Launch of Green Budgeting Indicators


Posted : October 2, 2017

Mataram – The Government of Indonesia is committed to reduce carbon emission up to 26% from business as usual by 2020. To translate this into real action, the central government has issued the Local Government Action Plan to Reduce Greenhouse Gas Emissions (RAD GRK) as a reference for local governments’ development plans.

Local governments are encouraged to integrate green thinking principles into their annual budgeting exercise. This strategic step will influence budgeting and other development planning exercise to always take into account environmental concerns. Green budgeting is important to be implemented by local government to ensure that environmental concerns are considered when they are budgeting their annual expenditures and revenue-generating activities.

To support green budgeting implementation, MCA-Indonesia through the Institute for Economic and Social Research, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI) as one of the recipients of Green Knowledge Grant has conducted a study on the implementation of green budgeting by local government. In addition, LPEM FEB UI organized a series of capacity building training for government officials.

On September 12th, 2017, LPEM FEB UI has launched its study on Green Budgeting Indicators. The event was attended by provincial government agencies such as Department of Agriculture, Department of Animal Husbandry, Department of Energy and Mineral Resources, Department of Environment and Forestry, as well as academics from Mataram University.

The study elaborates the three indicators of green budgeting, namely efficiency, effectiveness and significance.

The first indicator, efficiency, aims to evaluate whether the amount of funds spent by a province to reduce one ton of carbon dioxide is higher or lower than the average amount spent by other provinces. If the efficiency indicator is below 1, the province is considered to have a less expensive unit cost to reduce carbon dioxide, compared with other provinces. Indicators less than 1 are considered to be efficient.

The second indicator is effectivity. This is measured to evaluate whether the level of emission reduction is in proportion to the economic activity in the area. Provinces with more robust economic activity are supposed to contribute more to reduce emission in their area. To evaluate effectivity, the key figures to assess are gross domestic product and population. If the effectivity indicator hits higher than 1, the area is considered able to reduce more emission in each economic activity, compared to other areas.

The third indicator is significance, which evaluates whether the budget allocation for mitigation is adequate. If the significance indicator is above 1, the province is considered to have allocated a significant amount of budget, more than the average of other areas.

The study by LPEM FEB UI concluded that green budgeting in Nusa Tenggara Barat (NTB) Province in 2013 reached 0.49 for efficiency. This means that NTB’s cost to reduce emission has been less expensive compared to other areas. NTB’s effectivity indicator for 2013 and 2014 are 1.48 and 1.47 respectively. This shows that NTB has managed to reduce more emission for each economic activity.

Looking at the ‘significance’ indicator, NTB has achieved a major progress in its green budgeting. In 2012, NTB’s significance indicator was 0.45. This figure increased to 2.06 in 2013.To conclude, NTB has improved its budgeting for mitigation and has allocated significant resources to reduce carbon emission.

The study by LPEM FEB UI also reveals that the local government’s understanding in green budgeting still has room to improve. Therefore, proactive action is required to sensitize officials regarding the terminologies of green budgeting. Several departments such as Department of Agriculture, Department of Animal Husbandry, and Department of Energy and Mineral Resources have correctly referred to the Provincial Action Plan on Greenhouse Gas Reduction but this understanding needs to be more widely shared to other departments. The launch of Green Budgeting Indicators is expected to serve as a reference for budgeting exercises in the future as well as a way to evaluate previous budgeting. (Intan Febriani/MCA-Indonesia)