)

F U N D I N G G A P F O R S A N I TAT I O N I N K U PA N G C I T Y

Billion

s of

Rup

iahs

Year

2015 2016 2017 2018 2019

120

100

80

60

40

20

0

-20

Figure 7: Funding requirement for sanitation in Kupang city

Figure 8: Funding gap for sanitation in Kupang City

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EFFECTIVENESS

The effectiveness of climate fi-nance can be ensured through climate change policies at the city level, as well as at the sec-toral level. At the city level, the City government needs to have a framework to integrate climate change in medium-term devel-opment planning, where admin-istrative borders are recognized and there are supporting regu-lations to implement the mitiga-tion and adaptation actions in the City development. The vul-nerability assessment and city action plan for climate change will help the process of integrat-ing climate change into regional development planning.

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1. Program proposals/activities can be implemented and to support regional development to create low emission development and at the same time be sustainable. The proposal must be drafted accord-ing to regional needs.

2. To access funding at the inter-national level, entities that are seeking funding access, must have robust fiduciary standards and environmental and social safeguards as part of the institu-tions’ modalities.

ALLOCATION OF

CLIMATE FINANCE

Climate finance allocation is closely related with existing clear definition on climate finance, especially at the city level. This will help the city to sort through funding sources, which one that is allocated for climate change activities and which one that is not. Climate change funding is not limited only to those provided or used by the central government, but also by other actors, such as civil soci-ety, regional governments, academia, and private sector. Several needs that are identified, including funding for climate activities and capacity de-velopment, especially in developing feasibility studies and vulnerability assessments.

ADDRESSINGTHE GAPINCLIMATEFINANCE

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ACCESS AND MOBILIZATION

OF CLIMATE FINANCE

There are various sources of climate finance at the local level, one of the programs is required by state-owned enterprises and other private sector companies, in the form of Corporate Social Responsibility (CSR). However, there have yet to be regulations that mandated state-owned enterprises to mobilize funding for CSR activities. In order to access this funding, there are a number of requirements that po-tential applicants must meet:

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REPORTING AND MEASURING

THE IMPACT OF CLIMATE FINANCE

To report and measure the impacts of climate finance, a robust system for monitoring, reporting and verify-ing (MRV), is required to be in place. This MRV can be established once there is a clear definition on what is climate finance, as well as the types of activities that can be supported by the fund. There must also be an agreement on which funding sources that can be considered as climate fi-nance. For example, it must be agreed whether CSR funding or funds from Civil Society Organizations for climate

change activities can be considered as climate finance. Or, whether climate finance is only limited to government sourced funds. It is expected that MRV will also include clarity on definitions, and clear information on the types of activities, funding sources, and who will implement the activities. The sys-tem can be established at the national level as a framework, however the city government can also modify the sys-tem that suits their conditions.

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STUDY

RECOMMENDATIONS

ON CLIMATE

CHANGE

FUNDING FOR

KUPANG CITY

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T his study recommends City of Kupang to establish a financ-ing institution in forms of a

trust fund, where all of potential cli-mate finance in Kupang City is col-lected. This institution will manage all incoming funds, allocate them, and do monitoring, reporting, and verify the use of the fund.

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Figure 5: How the Kupang Climate Change Trust Fund will support climate changefunding for cities

Project ProposalBankable Project

Proposal

DAK APBD APBN Bank

Rev

olvi

ng F

und

FSStudy/Pre FS Detail FS

TECHNICAL ASSISTANCE FACILITY

KUPANG CLIMATE CHANGE TRUST FUND

Adaptation/ResilienceWindow (30%)

Mitigation Window(40%)

Project Development(30%)

Sm

all

Gra

nt

Cap

acit

yB

uild

ing

Sm

all

Gra

nt

Cap

acit

yB

uild

ing

Tech

nica

lA

ssis

tanc

e

Small scale renewable electricity, Clean cooking fuel & technology, Energy

efficiency, Urban land use, waste management

Pre-FS, FS,Technical studies

NGO Community Private LGUs

Figure 4: Activities that can be funded by Kupang Climate Change Trust Fund

Increase local resiliency on CC, CC adaptation

on food & water, Climate related disaster prevention

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This case study is part of the study “Exploring Innovative Ways of Financing for Climate Compatible Development in Asian Cities” conducted in three countries; the Philippines, India and Indonesia. Case study in City of Kupang, is a col-laboration between Institute for Essential Services Reform (IESR) and Perkumpulan Pikul, Kupang.

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Institute for Essential Services Reform(IESR)

Mampang Prapatan VIII.Komplek Bappenas No R-13Jakarta, 12790, IndonesiaTel. +62-21-7992945Fax +62-21-7996160Facebook: IESR IndonesiaTwitter: @IESRe-mail: iesr@iesr.or.idwebsite: www.iesr.or.id