Financing the Green Transformation: How to Make Green Finance Work in Indonesia

188 Pages·2015·1.46 MB·English

by  Ulrich Volz, Judith Böhnke, Vanessa Eidt, Laura Knierim, Katharina Richert, Greta-Maria Roeber (auth.)

F inancing the Green Transformation
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F inancing the Green
Transformation
H ow to Make Green Finance Work in
Indonesia
U lrich V olz
S enior Lecturer in Economics, SOAS, University of London, UK & Senior Research
Fellow, German Development Institute, Germany
J udith B öhnke
E conomist, KfW Development Bank, Germany
V anessa E idt
E conomist, KfW Development Bank, Germany
L aura K nierim
E conomist, KfW Development Bank, Germany
K atharina R ichert
L ecturer, Department of Economics, University of Heidelberg, Germany
a nd
G reta-Maria R oeber
F inancial Sector Expert, Financial Systems Development Competence Centre, GIZ
German Technical Cooperation, Germany
© Ulrich Volz, Judith Böhnke, Vanessa Eidt, Laura Knierim, Katharina Richert and
Greta-Maria Roeber 2015
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F irst published 2015 by
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ISBN 978-1-349-69520-1 ISBN 978-1-137-48612-7 (eBook)
DOI 10.1007/978-1-137-48612-7
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C ontents
L ist of Boxes v ii
L ist of Figures v iii
L ist of Tables i x
A cknowledgements x
L ist of Abbreviations x ii
1 I ntroduction 1
2 F inancing the Green Transformation – Market Failures,
Government Failures and the Role of the State 7
2 .1 T he economic rationale for public intervention –
addressing the obstacles to green finance 7
2 .1.1 Market failures 7
2 .1.2 Government failures 1 2
2 .1.3 Balancing public and private interest 1 4
2 .2 M easures and instruments to enhance
green finance 1 6
2 .2.1 Creating a conducive policy framework 1 6
2 .2.2 Extending the supply of green finance 1 7
2 .2.3 Fostering the demand side 1 9
3 T he Green Transformation in Indonesia 2 2
3 .1 The need for a green transformation 2 2
3 .2 Policy goals and initiatives 2 7
3.2.1 Policy goals 27
3.2.2 The National Action Plan 29
3.2.3 Energy conservation policies 32
3.2.3 Further environmental regulations 34
3 .3 E mission reduction potentials, investment needs
and financing sources 3 6
3 .3.1 Potential GHG emission reductions in the
energy sector 3 6
v
vi Contents
3 .3.2 Investment needs 4 0
3 .3.3 Potential sources of green finance in
Indonesia 4 9
4 E mpirical Analysis of Supply of and Demand for
Green Finance in Indonesia 5 6
4 .1 Supply side: bank survey and interviews 5 7
4 .1.1 Methodology: sample selection, hypotheses
and questionnaires 5 7
4 .1.2 Findings 5 8
4 .2 Demand side: company survey and interviews 7 0
4 .2.1 Methodology: sample selection, hypotheses
and questionnaires 7 0
4 .2.2 Findings 7 6
4 .3 Summary of findings 9 2
5 P olicy Recommendations 9 5
5 .1 A three-phased approach to fostering green finance 9 6
5 .2 Defining green finance 1 02
5 .3 Capacity building 1 05
5 .4 Energy service companies 1 07
5 .5 Soft loan schemes 1 09
5 .6 Credit guarantee scheme 1 13
5 .7 Utility finance 1 16
5 .8 Vendor financing 1 17
5 .9 Summary 1 18
6 Summary and Conclusions 1 20
A nnex 1 24
N otes 1 59
R eferences 1 62
I ndex 1 73
L ist of Boxes
3 .1 P olicies and strategies to reduce emissions in
energy, transportation and industrial sectors 3 1
3 .2 E lectricity price structure in Indonesia 3 4
3 .3 I ndonesia’s power system 3 7
3 .4 P olicies, actions and instruments for the
energy sector 4 7
5 .1 I mplementation of a green banking policy by
Bangladesh Bank 9 9
5 .2 R isk categorisation and managing portfolio risk 1 05
5 .3 T he Thai Energy Efficiency Revolving Fund 1 11
5 .4 K redit Usaha Rakyat credit guarantee scheme 1 14
vii
L ist of Figures
3 .1 G HG emissions (in trillion g CO2 e ) in Indonesia
by source, 2000 and 2005 2 3
3 .2 E nergy consumption in the industry sector
(in million barrel of oil equivalent) 3 9
3 .3 A sset composition of financial institutions
(as of June 2013) 5 2
3 .4 D omestic credit to private sector by banks
(% of GDP), 1980– 2012 5 3
3 .5 E quity, bonds and domestic credit (in billion
USD and as % of total), December 2000–June 2013 5 4
4 .1 G reen finance as a promising business area 5 9
4 .2 E xtension of green finance 6 0
4 .3 G reen finance working unit 6 1
4 .4 A vailability of qualified staff 6 2
4 .5 E ffects of environmental risks 6 5
4 .6 O pinions on regulatory framework 6 7
4 .7 O bstacles to green finance 6 8
4 .8 S upport from banking authority 6 9
4 .9 A wareness 7 7
4 .10 E nvironmental concerns 7 7
4 .11 E nvironmental investments 7 8
4 .12 C onditions to foster investments 8 0
4 .13 A ccess to finance 8 2
4 .14 O bstacles to credits 8 3
4 .15 R isks of an investment credit 8 3
4 .16 E lectricity expenses 8 5
4 .17 E ffects of an increase in energy prices 8 6
4 .18 S ubsidies and business competitiveness 8 6
4 .19 E nvironmental licenses 8 7
4 .20 B ottlenecks and recommendations 9 4
5 .1 K redit Usaha Rakyat credit guarantee scheme
disbursement, 2008–2011 1 15
viii
L ist of Tables
2 .1 T ypes of market barriers and measures that can
alleviate them 1 0
3 .1 R AN-GRK Priority sectors and envisaged action 3 0
3 .2 E mission reduction potential per priority sector 4 2
3 .3 T op countries for south-originating investment in
renewable energy infrastructure, 2004–2013 Q3 4 3
3 .4 A ctivities in the energy sector as put forward in the
Indonesia Climate Change Sectoral Roadmap 4 4
3 .5 E xamples of industrial technology available for GHG
emission mitigation in the industry sector 4 8
3 .6 I ndonesia’s sovereign ratings, August 2014 5 1
3 .7 N umber of financial institutions, 2013 5 2
4 .1 C ompany size and sample distribution per
sub-sector of firms participating in online firm
survey and interviews 7 5
4 .2 M ajor findings at the company level 9 1
ix