As one of the metropolitan areas with the highest population density in the world, Jakarta has experienced many climate challenges. Jakarta is commonly known as the “world’s fastest sinking city” (World Economic Forum, 2018), as about half of the city is located beneath sea level, with some neighborhoods sinking as fast as nine inches per year. Some of the root causes of this sinking are (i) groundwater exploitation—Jakarta has low water levels for drinking and other everyday purposes so the citizens have to resort to pump water from aquifers that are deep underground, (ii) poor city planning—growth of urban population increases demand and reliance for ground water and (iii) climate change that caused accelerated sea level rise, increase of rainfall intensity, and continuation of extreme weather, which leads to increased flood risks. Meanwhile, Jakarta is committed to reduce Greenhouse Gas emissions by 30% in 2030 from current business as usual 35 MT CO2e, thus significant funding is required to achieve this target.
Despite the existing climate risks and the ambitious 2030 GHG emission reduction target, only 8.6% of Jakarta’s municipal budget went to environment-related spending in 2017 and 2018, despite its strong fiscal capacity. Playing several roles as the national capital, a central place of control for the national economy, Jakarta can generate more revenue annually, as compared to other municipalities in Indonesia. Its climate related commitments are also included in the regional action plan for the Sustainable Development Goals (SDGs), namely the 2017-2022 RPJMD. Furthermore, the fiscal space allows Jakarta to initiate the necessary climate related projects, with alignment and coordination at the national and sub-national level, to achieve climate targets. However, no previous research has tracked Jakarta’s investment in climate finance. This case study is a first-of-its-kind attempt to track public and private urban climate investment flows in Jakarta. Climate finance tracking helps to identify key sources of funding for urban climate projects, providing stakeholders with better insights into the type of climate financing (in both adaptation and mitigation) and supports government agencies in formulating policy guidance.
The key findings are:
- The total tracked urban climate finance commitments in Jakarta stood at USD 44.9 billion (or IDR 652.4 trillion) across 37 projects during the 2015-2019 period. The majority of the tracked commitments were allocated to infrastructure projects. The Giant Sea Wall, a multi-year adaptation project that was later discontinued due to controversy, alone accounted for 83% of these commitments.
- Public finance dominated the landscape of urban climate finance in Jakarta in the 2015-2019 fiscal year period, with most of the large-scale climate infrastructure projects in the city are initiated and funded by the central government. Government budgets for the capital expenditure of infrastructure projects, sourced both from the central and local governments, with central government dominating 57% of funding. Mitigation projects such as sustainable transportation, are mainly funded using debt finance, with sum of USD 2.7 billion (or IDR 39.2 trillion), while adaptation projects are usually funded by equity finance. Given Jakarta’s strong economic position, the city is actually able to access large public climate investments using catalytic financial instruments and approaches, such as investment risk-sharing agreements and Public-Private Partnerships (PPP), but has not fully tapped into its potential to do so.
- Jakarta has untapped potential to secure financing for climate projects. Private finance only accounted for 2% of total climate finance in Jakarta, which is USD 925 million (or IDR 13.4 billion), flowing to climate activities in Jakarta between 2015-19, with 89% using balance sheet debt. A city with a lot of commercial projects, Jakarta is currently underutilizing the potential to attract private finance. Based on our tracking results (see Section 1.3), Jakarta has not accessed any loans from financial institutions in 2017 – 2018. While it is desirable to have minimum liabilities, it also shows that Jakarta has significant room to increase its ambition and leverage its strong fiscal capacity, both from its own budget and from central government support, to attract and mobilize private finance to invest to Jakarta’s climate actions using innovative financing schemes.
Based on the findings, the key recommendations for Jakarta to accelerate the quantity and effectiveness of urban climate finance are: (i) to have a more explicit and clear alignment of Jakarta’s climate priorities with both the national government and Jakarta’s satellite cities. To date, Jakarta’s climate priorities are not explicitly aligned with its surrounding cities’ climate priorities. Jakarta has the position to spearhead this change to mobilize other public and private actors to collectively achieve wide impacts. Being the center of Indonesia’s government and economic activity, Jakarta would gain from an integrated collective approach to tackle climate change involving related stakeholders, including the national and neighboring cities as project owners and policy makers, as well as the related sectors, i.e. infrastructure, transportation, and energy. An integrated collective approach is also important to (ii) develop an improved climate policy framework integrating climate budget tagging and enhanced strategies to scale up catalytic financing for climate investments to help mobilize climate finance by identifying the financing gap between commitments and realizations and to ensure systematic coordination and collaboration between Jakarta and its satellite cities. Such a climate policy strategy is urgently needed so that Jakarta is able (iii) to scale up catalytic and innovative financing models and leveraging municipal budgets to mobilize private investment, given that Jakarta is yet to fully leverage its strong fiscal capacity to attract private sector financiers. Mobilizing private finance is one of the key strategies in anticipation of the stripping of capital city status from Jakarta that may result in less financing to Jakarta from central government, in the future.