Partnership for Market Readiness

Problem Identification

Climate change is one of the major challenges Indonesia is facing in the coming decades. Consisting of over 13,000 islands with low-lying coastal areas prone to floods, arid lands, a fragile mountainous ecosystem and a dense population, Indonesia is highly vulnerable to climate change. The country is also a significant contributor to greenhouse gas (GHG) emissions, which continue to increase rapidly not only because of a growing population, but also because of the increasing economic growth. Indonesia’s main GHG emissions come from land use (63%), followed by emissions from the power sector and the industry sector which are estimated to be around 23% of the total national GHG emissions.

The Government of Indonesia has introduced several initiatives to reduce the dependency on fossil fuel as well as the associated GHG emissions: Increase the share of renewable energy in the primary energy mix with 23 % by 2025, and reduce the national energy intensity by 1% per annum during 2015-2025. To further reduce GHG emissions and contribute to the global emission reduction target of the Paris Agreement, the Government has set the target of making voluntary GHG emission reductions of 29% against a business-as-usual scenario using domestic resources, and reaching up to 41% with international support by 2030.

However, there are several barriers to climate change mitigation efforts in Indonesia such as limited public funding, limited operational capacity of existing institutions, lack of climate change awareness, lack of political support and ownership insecurity regarding mitigation programs and actions.

Putting a price on carbon is an approach taken by many countries or regions to combat similar abovementioned barriers. GHG emissions reductions in the form of carbon credits can be used to meet climate commitments while simultaneously contributing to low-emissions economic development. Market-based instruments such as Emissions Trading Schemes (ETS) and carbon offset systems, together with fiscal instruments such as carbon tax, form carbon pricing where GHG emissions are economically valued to encourage emissions reduction.



What We Do

The Partnership for Market Readiness (PMR) is a platform designed to specifically help countries prepare for market-based policy choices and future implementation. Funded by the World Bank through the PMR Programme, Indonesia is implementing the project Partnership for Market Readiness Indonesia during the period 2017-2020. The project is being implemented by UNDP Indonesia in collaboration with the Coordinating Ministry of Economic Affairs (CMEA). Other government stakeholders include the Ministry of Environment and Forestry (KLHK), the Ministry of Energy and Mineral Resources (ESDM), the Ministry of Industry (MOI), the Ministry of Finance, BAPPENAS, as well as the state-owned electricity enterprise, PLN, and industry associations.

The project focuses on supporting the government of Indonesia to establish a market-based instrument in Indonesia for reduction of GHG emissions. The project’s ultimate goal is to enable cost-effective mitigation actions in the energy sector, particularly in power generation and energy-intensive industry. This will be achieved through the development of GHG emissions profiles and monitoring-reporting-verification (MRV) systems in power generation and energy-intensive industries; and the development and piloting of a framework for a market-based instrument.

The project is being implemented through 5 components:

1.          Development of Comprehensive Emission Profile for Power Sector and Energy-Intensive Industries.

2.         Development of MRV System Framework for Power Sector and Selected Energy-Intensive Industries.

3.          Piloting the MRV System for Power Sector and Selected Energy-Intensive Industries.

4.         Development of Market-Based Instruments Framework.

5.          Communications, Campaign and Awareness Raising.


Key Achievements

Since it started in 2017, the project has initiated intensive discussions involving key government stakeholders as well as the power and industry sectors. Since then, PMR has become a national multi-stakeholder platform in carbon pricing related issues in Indonesia and has been holding intensive technical discussions since 2017. During the 2.5 years of the project, the PMR has, with support from the World Bank, provided assistance to the Coordinating Ministry of Economic Affairs (CMEA) and other sectoral ministries in enhancing the government’s capacity and readiness to implement market-based instruments (such as cap and trade, carbon tax, energy efficiency certificates and renewable energy certificates, etc.).

The project has made several important achievements such as:

•       Development of a Comprehensive GHG Emissions Profile for Power Generation Sector and Energy-Intensive Industries

•       Development of the online GHG emission reporting system for power generation sector as well as guidelines for monitoring, reporting and verification (MRV) of GHG emissions for power and industry sectors.

•       Development of a Framework for Policy Options for Market-Based Instruments in Indonesia

•       Establishment of an Effective Collaboration and Engagement of Private Sectors

During its program implementation, PMR has engaged stakeholders at national and sub-national level, ranging from ministries, academia, NGOs, project developers, industry associations, and the private sector.

•       PMR has also produced policy briefings, technical papers and other reports/publications related to market-based instrument options for Indonesia.

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