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

Explores challenges for developing and emerging economies for enhancing green financing for sustainable, low-carbon investment, looking at Indonesia. Based on surveys in the Indonesian banking and corporate sectors and expert interviews, it devises innovative policy recommendations to develop a framework conducive to fostering green investments. Planetary boundaries and a scarcity of natural resources will require a significant boost of investment into clean and renewable energy and a more efficient use of resources in developing, emerging and advanced economies alike. In this context, the financial sector will have to play a key role in providing 'green finance' for sustainable investment and development. Against this backdrop, this book investigates the challenges for developing and emerging economies in enhancing green financing for sustainable, low-carbon investment, using Indonesia as a case study. Based on surveys in the Indonesian banking and corporate sectors and expert interviews, the book devises innovative policy recommendations for governments to develop a framework conducive to fostering green investments Cover 1 Half-Title 2 Title 4 Copyrights 5 Contents 6 List of Boxes 8 List of Figures 9 List of Tables 10 Acknowledgements 11 List of Abbreviations 13 1 Introduction 16 2 Financing the Green Transformation – Market Failures, Government Failures and the Role of the State 22 2.1 The economic rationale for public intervention – addressing the obstacles to green finance 22 2.1.1 Market failures 22 2.1.2 Government failures 27 2.1.3 Balancing public and private interest 29 2.2 Measures and instruments to enhance green finance 31 2.2.1 Creating a conducive policy framework 31 2.2.2 Extending the supply of green finance 32 2.2.3 Fostering the demand side 34 3 The Green Transformation in Indonesia 37 3.1 The need for a green transformation 37 3.2 Policy goals and initiatives 42 3.2.1 Policy goals 42 3.2.2 The National Action Plan 44 3.2.3 Energy conservation policies 47 3.2.4 Further environmental regulations 49 3.3 Emission reduction potentials, investment needs and financing sources 51 3.3.1 Potential GHG emission reductions in the energy sector 51 3.3.2 Investment needs 55 3.3.3 Potential sources of green finance in Indonesia 64 4 Empirical Analysis of Supply of and Demand for Green Finance in Indonesia 71 4.1 Supply side: bank survey and interviews 72 4.1.1 Methodology: sample selection, hypotheses and questionnaires 72 4.1.2 Findings 73 4.2 Demand side: company survey and interviews 85 4.2.1 Methodology: sample selection, hypotheses and questionnaires 85 4.2.2 Findings 91 4.3 Summary of findings 107 5 Policy Recommendations 110 5.1 A three-phased approach to fostering green finance 111 5.2 Defining green finance 117 5.3 Capacity building 120 5.4 Energy service companies 122 5.5 Soft loan schemes 124 5.6 Credit guarantee scheme 128 5.7 Utility finance 131 5.8 Vendor financing 132 5.9 Summary 133 6 Summary and Conclusions 135 Annex 139 Notes 174 References 177 Index 187 Front Matter....Pages i-xiv Introduction....Pages 1-6 Financing the Green Transformation — Market Failures, Government Failures and the Role of the State....Pages 7-21 The Green Transformation in Indonesia....Pages 22-55 Empirical Analysis of Supply of and Demand for Green Finance in Indonesia....Pages 56-94 Policy Recommendations....Pages 95-119 Summary and Conclusions....Pages 120-123 Back Matter....Pages 124-174