By: Adi Prasetijo & Pia Buschman (2014) – Indonesia Center for Sustainable Development

Green Budgeting

Within the region of South-east Asia, Indonesia is one of the most vulnerable countries to multiple climate change hazards like drought, floods, sea-level rise and landslide. These aspects of a warming climate will have a negative impact on food security, water resources, coastal areas, forests, marine biodiversity, farming and coastal livelihoods, and health, disproportionally affecting the poorest Indonesians. Climate change has a strong influence on the economic development of Indonesia, representing the highest potential cost to the economy in a long-term perspective. By the end of the century these costs mount up to annual losses of between 2.5 and 7.0 percent of GDP. Generating almost 10 percent of the total sum of the world’s greenhouse gases, Indonesia represents the second largest greenhouse gas emitter among developing countries in the region and one of the world’s leading emitters. The main sources of the Indonesian emissions represent illegal logging, forest fires, and peatland degradation (World Bank, 2009).

Meanwhile, the Indonesian Government has committed to reducing the country’s CO2 emissions by 26 percent against a business-as-usual trajectory in 2020. This ambitious aim, depicting the largest absolute reduction commitment by any developing country, is supported by Norway with up to 1 billion US dollars within the framework of the countries’ partnership on REDD (Reducing Emissions from Deforestation and Forest Degradation). The money will be spent on completing a national REDD+ strategy for Indonesia. It will be distributed over a seven or eight years period with most of the funds being tied to verified emissions reductions by Indonesia (Royal Norwegian Embassy in Jakarta, 2009).

Against this background one of the major challenges is to control that the released budget to cut CO2 emissions is used as it has been planned. This is where Green Budgeting, a tool that facilitates Environmental Policy Integration (EPI), can be applied to solve the problem. Generally, Green Budgeting can be understood as a “ […] process whereby the three dimensions of sustainable development [economic growth, ecological balance and social progress] are fully integrated in one single policy/ [budget] document.” Further, a Green Budget has the function to consistently and comprehensively analyse government expenditures and revenues to bring about true sustainable development. Prominence is given to non-economic targets such as the percentage of carbon emissions that the government expects to reduce in a given year (Inter-Parliamentary Union [IPU], 2006). Green Budgeting has its roots in the model of a Green Economy and the concept of sustainable development. The first impetuses for Green Budgeting posed the Brundtland Report and Agenda 21 that stress the need to `ensure the coherence of sectoral, economic, social and environmental policies, plans and policy instruments, including fiscal measures and the budget´ [UN 1992: Chapter. 8,4 (e)]. Green budgeting can be also seen as being embedded in the new economic development model of a Green Economy, which is opposed to the current `black´ economy model that relies on fossil fuels. The Green Economy is based on the theory of ecological economics that focuses on the interdependence of human economies and natural ecosystem and the adverse impact of human economic activities on climate change (United Nations Environment Program [UNEP], 2008).


Inter-Parliamentary Union [IPU] (2006): Explanation. Green Budgeting. Retrieved from:

PEACE (2007): Executive Summary: Indonesia and Climate Change. Working Paper on Current Status and Policies. Jakarta.

State Ministry of Environment (2007): National Action Plan Addressing Climate Change. Retrieved from:

Wilkinson, David et al. (2009): Green Budgeting. In: Innovation in Environmental Policy? Integrating the Environment for Sustainability. Cornwall.

World Bank (2009): Investing in a more sustainable Indonesia. Country environmental analysis 2009. Report No. 50762 – ID. Jakarta.