Technical Cooperation Project for Capacity Development for Green Economy Policy in Indonesia Research on Green Urban Development

Penulis: Pusat Kebijakan Pembiayaan Perubahan Iklim dan Multilateral

Japanese government implemented assistance to support Indonesian government’s actions against climate change. One of the projects is called “Project for Capacity Development for Green Economy Policy in Indonesia”, implemented from June 2014 to October 2015, to mainstream the climate change policy in the fiscal policy, and to develop capacity for fiscal policy making for climate change. The study aims to assist “strengthening Fiscal Policy Agency (FPA)’s planning capacity for the fiscal and financial policy to promote green city (environment friendly cities)” as the component of the capacity development project, particularly the issues and challenges for energy efficiency policy implementation.

In addition, the objective of the study is to seek fiscal policy options that are applicable in promoting energy efficiency, particularly for office buildings and household appliances. To propose fiscal and financial policy to promote EE&C, existed policy and regulations need to be identified. The study also classifies current situation of policy and regulations related in two sector, public sector and private sector. In public sector, government of Indonesia (GoI) has committed in reducing greenhouse gas (GHG) under Presidential Regulation No.61/2011 concerning National Action Plan for Greenhouse Gas (RAN-GRK). The national targets are further elaborated in the Local Action Plan for GHG Emission Reduction (RAD-GRK) for each provinces to set their local targets and action plan for emission reductions by 2020.

The study focus on availability of fiscal policy options in energy efficiency for office buildings and household appliances, namely air conditioners (AC) split and refigerator. There are some EE&C programs that have been enacted both in public sector and private sector, e.g. EE Labelling Program for CFL (compact fluorescent lamp). In addition, MEMR will establish EE Labelling Program & Minimum Energy Performance Standard (MEPS) for split AC and refrigerators in 2015.

To promote EE&C, there is an effective tool for the regional and municipal governments to achieve their individual RAD-GRK goals, which is ESCO (Energy Services Company). ESCO is a company which provides a service resulted in EE&C. ESCO business model assists public sector in equipment replacement and facility renovation and the pay upfront costs for the equipment. However, the ESCO scheme has not been extensively applied with the private sector.

Incentive distribution is also considered as an important factor to promote EE&C. The existed incentives today such as free energy audit to office buildings and industries provided by MEMR since 2003 and tax reduction for renewable energy (RE) governed in Ministry of Finance (MoF) Regulation No. 21/PMK.011/2010. Nonetheless, there are several issues and barriers related to the incentive, among others lack of awareness of the incentive schemes as the information on incentive scheme is not readily available and thoroughly explained to building managers and consumers. It will also caused lack of information dissemination of the results of using the incentive schemes.

Related to green buildings, Green Building Council (GBC) Indonesia is a sole organization accredited to certify green building as per the Ministry of Environment Decree on Green Building Certification Organization No.8/2012. GBC Indonesia has developed a rating system called “Greenship” for both new and existing buildings based on their sets of standards and evaluation methods. However, the problem is only the Government of Special District of Jakarta introduces a regulation on green buildings and also there is no incentives given to motivate the private sector.

EE&C financing is needed to promote the program. OJK (Finance Service Authority) has “Sustainable Financing” to stabilize the exchange rate through the fuel import reduction by RE and EE&C promotion. The alternative financing is leasing EE&C equipment although its application is still limited. In financing sector, the barriers are constraint in long-term financing, lack of incentives for the banking sector, and lack of incentives for the leasing sector.

This study also contains EE&C promotion policy review, both incentives and regulation, in other countries. There are review of policy provided by Japan, Malaysia, Thailand, Vietnam, and others. In Japan, there are various incentives provided for EE promotion, such as subsidies of 3% or 5% for lease fee of low carbon equipment, low interest loan to promote EE Investment, and incentives to green buildings. Furthermore, in Malaysia there is mandatory law to large energy consumers to appoint an accredited electric energy manager and make regular energy audit. Some of the financial incentives provided are low interest loan program, tax incentive to producers of EE products tax incentive to EE&C projects by energy users, and investment tax allowance and exemption of stamp duty to green building certificate holders. Thailand also has the EE standards which is a labelling program for AC and refrigerator. Meanwhile in Vietnam, the labelling system has been introduced by the government for home appliances such as fan, lamps, and AC in 2013. Although, there is no financial incentives are provided for EE home appliances in Vietnam.

By above review of current situation related to the EE&C development in Indonesia and also EE&C promotion policy in other countries, this study furthermore propose the fiscal and financial incentives to promote EE&C for office buildings and households in Indonesia. The incentives proposed will be targeted to both public and private sector, and also to various appliances such as AC, solar insulation, and refrigerator. Hence, the incentive options are distinguished for applicable appliances in private sector and households. For the private sector, the study differentiates incentives for listed companies and non-listed companies.

The recommendation for split AC (listed companies) is there are 2 kind of incentives to be considered, which are developing promotion of lease and VAT exemption/reduction, both new and existing regulation. Meanwhile, for split AC (non-listed companies), the recommended incentives are rather similar, which are VAT exemption/reduction and direct subsidies (EcoLease). The incentives offered for mid-large sized AC (listed companies) are mostly proposing new incentives such as promotion of lease, import duty and VAT exemption/reduction, and low interest loan. In line with the previous recommendation, this study provides incentives for midlarge AC (non-listed company), which are generating new incentives like import duty and VAT exemption/reduction as well as strengthening the existed regulation of low interest loan and guarantee.

Incentive for heat reflective glass is one of the recommendations provided by this study. The most recommended option is to develop, both new and existing, the regulation of VAT exemption/reduction. Based on the study, the most recommended incentives for PV Power Generation are promotion of lease and low interest loan. Furthermore, to promote EE&C in Indonesia, this study also consider development of green building. The most recommended options for green building are developing incentives land/building tax reduction/exemption, strengthening existing regulation concerning guarantee of green building.

Not only providing recommendation for private sector, but also does this study contain incentives options for household. For split AC in households, the recommendation is to implement VAT exemption/reduction. In addition, for refrigerators in household, the recommendation is identical with incentive for split AC, which is to implement VAT exemption/reduction.

The identified incentive options will be further recommendations to establish effective fiscal and financial incentives to promote energy efficiency and conservation policy in energy intensive cities.