Environmental costs assessment for improved environmental-economic account for Indonesia

Abstract

The overall purpose of this study is to assess priorities for new environmental accounts in Indonesia. We use environmental costs related to air pollution and resource extraction in Indonesia as a measure for priority. This study uses the damage costs approach to estimate the environmental degradation costs value and the Net Present Value (NPV) approach to obtain the environmental cost of natural resources depletion of several natural resources that are most important for the Indonesian economy. Our estimate of the total environmental costs amounts to around 13% of GDP in 2010. Environmental costs are mostly due to depletion of energy and mineral resources, followed by environmental degradation cost from air pollution, and the use of forestry resources and related depletion of ecosystems. The Indonesian Central Bureau of Statistics (BPS) has already published damage costs data related to resource depletion, which we find is a priority. However, the BPS should consider completing its data with additional information on the depletion costs of ecosystem services related to forestry. Moreover, the BPS could expand Indonesia’s economic-environmental accounts by including environmental degradation costs due to air pollution. We found that from a substance perspective, the priorities are SOx, NOx, CO2, CH4, and particulate matter. At the same time, from a sector perspective, the priorities are electricity, manufacture of basic iron and steel and of ferro-alloys and first products thereof, mining of coal and lignite, and extraction of peat, because if the national accounts included the external costs of air pollution and the depletion of natural resources, these sectors would create a negative value-added.